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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 1, 2000
|_| 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)
DELAWARE 04-1933106
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
941 Grinnell Street
Fall River, Massachusetts 02721
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(Address principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 678-1951
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES: |X| NO: |_|
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. |_|
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 13, 2000 was approximately $65.2 million.
As of March 13, 2000, 15,690,309 shares of Registrant's common stock, par
value $0.01 per share were outstanding.
Documents Incorporated by Reference
Description of document Part of the Form 10-K
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Portions of the Proxy Statement to Part III (Item 10 through Item 13)
be used in connection with the and Part IV
Registrant's 2000 Annual
Meeting of Stockholders.
1999 Annual Report to Shareholders Part II (Item 5 through Item 8)
Exhibit Index on Page 20
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PART I
ITEM 1. BUSINESS
Overview
Quaker is a leading designer, manufacturer and worldwide marketer of woven
upholstery fabrics for residential furniture and one of the largest producers of
Jacquard upholstery fabrics in the world. The Company is also a leading
developer and manufacturer of specialty yarns and management believes it is the
world's largest producer of chenille yarns, which Quaker both sells and uses in
the production of its fabrics. The Company's vertically integrated operations
provide Quaker with important design, cost and delivery advantages. The
Company's product line is one of the most comprehensive in the industry and
Quaker is well known for its broad range of Jacquard fabrics, including its
soft, velvet-like Jacquard chenilles. The Company's revenues in 1999 were $250.8
million.
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 1,000 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.
The Company sells its upholstery fabrics to over 3,000 furniture
manufacturers worldwide, including virtually every significant domestic
manufacturer of upholstered furniture. Quaker also distributes its fabrics
internationally. In 1999, fabric sales outside the United States of $39.2
million represented approximately 16.8% 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 $88.2 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 2000, Quaker plans to
spend approximately $8.0 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 six
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
and is setting up a marketing and warehousing operation in Brazil to further
expand its presence in Latin America.
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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. 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 $10.7 billion in 2000. 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 offer a broader range of product choices and
meet the volume and delivery requirements of the large furniture
manufacturers and retailers.
(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 softer, 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) Favorable demographic trends over the near term are expected to benefit
from continued strength of the domestic economy as well as a move by the
baby boom generation toward more upscale furniture as they approach
retirement age and additional demand generated by that same group's
purchases of vacation and retirement homes.
(vi) 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.
(vii) 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.
(viii) Fabrics entering the United States from China, India and other countries
with low domestic labor costs are resulting in increased price
competition at the lower end of the upholstery fabric and upholstered
furniture markets. In addition, competition in the middle to better-end
segment of the market is being affected by upper-end fabric imports from
Europe.
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 to the
promotional and middle to better end of the market by offering a wide variety of
fabric patterns at prices ranging from $2.50 to $35.00 per yard. Sales of the
Company's middle to better-end fabrics, which the Company first began
emphasizing in the early 1990s, have increased steadily and were $188.0 million,
or 80.8% of total fabric sales in 1999.
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. The Company's international sales were $39.2
million in 1999.
Penetrating Related Fabric Markets. Management believes the company's
styling and design expertise, as well as its ISO 9001-certified 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 Ankyra'TM' chenille yarns and fabric finishing abilities 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 80% 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 were $22.4
million in 1999. The company's current line of specialty yarns includes over 75
different varieties of spun and chenille yarns, and Quaker's yarn design
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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.
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.
Commitment to Customer Service. The Company is committed to offering its
customers the best overall service levels in the industry and in 1998 launched a
major internal supply chain management initiative intended to further that
objective.
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 $35.00 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 1999, the Company's promotional-end fabric
line and its middle to better-end fabric line had average gross sales prices of
$3.46 per yard and $5.35 per yard, respectively, compared to $3.44 and $5.05,
respectively, in 1998. The average gross sales price per yard of the Company's
fabrics was $4.84 in 1999, compared to $4.54 in 1998.
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
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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 give the fabric 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.
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 under its Whitaker'r' label.
Sales of the Company's middle to better-end fabrics have increased steadily and
were $188.0 million, or 80.8% of total fabric sales in 1999, with approximately
25.8% of those sales made under the Whitaker'r' label.
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 six 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
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the design staff's yarn requirements for the Company's next fabric line and many
of Quaker's proprietary yarns trace their origins to this design-driven process.
Quaker's engineering and manufacturing staffs also play a key role in the new
product development process by reviewing each proposed new product to evaluate
its impact on the Company's raw material costs, equipment utilization rates and
quality performance. Although some plain, striped and plaid fabrics remain in
the Company's product line for 10 years or more, a successful product typically
has a life of two to three years.
Quaker's design staff also regularly creates custom patterns for customers
seeking to differentiate their products for distribution purposes, hit a certain
price point at the retail level, or meet a particular styling need in the market
they serve. These patterns, which are not part of Quaker's "open line," are
known in the industry as "Specials."
Sales and Marketing
Upholstery Fabrics
Net fabric sales during 1999 were $229.0 million, or approximately 91.3%
of the Company's net sales. The Company sells its upholstery fabrics to over
3,000 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 45% of 1999 net sales.
None of the Company's customers accounted for more than 5.4% of net sales during
1999.
The Company uses a direct marketing force of 22 sales representatives,
four of whom are based in Mexico, 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, Central and South America, Africa and Asia. During
1999, Quaker added new exclusive sales agents in China, Poland, England, and
Dubai and opened a new sales office in the United Arab Emirates. All agents
located outside the United States are supervised 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, China, 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 16.8% of Quaker's gross fabric sales during 1999.
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
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Carolina; and Verona, Mississippi. The Company is setting up a new distribution
center in Brazil, which it plans to open during Spring 2000.
Specialty Yarns
Net yarn sales during 1999 were $21.8 million, or approximately 8.7% of
the Company's net sales. The Company designs, manufactures and markets several
types of specialty yarns, including fancy spun, fancy twisted 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, are responsive to consumer demand for softer, more casual home
furnishings and apparel. The Company's specialty yarns are sold under the name
of Nortex Yarns to manufacturers of home furnishings products, principally
weavers of upholstery fabric, throws, afghans and other products, as well as
manufacturers of sweaters and other apparel. The Company has approximately 55
yarn customers.
Management believes the technical expertise of Quaker's yarn development
staff provides the Company with an important competitive advantage by enabling
Quaker to create and market innovative specialty yarns to meet its customers'
styling and performance criteria. For example, the creation of Quaker's line of
Ankyra chenille yarns was an important product breakthrough for both Quaker and
its yarn customers. Historically, chenille yarns have had difficulty meeting the
durability standards required for use in fabrics which are likely to be
subjected to heavy wear, such as car seats and certain home furnishings
products. Quaker's yarn development staff created a finished chenille yarn with
superior abrasion resistance, and the 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 six
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. Some
of the Company's fabrics, including its Quaker Plush products, benefit from
additional chemical and mechanical finishing processes designed to enhance their
appearance and softness. A final product quality inspection is conducted prior
to shipment to the Company's customers.
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Quaker has added approximately 300 new looms to its manufacturing base
since 1989. 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 $88.2
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 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 1998 and 1999, and the Company's sales of
second-quality fabric were $2.1 million in 1998, and $1.8 million in 1999.
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Technology
As part of Quaker's overall strategy to improve productivity and achieve a
service advantage over its competitors, the Company strives to introduce new
technologies into its operations whenever possible. Quaker's efforts in this
area include: (i) the use of its 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.
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
Because many existing computer programs use only the last two, rather than
all four, digits to specify a year, there was widespread concern prior to
January 1, 2000 that date sensitive programs would only recognize "00" as
signifying the year 1900, and therefore, not recognize the Year 2000. This
concern was commonly referred to as the "Year 2000" or "Y2K" issue.
The Company believes that it has been 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 due to the Y2K problem. In addition, the
Company has developed a contingency plan designed to minimize risks associated
with failure of critical systems after December 31, 1999.
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 or 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, however, certain of the Company's
raw material requirements are purchased from non-U.S. based suppliers. 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. During 1999, the Company
experienced no significant increases in raw material prices. There can be no
assurance, however, that the cost of the raw materials required by the Company
will not increase in the future or that the Company will be able to avoid a
decrease in its margin performance in the event of such an increase in its raw
material costs.
Although other sources are available, the Company currently procures
approximately 40% 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
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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 1999, the
Company's yarn sales business continued to face diminished demand due to the
effects imported apparel products from the Far East had on demand for apparel
and other products manufactured by the Company's yarn customers. 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.
Backlog
As of January 1, 2000, the Company had orders pending for approximately
$37.7 million of fabric and yarn compared to $31.9 million as of January 2,
1999. 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. The Company's Whitaker mark, as well as a logo
form of the "W" mark, is registered with the U.S. Patent and Trademark Office.
Quaker has also applied to register its Quaker Plush mark with the U.S. Patent
and Trademark Office, and has received a Notice of Allowance for this
"intent-to-use" application.
Insurance
The Company maintains general liability and property insurance. The costs
of insurance coverage vary generally and the availability of certain coverages
can change. 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
11
<PAGE>
The Company is the largest manufacturer, and the largest private sector
employer, in Fall River, Massachusetts. As of January 1, 2000, Quaker employed
2,363 persons, including 1,883 production employees, 201 technical and clerical
employees, and 279 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.
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............56 President, Chief Executive Officer,
and Director 1989
Anthony Degomes..............59 Vice President - New Business
Development 1991
James A. Dulude..............44 Vice President - Manufacturing 1990
Cynthia L. Gordan............52 Vice President, Secretary, and General
Counsel 1989
Mark R. Hellwig..............42 Vice President - Supply Chain Management 1998
Thomas Muzekari..............59 Vice President - Sales and Marketing 1996
Beatrice Spires..............38 Vice President - Styling and Design 1996
Paul J. Kelly................55 Vice President - Finance, Chief
Financial Officer and Treasurer 1989
J. Duncan Whitehead..........57 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.
12
<PAGE>
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 LLP.
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.
13
<PAGE>
ITEM 2. PROPERTIES
Properties
Quaker is headquartered in Fall River, Massachusetts where it currently
has six facilities, five of which are used primarily for manufacturing and
warehousing purposes. The sixth 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)
Lewiston Street, Fall River.........Active Manufacturing 61,762 Leased(3)
County Street, Somerset, MA.........Active Manufacturing 52,500 Leased(4)
Verona, Mississippi.................Active Distribution Center 20,000 Owned
City of Industry, California........Active Distribution Center 17,286 Leased(5)
Mexico City, Mexico.................Active Distribution Center 9,000 Leased(6)
High Point, North Carolina..........Active Distribution Center 8,500 Leased(7)
</TABLE>
(1) Lease expires December 31, 2003
(2) Lease expires July 31, 2002
(3) Month-to-month lease
(4) Lease expires May 20, 2000 -- Quaker has exercised its option to renew
this lease for a three-year period
(5) Lease expires October 1, 2001
(6) Lease expires February 5, 2003
(7) Lease expires July 31, 2001
Quaker has sales offices in Fall River, Massachusetts; Guadalajara and
Mexico City, Mexico; Hickory and High Point, North Carolina; Chicago, Illinois;
Tupelo, Mississippi; and Los Angeles, California. During December 1999, the
Company was granted a commercial license to conduct business in the Hamriyah
Free Zone by the Government of Sharjah, United Arab Emirates. Pursuant to the
license, the Company opened a sales office in the Hamriyah Free Zone in January
2000. 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. The site acquisition phase of this
project is complete and certain site preparation work is underway. Preliminary
plans for the facility itself have been developed, however, commencement of the
construction phase will depend on future demand for the Company's products.
Environmental Matters
The Company's operations are subject to numerous federal, state, and local
laws and regulations pertaining to the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company's facilities are located in industrial areas and, therefore, there is
the possibility of incurring environmental liabilities as a result of historic
operations at the Company's sites. Environmental liability can extend to
previously owned or leased properties, properties owned by third parties, and
properties currently owned or leased by the Company. Environmental liabilities
can also be asserted by adjacent landowners or other third parties in toxic tort
litigation. In addition, under the
14
<PAGE>
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.
In September and October 1998, the Company and certain of its officers and
directors were named as defendants in four 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"). Three of
the actions were commenced in the United States District Court for the District
of Massachusetts: Neng Yang, etc. v. Quaker Fabric Corp., et al., Honora
Shapiro, etc. v. Quaker Fabric Corp., et al., and Ed Forstein v. Quaker Fabric
Corp., et al. One action, Bruno DeLuca, etc. v. Quaker Fabric Corp., et al., was
filed in the United States District Court for the Eastern District of New York.
On July 9, 1999, the action commenced in the Eastern District of New York was
transferred to the District of Massachusetts. On July 15, 1999, the four actions
were consolidated and on September 13, 1999, a consolidated amended class action
complaint was filed.
The putative class consists of "all persons, other than the defendants
named herein, who purchased or otherwise acquired the common stock of [the
Company] either in or traceable to the Company's secondary offering of its
common stock conducted on or about July 29, 1998 . . . through September 24,
1998[.]" The consolidated amended class action complaint alleges that the
Company and
15
<PAGE>
the individual defendants violated Sections 11 and 12(a)(2) of the Securities
Act of 1933 and the individual defendants violated Section 15 of the Securities
Act of 1933. The asserted violations of the Securities Act of 1933 are based
upon allegations that the Company's July 29, 1998 prospectus contained
materially false or misleading statements and omitted to state material facts
necessary to make statements made in the prospectus not misleading. The damages
sought are unspecified as to amount. In addition to damages, plaintiffs seek an
award of rescission to the extent plaintiffs and the members of the putative
class still hold the Company's shares.
The Company and the individual defendants have moved to dismiss the
consolidated amended class action complaint. Oral argument of the motion to
dismiss was heard on January 12, 2000 and the court has reserved decision. The
Company does not believe, however, that the lawsuits will have a material
adverse affect on either its operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE>
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 1999 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 1999 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 1999 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 1, 2000, 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 its revolving credit agreement.
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 related 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
rate risk by converting excess peso funds to U.S. dollars as often as
practicable.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the captions, "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Changes in
Stockholders' Equity," "Consolidated Statements of Cash Flows," "Summary
Quarterly Financial Data," "Notes to Consolidated Financial Statements," and
"Report of Independent Public Accountants," on pages 13 to 25 and 31 of Quaker's
1999 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.
18
<PAGE>
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
2000 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.
19
<PAGE>
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 1, 2000 and January 2, 1999
Consolidated Statements of Income -- For the years ended January 1, 2000 and
January 2, 1999
Consolidated Statements of Changes in Stockholders' Equity -- For the years
ended January 1, 2000, January 2, 1999, and January 3, 1998
Consolidated Statements of Cash Flows -- For the years ended January 1, 2000,
January 2, 1999, and January 3, 1998
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)
<PAGE>
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)
<PAGE>
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.(8)
10.70 Stock Option Agreement, dated as of October 19, 1998,
between the Company and Mark R. Hellwig.(8)
10.71 Lease between ADAP, Inc. and QFR, dated as of December 11,
1998.(8)
<PAGE>
10.72 Purchase and Sale Agreement, dated January 6, 1999, between
QFR and Montaup Electric Company.(8)
10.73 Purchase and Sale Agreement, dated January 22, 1999, between
QFR and Jefferson Realty Partnership.(8)
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.(8)
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. (8)
10.76 Purchase and Sale Agreement, dated May, 1999, between QFR
and The Center for Child Care and Development, Inc.
10.77 Tax Increment Financing Agreement, dated May 27, 1999,
between the City of Fall River and QFR
10.78 Memorandum of Understanding, dated July 1, 1999, between the
City of Fall River and QFR
10.79 Lease between Frank B. Peters, Jr. and QFR, dated as of June
15, 1999.
10.80 Amendment No. 7, dated as of September 30, 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.
10.81 Lease between Hamriyah Free Zone Authority and QFR, dated as
of November 28, 1999.
10.82 Form of change in control agreement, dated December 17,
1999, between the Company and each of its vice presidents.
10.83 Agreement concerning change in control, dated December 17,
1999, between the Company and its controller.
10.84 Amendment No. 1 to the Company's Deferred Compensation Plan,
dated December 17, 1999.
10.85 Amendment No. 1 to the Split Dollar Insurance Agreements
between QFR and each of its officers.
10.86 Amendment, dated as of December 17, 1999, to Employment
Agreement between the Company and Larry A. Liebenow.
10.87 1999 Stock Purchase Loan Program and form of related Secured
Promissory Note and Stock Pledge Agreement.
10.88 - Amendment No. 2, dated as of December 28, 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.
10.89 Software License Agreement, dated December 29, 1999, between
QFR as Licensee and Paragon Management Systems, Inc.
13 - 1999 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.
<PAGE>
(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.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999.
<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 29, 2000.
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.
Signature Title Date
/s/ Larry A. Liebenow Chief Executive Officer, March 29, 2000
- ----------------------------- President, and Director
(Larry A. Liebenow)
/s/ Paul J. Kelly Vice President -- Finance (Chief March 29, 2000
- ----------------------------- Financial and Accounting
Officer)
(Paul J. Kelly)
/s/ Sangwoo Ahn Chairman of the Board March 29, 2000
- -----------------------------
(Sangwoo Ahn)
/s/ Jerry I. Porras Director March 29, 2000
- -----------------------------
(Jerry I. Porras)
/s/ Eriberto R. Scocimara Director March 29, 2000
- -----------------------------
(Eriberto R. Scocimara)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS
To Quaker Fabric Corporation:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in Quaker
Fabric Corporation and subsidiaries' Annual Report to Shareholders incorporated
by reference in this Form 10-K and have issued our report thereon dated February
10, 2000. 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.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 2000
<PAGE>
SCHEDULE II
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended January 3, 1998, January 2, 1999 and January 1, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Balance at Provisions Deductions Balance
Beginning Charged to from at end
Descriptions of Period Operations Allowances of Period
<S> <C> <C> <C> <C>
Year Ended January 3, 1998
Bad Debt Reserve $1,275 $55 ($425) $905
Sales Returns & Allowances Reserve $777 $4,256 ($4,459) $574
Year Ended January 2, 1999
Bad Debt Reserve $905 $779 ($591) $1,093
Sales Returns & Allowances Reserve $574 $6,140 ($5,868) $846
Year Ended January 1, 2000
Bad Debt Reserve $1,093 $571 ($632) $1,032
Sales Returns & Allowances Reserve $846 $5,020 ($5,318) $548
</TABLE>
STATEMENT OF DIFFERNCES
The trademark symbol shall be expressed as..........................'TM'
The registered trademark symbol shall be expressed as...............'r'
The section symbol shall be expressed as............................'SS'
<PAGE>
Boyd
Final
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made as of the ___ day of May,
1999, by and among The Center for Child Care and Development, Inc., a
Massachusetts non-profit corporation ("Seller"), Quaker Fabric Corporation of
Fall River, a Massachusetts corporation ("Buyer"), and joined in for the limited
purposes set forth herein by Peter C. Bogle, Esq., as escrow agent ("Escrow
Agent").
BACKGROUND
A. Seller is the owner of those certain parcels of land located in Fall
River, Massachusetts, more particularly shown as Parcels C, D, and E on the plan
attached hereto as Exhibit A hereto comprised of approximately 4.1 acres,
together with all easements, rights and privileges appurtenant thereto,
reserving over said Parcel C an easement for access and parking until the
completion of certain work by Buyer, all in accordance with Section 4.7.4 below
(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 Forty-Five Thousand Dollars ($45,000) per acre (i.e.,
approximately 4.1 acres for a purchase price of One Hundred Eighty-Four Thousand
Five Hundred Dollars ($184,500), 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".
<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 certified or bank check or 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 Massachusetts non-profit 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 Leases. There are no leases or occupancy agreements
currently in effect which affect the Property, except for the billboard lease,
true and correct copies of which are attached hereto as Schedule 3.2 (the
"Lease").
3.3. 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.
3.4. 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.
3.5. 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.
3.6 FIRPTA. Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Internal Revenue Code.
3.7 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.
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.
-2-
<PAGE>
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 Pelletier, 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 delivered forthwith to Seller as consideration for this
Agreement, and, except as expressly set forth herein, neither party shall have
any further liability or obligation to the other hereunder.
4.5. Estoppel Certificate re Lease. Seller shall use reasonable
efforts to obtain from the current tenant under the Lease and deliver to Buyer
an Estoppel Certificate regarding the Lease in the form attached hereto as
Exhibit D ("Lease Estoppel"). In the event that Seller is unable, despite such
efforts, to obtain the Lease Estoppel, Seller shall deliver to Buyer at the
Closing a Seller Estoppel Certificate in the form attached hereto as Exhibit E
("Seller Lease Estoppel").
4.6. Inspection Period; Access; Purchase "As Is".
4.6.1. 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.
Prior to the Closing, Buyer shall not disclose the results of testing for
hazardous materials to Seller (unless requested by Seller) or to third parties,
except to the extent disclosure of an imminent hazard is required by applicable
law, provided that Buyer may make such disclosure to any party providing
financing for Buyer's development of the Property on the same basis of
confidentiality as to which Buyer is subject hereunder. 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. 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.
4.6.2. 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
-3-
<PAGE>
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 delivered forthwith
to Seller 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 4.6.2 no
longer shall be applicable, and this Agreement shall continue in full force and
effect.
4.7. Title and Survey Matters. Buyer acknowledges that Buyer has had
the opportunity to review the status of title and survey matters with respect to
the Property, and is satisfied (a) as to title matters with respect to record
title to the Property through May 12, 1999, except as set forth in Section 4.7.1
below ("Approved Title"), and (b) as to survey matters through the date of this
Agreement ("Approved Survey").
4.7.1 Title Clearance Matter. Seller hereby agrees to complete
the following title clearance matter prior to or at the time of Closing, the
completion of which shall be a condition to the performance of Buyer hereunder:
Partial release of mortgage and related documents to BankBoston, N.A., as to the
Property to be conveyed hereunder.
4.7.2 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.
4.7.3 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
the City of Fall River from the existing Frontage Road in the approximate
location shown as the hatched area on the plan attached hereto as Exhibit A (the
"Right of Way Easement"), such easement to be granted to Seller for all purposes
for which a public way is used upon completion of such accessway. Such Right of
Way Easement shall not be required if the subject area is incorporated into a
public way owned by the City of Fall River.
4.7.4 Parking and Site Improvements. In consideration of the
agreements of Seller hereunder, Buyer agrees to install at its expense the
parking and site improvements shown on the plan attached hereto as Exhibit B,
provided that the water, sewer and road improvements shown on Exhibit B shall be
the responsibility of the City of Fall River, and the installation of the gas
line shall be the responsibility of the local gas company (provided that Buyer
shall be responsible for such installation cost if the same is required by the
gas company). Seller agrees to cooperate with Buyer, the City of Fall River and
the local gas company to permit the installation of such facilities on Buyer's
development schedule. Pending completion of such improvements, Buyer shall grant
to Seller a temporary easement for access and parking purposes in the same
location as used at present by Seller. Buyer agrees that (a) Buyer shall not
disrupt the current parking area on the Premises until Buyer has constructed
replacement parking on Seller's remaining land in accordance with Exhibit B, and
(b) Buyer shall not construct the replacement parking on Seller's remaining land
until the City of Fall River has installed the water and sewer service and the
local gas company has installed the gas service
-4-
<PAGE>
to Seller's remaining land in accordance with Exhibit B. Seller agrees that
Seller shall be solely responsible for the removal and remediation of any
underground storage tanks located on Seller's remaining land, and shall perform
such work by no later than sixty (60) days after either (a) Buyer notifies
Seller that the gas line to be provided hereunder has been installed in
accordance with Exhibit B, or (b) Buyer has installed at Buyer's expense
(provided that Seller shall be responsible for purchasing fuel therefor) a
temporary above ground tank for oil service to the building on Seller's
remaining land until the gas line is installed, so as not to disrupt Buyer's
schedule for development of its new facilities and the performance of its work
under this Section 4.7.4.
4.8. Board 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 to enter into this
Agreement and perform its obligations hereunder. Buyer hereby confirms that this
transaction has been approved by its Board of Directors.
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 seven (7) days prior written notice from Buyer to Seller at
the offices of Peter C. Bogle, Esq. 57 North Main Street, Fall River,
Massachusetts, no later than August 20, 1999, unless otherwise agreed to in
writing by both Seller and Buyer. Time is of the essence of this Agreement.
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, in form reasonably
satisfactory to Buyer, in accordance with the Title Standards of the
Massachusetts Conveyancers Association, subject only to such title matters as
are approved by Buyer pursuant to Sections 4.7 and 4.8.
6.2.2. The Title Clearance Matters referenced in Section 4.7.1
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 (except for the tenant under the Lease).
-5-
<PAGE>
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 The executed Lease Estoppel in the form of Exhibit D or
the executed Seller Lease Estoppel in the form of Exhibit E, in accordance with
Section 4.5 above.
6.2.8. 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 bank or
certified check 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 Taxes, Rent and Utility Expenses. All real estate taxes, charges
and assessments affecting the Property ("Taxes"), rent under the Lease, 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.
-6-
<PAGE>
8. Omitted.
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:
Sister Kathleen Harrington
The Center for Child Care and Development, Inc.
2028 Rodman Street
Fall River, MA 02720
With a copy to:
Peter C. Bogle, Esq.
Bogle & DeAscentis, P.C.
57 North Main Street
Fall River, MA 02722
Fax No.: 508-677-9300
11.2. If to Buyer:
Quaker Fabric Corporation of Fall River
941 Grinnell Street
Fall River, MA 02721
Fax No: 508-678-2656
-7-
<PAGE>
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 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
-8-
<PAGE>
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.
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.
-9-
<PAGE>
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
(except as to the obligations of Buyer under Sections 4.7.3 and Section 4.7.4
above) 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 Omitted.
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: THE CENTER FOR CHILD CARE
AND DEVELOPMENT, INC.
By: ____________________________________
-10-
<PAGE>
Its:
BUYER: QUAKER FABRIC CORPORATION
OF FALL RIVER
By: _________________________________
Larry A. Liebenow
President and Chief Executive Officer
ESCROW AGENT:
____________________________________
Peter C. Bogle, Esq.
-11-
<PAGE>
List of Exhibits
Exhibit A - Description of Land
Exhibit B - Description of Parking and Site Improvements
Exhibit C - Non-Foreign Affidavit
Exhibit D - Lease Estoppel
Exhibit E - Seller Lease Estoppel
-12-
<PAGE>
EXHIBIT A
DESCRIPTION OF THE LAND
(Follows this Page)
-13-
<PAGE>
EXHIBIT B
Site Improvements
-14-
<PAGE>
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:
-15-
<PAGE>
EXHIBIT D
ESTOPPEL CERTIFICATE
Quaker Fabric Corporation of Fall River
941 Grinnell Street
Fall River, Massachusetts 02721
Re: Billboard Lease - Frontage Road, Fall River, Massachusetts
Ladies and Gentlemen:
Reference is made to a Billboard Lease dated December 31, 1991 between The
Center for Child Care Development, Inc. and Daniel Galligan d/b/a/ Signcor with
respect to the above premises ("Lease"). The undersigned acknowledges that
Quaker Fabric Corporation of Fall River intends to acquire the premises subject
to the Lease, and that it is entitled to and shall rely upon the matters set
forth herein. Accordingly, the undersigned certifies as follows:
1. Attached hereto is a true, correct and complete copy of the Lease,
which Lease has not been amended, modified or supplemented in any
way, and the same represents the entire agreement of the parties
with respect to the Lease.
2. The term of the Lease expires on December 31, 2001, subject to the
right on the part of the Lessee to terminate the Lease on the terms
set forth therein, and on the part of the Lessor to terminate the
Lease by giving thirty (30) days' notice in writing by certified
mail to Lessee at the address set forth in the Lease.
3. The Lease has not been sublet. The Lease was assigned by Daniel
Galligan d/b/a Signcor, to Finney Signs of Fall River, which, in
turn, assigned the Lease to the undersigned A.K. Media of Stoughton,
a ___________________________ corporation having an address of
__________________________________. The undersigned is the sole
holder of the interest of the Lessee under the Lease, and the prior
assignors have no interest therein.
4. The annual rent payable under the Lease for the period from July 1,
1998 through June 30, 1999 is $________________, which amount has
been paid in full. The annual rent payable under the Lease for the
period from July 1, 1999 through June 30, 2000 is $________________,
of which ________________ has been paid prior to the date hereof.
5. The undersigned has no existing defenses or offsets against the
enforcement of the Lease by the Lessor.
EXECUTED as a sealed instrument this _______ day of ___________, 1999.
-16-
<PAGE>
_____________________________
-17-
<PAGE>
EXHIBIT E
SELLER ESTOPPEL CERTIFICATE
Quaker Fabric Corporation of Fall River
941 Grinnell Street
Fall River, Massachusetts 02721
Re: Billboard Lease - Frontage Road, Fall River, Massachusetts
Ladies and Gentlemen:
Reference is made to a Billboard Lease dated December 31, 1991 between The
Center for Child Care Development, Inc. and Daniel Galligan d/b/a/ Signcor with
respect to the above premises ("Lease"). The undersigned acknowledges that
Quaker Fabric Corporation of Fall River intends to acquire the premises subject
to the Lease, and that it is entitled to and shall rely upon the matters set
forth herein. Accordingly, the undersigned certifies as follows:
1. Attached hereto is a true, correct and complete copy of the Lease,
which Lease has not been amended, modified or supplemented in any
way, and the same represents the entire agreement of the parties
with respect to the Lease.
2. The term of the Lease expires on December 31, 2001, subject to the
right on the part of the Lessee to terminate the Lease on the terms
set forth therein, and on the part of the Lessor to terminate the
Lease by giving thirty (30) days' notice in writing by certified
mail to Lessee at the address set forth in the Lease.
3. Upon information and belief, based upon oral representations made to
it, the Lease was assigned by Daniel Galligan d/b/a Signcor, to
Finney Signs of Fall River, which, in turn, assigned the Lease to
A.K. Media, Inc. of Stoughton, a ___________________________
corporation having an address of __________________________________.
4. The annual rent payable under the Lease for the period from July 1,
1998 through June 30, 1999 is $________________, which amount has
been paid in full. The annual rent payable under the Lease for the
period from July 1, 1999 through June 30, 2000 is $________________,
of which ________________ has been paid prior to the date hereof.
5. The undersigned has no existing defenses or offsets against the
enforcement of the Lease by the Lessor.
EXECUTED as a sealed instrument this _______ day of ___________, 1999.
THE CENTER FOR CHILD
CARE AND DEVELOPMENT, INC.
-18-
<PAGE>
By:_____________________________________
Its:____________________________________
-19-
<PAGE>
TAX INCREMENT FINANCING AGREEMENT
CITY OF FALL RIVER, MASSACHUSETTS
AND
QUAKER FABRIC CORPORATION OF FALL RIVER
This agreement is made this 27th day of May 1999, by and between: City of Fall
River, a municipal corporation duly organized under the laws of the Commonwealth
of Massachusetts, having a principal place of business at One Government Center,
Fall River, Massachusetts, 02722, acting through its Tax Increment Financing
(TIF) Board (hereinafter called the "CITY"); and Quaker Fabric Corporation of
Fall River, a corporation with a principal place of business at 941 Grinnell
Street, Fall River, Massachusetts, acting through LARRY LIEBENOW, ITS PRESIDENT
(hereinafter called the "COMPANY").
WHEREAS, the COMPANY is the largest employer in the CITY and a leading
manufacturer of woven upholstery fabrics for furniture markets in the United
States and abroad; and
WHEREAS, the COMPANY wishes to build a major manufacturing and warehousing plant
in Fall River at a site to be purchased by the COMPANY at 994 Jefferson
Street/Bleachery Pond located within Fall River's Bleachery Pond Economic
Opportunity Area (hereinafter referred to as the "FACILITY") and obtain certain
tax exemptions from the CITY for said FACILITY; and
WHEREAS, the CITY is willing to grant said tax exemptions in return for a
guarantee of capital investment at the FACILITY and employment opportunities for
local workers; and
WHEREAS, the COMPANY has embarked upon a strategy of significant capital
investment in plant and equipment and job creation in Fall River;
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties do mutually agree as follows:
A. THE COMPANY'S OBLIGATIONS
1. The COMPANY shall build an expandable (+/-) 358,200 square foot
manufacturing and warehousing facility at 994 Jefferson Street/Bleachery
Pond (hereinafter referred to as the "SITE") to expand the COMPANY's
production and distribution operations.
<PAGE>
TIF Agreement - Quaker Fabric Corporation of Fall River . . . Page 2
2. The COMPANY shall invest approximately $50 million in the FACILITY, employ
in the CITY an additional seven hundred (700) permanent full-time workers
by December 31, 2005, and retain the current two thousand three hundred
fifty (2,350) employee level. The COMPANY shall agree to operate a
business and provide best faith efforts to maintain the level of jobs
described as long as the TIF Agreement is in place.
3. The COMPANY shall cooperate with Job Training Partnership Act programs and
the Division of Employment and Training of the Commonwealth of
Massachusetts, the Bristol County Training Consortium and other agencies,
as appropriate, in seeking to fill vacancies at the COMPANY from the local
community. The COMPANY shall commit to a policy of making all good faith
efforts to hire qualified Fall River residents for any employment
opportunities that become available at the FACILITY.
4. The COMPANY shall make all good faith efforts to use local subcontractors
for the construction of the new FACILITY. The COMPANY shall also make all
good faith efforts to use local contractors and subcontractors for any
future repairs or renovations to the FACILITY.
5. If the COMPANY decides to sell the FACILITY or the business or to
otherwise transfer control of the FACILITY or business and/or the
operations therein, the COMPANY shall make good faith efforts to give the
CITY at least sixty (60) days prior notice of said sale or transfer. This
agreement is non-transferable. Said notice shall be given by certified
mail, return receipt requested, to the Mayor of the City of Fall River,
One Government Center, Fall River, Massachusetts, 02722.
6. The COMPANY shall provide the CITY with a quarterly report beginning at
the end of the quarter immediately following Project Certification and for
each subsequent quarter thereafter. Said report shall contain the
following information: (1) employment levels at the COMPANY at the
beginning and end of the reporting period; (2) number of Fall River
residents employed at the COMPANY at the beginning and end of the
reporting period; (3) utilization of local contractors and subcontractors
during the reporting period; (4) supplies/materials purchased locally
during the reporting period; (5) the COMPANY's financial contribution to
the city (i.e., property taxes, motor vehicle excise taxes, water and
sewer fees) for the reporting period. Said quarterly report shall be given
to the Mayor of the City of Fall River, President of the Fall River City
Council, Fall River City Clerk, Fall River Assessor, and Jobs for Fall
River, Inc., One Government Center, Fall River, MA, 02722. Jobs for Fall
River, Inc. shall be responsible for monitoring job creation activities
and compliance with the terms and conditions set forth in this agreement.
<PAGE>
TIF Agreement - Quaker Fabric Corporation of Fall River . . . Page 3
B. THE CITY'S OBLIGATIONS
1. The CITY shall grant a Tax Increment Financing exemption to the COMPANY in
accordance with Massachusetts General Laws, Chapter 23A, Section 3E,
Chapter 40, Section 59, and Chapter 59, Section 5. Said exemption shall be
granted on the building or buildings to be constructed at the SITE, and
all expansions and modifications thereof. Said exemption shall be valid
for a period of twenty (20) consecutive years, beginning with fiscal year
2000 (July 1, 1999) and ending with fiscal year 2019 (June 30, 2019). Said
exemption schedule is as follows:
Term Exemption Taxes Due
Years 1 - 16 100% 0%
Years 17 - 20 75% 25%
Year 21 0% 100%
C. OTHER CONSIDERATIONS
1. If the COMPANY fails to meet or maintain employment goals or comply with
the other terms of this Agreement, the CITY may request revocation of the
TIF Agreement by the Economic Assistance Coordinating Council, in
accordance with Commonwealth of Massachusetts Regulations 402 CMR,
Sections 2.01 - 2.18, as amended.
Executed as a sealed instrument as of the day and year first above written.
Tax Increment Financing Board, Quaker Fabric Corporation of Fall River
City of Fall River
/s/ Edward M. Lambert, Jr. /s/ [ILLEGIBLE]
- -------------------------------------- ---------------------------------------
Mayor Edward M. Lambert, Jr., Chairman Name:
PRESIDENT AND CEO
---------------------------------------
Title:
<PAGE>
MEMORANDUM OF UNDERSTANDING
BETWEEN
THE CITY OF FALL RIVER
AND
QUAKER FABRIC CORPORATION OF FALL RIVER
The City of Fall River (the "City") and Quaker Fabric Corporation of Fall River
(the "Company") hereby enter into this Memorandum of Understanding to set forth
their respective and mutual undertakings in connection with the purchase of and
construction of an expandable manufacturing facility and distribution warehouse
(the "Facility") on an approximate 60-acre industrially zoned site in the
southeastern end of Fall River (the "Site") and to increase employment in the
City by as many as 700 jobs.
A. The City agrees that it will:
1. Identify appropriate federal and state grant funds to complete the
"structural mitigation" work necessary to improve traffic conditions
for residents in the Brayton Avenue/Jefferson Street area and
facilitate access to the project site in accordance with the
"Traffic and Access Study" as prepared by Vanasse Hangen Brustlin,
Inc. and in accordance with the Section 61 findings for the facility
under the Massachusetts Environmental Policy Act, all such
mitigation work to be completed no later than August 2001. In the
event that the City fails to secure appropriate federal and state
grant funds for the above referenced improvements, the City shall
initiate and complete such work at its sole cost and expense.
2. Identify appropriate federal and state grant funds and assume the
cost of designing and constructing the new roadways needed to
improve access to both "the Site" itself and to the businesses
already located in the immediate vicinity, all as set forth on
Exhibit A attached, including but not limited to a "perimeter road"
ringing the cluster of businesses already operating in the Bleachery
Pond area and benefitting both the project site and other businesses
as well, such new roadways to be completed no later than August
2001. In the event that the City fails to secure appropriate federal
and state grant funds for the above referenced improvements, the
City shall initiate and complete such work at its sole cost and
expense.
3. Work with the Economic Assistance Coordinating Council to "certify"
this project in accordance with the Massachusetts Economic
Development Incentive Program guidelines which will enable the
Company to become eligible for a 5% State Investment Tax Credit
(ITC) on "anything tangible and depreciable" (i.e., plant and
equipment).
4. Certify, as part of Massachusetts Economic Development Incentive
Program, a local Tax Increment Financing (TIF) plan which will
provide the Company with a property tax exemption based upon the
percentage of value added through new construction for a period of
twenty years based upon a formula set forth in the TIF Agreement of
May 27, 1999 by and between the City and the Company.
<PAGE>
Memorandum of Understanding
Page 2
B. The Company agrees it will:
1. Begin site development improvements no later than the Fall of 1999
and proceed with the construction of an approximately 358,200 s/f
building thereafter so as to accommodate an opening prior to
December 31, 2001.
2. Purchase an approximate 60-acre industrially zoned site (the "Site")
and invest $50.0 million in new plant and equipment at the Site,
including the construction of an expandable fabric manufacturing
facility and distribution warehouse (the "Facility"), and to
increase employment in the City by as many as 700 jobs between the
date of this Agreement and December 31, 2005.
3. Secure all necessary federal, state and local permits, including
project subdivision plan, pertaining to the siting and construction
of said "Facility."
4. Maintain its current level of 2,350 employees and, by virtue of the
construction of the new "Facility," increase its employment in the
City by 640 - 700 jobs by December 31, 2005. Said job creation will
consist of 140 - 200 new jobs by December 31, 2001, 250 new jobs by
December 31, 2002 and an additional 250 new jobs by December 31,
2005.
5. Maintain manufacturing and/or distribution processes in all Fall
River properties currently owned by Quaker Fabric Corporation.
6. Work with the City of Fall River to seek federal and state grants to
facilitate the infrastructure improvements necessary to implement
the construction of the Facility.
Dated: The City of Fall River
by: Edward M. Lambert, Jr.
------------------------------------
Edward M. Lambert, Jr.
Mayor
Dated: July 1, 1999 Quaker Fabric Corporation of Fall River
------------
by: [ILLEGIBLE]
------------------------------------
Name:
PRESIDENT AND CEO
------------------------------------
Title:
<PAGE>
NORTH CAROLINA
LEASE
CATAWBA COUNTY
THIS LEASE AGREEMENT, made and entered into this 15 day of June, 1999, by
and between FRANK B. PETERS, JR., a resident of Guilford County, North Carolina,
(hereinafter called "Landlord") and QUAKER FABRIC CORPORATION OF FALL RIVER, 941
Grinnell Street, Fall River, Massachusetts 02721 (hereinafter called "Tenant").
W I T N E S S E T H:
That in consideration of the mutual covenants hereinafter contained, the
parties hereto agree as follows:
The Landlord hereby leases to the Tenant, and the Tenant hereby leases
from the Landlord, a portion of the property located at 1270 25th St. Place
S.E., Hickory, North Carolina, known as the Resource Center (herein the
"Complex") being further identified as Unit E, containing approximately 2,354
square feet (includes Tenant's share of common area allocation) of the building
consisting of the Resource Center. The Tenant's usable area (exclusive of common
areas) is more particularly described on the attached Exhibit "A" (the
"Premises").
ARTICLE 1
TERM
1.1 Term. Unless changed or sooner canceled or terminated as provided for
herein, the term hereof shall be for the period of five (5) years beginning on
July 1, 1999 (Beginning Date) and ending on June 30, 2004.
1.2 Option. Landlord hereby grants Tenant an option to extend the term of
this lease for five (5) additional years (July 1, 2004 to June 30, 2009) upon
the same terms and conditions except Base Rent for such option term shall be
Three Thousand One Hundred Thirty-nine and No/100 Dollars ($3,139.00) per month
($37,668.00) per annum, herein "Annual Rent" if this option is made applicable);
provided, however, this Option shall not be effective if Tenant defaults under
any lease provision which default is not timely cured within the time herein
provided or if Tenant fails to notify Landlord in writing of its exercise of
this option at least one hundred twenty (120) days prior to the expiration of
the original term.
ARTICLE 2
POSSESSION
If for any cause beyond Landlord's control Landlord shall be unable to
give Tenant possession of the premises on the date provided herein for the
beginning of the term hereof, all rights and remedies of both Landlord and
Tenant hereunder shall be suspended until possession can be delivered.
The premises shall be delivered to Tenant by Landlord "As Is". No further
improvements shall be required to be made by Landlord unless otherwise provided
herein.
The Premises are currently under reconstruction with anticipated occupancy on
the Beginning Date. Landlord will provide the Premises in the condition
hereinafter specified with additional up fitting to be by Tenant at its expense:
1. 2x2 lay-in white standard ceilings installed.
2. Tenant demising walls ready for paint or wall covering to be
provided by Tenant.
3. 400 amp service to the Premises, together with separate meter.
4. HVAC system installed with main trunk lines in place, extension to
individual rooms or offices is responsibility of Tenant.
ARTICLE 3
EXAMINATION OF PREMISES
Upon commencement of the term hereof, Tenant shall examine the premises
before taking possession; and Tenant's entry into possession shall constitute
evidence that as of the date thereof the premises were in good order and
satisfactory condition, unless Tenant notifies Landlord in writing within thirty
(30) days of the commencement of the term of any particular problems with the
premises that are the Landlord"s responsibility in accordance with the terms
hereof.
ARTICLE 4
LIENS
Should mechanics', materialmen's or other liens or claims thereof, be
filed against the premises by reason of Tenant's acts or omissions or because of
a claim against Tenant, Tenant shall cause the lien to be canceled and
discharged of record by bond or otherwise within ten (10) days after receipt of
notice from Landlord. Should Tenant fail to cause such lien to be so discharged
or bonded, Tenant shall be in
<PAGE>
default hereunder; and Landlord may exercise any or all remedies available to
Landlord pursuant to this lease, or in lieu thereof, Landlord may at its option
discharge the same by paying the amount claimed to be due, and Tenant shall pay
to Landlord on demand the amount so paid and all costs and expenses incurred by
Landlord including reasonable attorney's fees in processing such discharge.
ARTICLE 5
PROVISIONS FOR RENT
5.1 Base Rent. Tenant shall pay to Landlord as Base Rent for the premises,
in monthly installments in advance upon the Beginning Date and upon the first
day of each calendar month thereafter during the term of this Agreement the
following sums:
From the Beginning Date for the 60 months of the term of this lease
$2,452.08 per month ($29,424.96 per annum, herein "Annual Rent");
Said rent shall be payable without demand. Tenant shall pay such rent to
Landlord at its offices in the Complex or at such other place as Landlord may
from time to time direct. In the event that the Beginning Date is other than the
first day of a calendar month, then the monthly rent for such period less than a
full month shall be prorated and payable along with the first full month's rent
on or before the Beginning Date.
Rent during any option term, if applicable, shall be as provided in
Article I of this lease.
5.2 Additional Rent.
(a) Landlord shall pay all real estate taxes, assessments and other
governmental levies against the Complex (hereinafter referred to as "Real Estate
Taxes") except as hereinafter provided. Commencing with the first calendar year
following the year 2000 (2000 being hereinafter referred to as the "Base Year"),
if the amount of the real estate taxes levied or assessed against the Complex
shall exceed the real estate taxes assessed in the Base Year, Tenant shall pay
as additional rent that portion of such excess which is equal to the product
obtained by multiplying said excess by a fraction, the numerator of which shall
be the number of Square Feet in the demised premises and the denominator of
which shall be the number of square feet leasable in the Buildings included in
the tax listing.
(b) Landlord shall pay the premium required to maintain a
satisfactory fire policy, with extended coverage endorsement, on the Complex
which includes the Premises as required by Article 26. Commencing in the first
calendar year of this Lease Agreement after the calendar year 2000 (2000
hereinafter referred to as the "Base Year"), if the amount of the annual premium
for such coverage shall exceed the annual premium for the Base Year, Tenant
shall pay as additional rent that portion of such excess which is equal to the
product obtained by multiplying said excess by a fraction, the numerator of
which shall be the number of Square Feet in the Premises leased to Tenant and
the denominator of which shall be the number of square feet leasable in the
Complex covered by the policy that includes the Premises leased to Tenant.
(c) In any calendar year that the tenancy of the Tenant is for less
than the full calendar year, the additional rent due under Article 5.2(a) and or
(b) hereof shall be adjusted and prorated so that the Tenant's share of said sum
shall bear the same percentage that the period less than the full calendar year
bears to the full calendar year.
(d) Such additional rent due under Article 5.2(a) and or (b) shall
be due and payable immediately on demand.
ARTICLE 6
USE OF PREMISES
The Premises are to be used and occupied by Tenant solely for the
operation of a fabric showroom and offices incident thereto. Tenant will not use
or permit, or suffer the use of, the Premises for any other business or purpose.
Tenant shall conduct its business upon the Premises under the name or trade name
of Tenant or any of its duly licensed and authorized trade name(s) and under no
other name except such as Landlord shall approve in writing.
ARTICLE 7
OPERATION OF BUSINESS
(a) Tenant, at all times, shall fully and promptly comply with all laws,
ordinances, orders and regulations of any governmental authority having
jurisdiction of the Premises, including but not limited to, such as shall relate
to the character, and manner of operation of the business conducted in or at the
Premises. Tenant shall abide by, obey, and comply with all rules and regulations
which from time to time may be promulgated by Landlord with regard to the
activities of the businesses in the Complex insofar as said rules and
regulations pertain to the disposal of trash, delivery of equipment and
supplies, signage, employee parking, and, in general, the general welfare of all
the businesses in the Complex. Landlord shall use its best efforts to enforce
these same rules upon all other tenants in the Complex.
(b) Tenant shall conduct and operate its business in a manner in keeping
with the dignity and reputation of the Complex and shall make all reasonable
effort to work harmoniously with the other tenants in the Complex and without
limiting the generality of the foregoing, Tenant shall not permit, allow, or
cause any public or private auction sales to be conducted in or at the Premises
or the adoption or use of
2
<PAGE>
any sales promotion device or practice that shall tend to mislead or deceive the
public or which directly or indirectly would tend to detract from or impair the
reputation or dignity of said business, the Premises, the Complex, or the
general reputation or dignity of the business of others conducted in the
Complex. Landlord shall use its best efforts to enforce these same rules upon
all other tenants in the Complex.
ARTICLE 8
CARE OF PREMISES AND TRASH REMOVAL
(a) Tenant shall not permit, allow, or cause any act or deed to be
performed or any practice to be adopted or followed in or about the Premises
which would cause or be likely to cause any injury or damage to any person or
the Premises or the Complex. Tenant shall not permit, allow or cause any
noxious, disturbing or offensive odors, fumes, lights or gases, or any smoke,
dust, steam or vapors, or any loud or disturbing noise, sound or vibrations to
originate in order to be emitted from the Premises. Tenant, at all times, shall
keep the Premises in a neat and orderly condition and shall keep the entryways
and delivery areas adjoining the Premises clean and free from rubbish and dirt.
Tenant shall keep the Premises clean and free of rodents, bugs and vermin.
Tenant shall not use or permit the use of any portion of the Premises as
sleeping or living quarters or as lodging rooms, or use the same for any illegal
purposes. Tenant shall not permit, allow or cause the sinks, toilets, or urinals
in the Premises to be used for any purpose except that for which they were
designed and installed. Tenant shall maintain the windows in a clean, neat and
orderly condition, and shall keep the glass thereof clean, and shall store all
trash, rubbish and garbage within the Premises until such time as same is
properly disposed of in accordance with applicable laws, rules and regulations.
Tenant shall keep the Premises sufficiently heated to prevent freezing of water
in pipes and fixtures. Landlord shall use its best efforts to enforce these same
rules upon all other tenants in the Complex.
(b) Tenant either through the use of such facilities therefore as may be
available to other tenants in the Complex, or otherwise, shall provide for the
prompt and regular removal thereof for disposal outside the area of the Complex
of all trash, waste, rubbish or garbage and Tenant shall not burn or otherwise
dispose of any trash, waste, rubbish or garbage in or about the Premises of the
Complex. Tenant shall pay at its sole cost and expense all charges for the
removal of and storage of any trash, waste, rubbish or garbage attributable to
the Premises. However, in the event Landlord elects to provide facilities for
trash removal and storage, Tenant agrees to utilize said facilities under rules
and regulations designated by Landlord, and if the cost of such services shall
be billed to Landlord and are not separately allocated to the Tenant, the amount
thereof shall be reasonably pro rated with Tenant's share being based on the
relationship between the square footage of the Premises to the total square
footage available for lease in the Complex; and Tenant shall pay the Landlord
upon demand as additional rental hereunder its prorata share, calculated as
indicated, of such cost.
ARTICLE 9
INSTALLATION AND REMOVAL OF TRADE FIXTURES
Tenant shall not install in or about the Premises any interior or exterior
lighting or plumbing fixtures, steps, partitions, walls, fences, shades, or
awnings, or make any structural changes or alterations in or to any part of the
Premises or penetrate the floor slab of the Premises without the prior written
consent of Landlord. All trade fixtures used in the Premises supplied and
installed at the sole cost and expense of Tenant shall at all times be and
remain in the property of Tenant, and the latter shall have the right to remove
the same from the Premises at any time during the term hereof, provided that
Tenant, at its sole cost and expense, shall repair or reimburse Landlord for the
cost of repairing any and all damage to the Premises resulting from the removal
thereof; provided, further, that if Tenant does not remove the same prior to the
termination of the term hereof, Landlord may, at its election at any time after
the termination of the term hereof remove all or any part of said trade fixtures
from the Premises and store the same or remove all or part thereof and dispose
of the same in any manner Landlord may see fit, all at Tenant's expense. The
provisions of the foregoing sentence, however, shall not apply in any manner to
any fixtures installed as part of Tenant's work or in replacement or repair
thereof which has been approved by Landlord as herein required. Notwithstanding
the foregoing, Tenant reserves the right to remove the can lighting; however,
the track shall remain.
ARTICLE 10
MOVING OF HEAVY OBJECTS AND USE OF Premises FOR STORAGE
Tenant shall be liable for the cost of any damage to the Premises of the
Complex which shall result from the movement of heavy objects in or to or from
the Premises. Tenant shall not unduly overload the floor or any part of the
Premises and heavy objects stored or used therein shall be stored and placed
only at such place or location as Landlord, if it so elects, shall designate.
ARTICLE 11
SIGNS AND ADVERTISING MATTER
Tenant shall not place or suffer to be placed on the exterior of the
Premises or on the exterior or interior of any window thereof any sign, awning,
canopy, marquee, advertising matter, decoration, lettering or other thing of any
kind without the prior written consent of Landlord.
Tenant shall not permit, allow or cause to be used in or at the Premises
any advertising media or device such as phonographs, radio, public address
systems, sound production or reproduction devices, mechanical or moving display
devices, motion pictures, television devices, excessively bright lights,
changing, flashing, flickering or moving lights or lighting devices, or any
similar devices, the effect of which shall be visible or audible from the
exterior of the Premises. In this connection, Tenant
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acknowledges that the Premises are a part of an integrated business community
and agrees that control of all signs by Landlord is essential to the maintenance
of uniformity, propriety and the aesthetic values in or pertaining to the
Complex. Landlord agrees to use its best efforts to similarly restrict other
tenants in the Complex.
ARTICLE 12
LOCATIONS OF SIGNS
Tenant shall not permit, erect or install, maintain, paint or display on
any exterior door, wall or window of Premises any exterior or interior sign,
lettering, placard, decoration, advertising media or advertising material of any
kind whatsoever without the prior written consent of Landlord. Tenant shall and
at its own expense furnish and install prior to the opening of Tenant's business
at an appropriate location designated by Landlord on the exterior of said
Premises an identification sign of design, content, form and material in
accordance with Landlord's requirements for the Complex and in conformance with
local governing codes. Prior to the manufacture and procurement of any sign,
Tenant shall first submit to the Landlord working drawings and obtain from the
Landlord written approval of said working drawings. Landlord's design criteria
shall be furnished Tenant no later than thirty (30) days prior to the scheduled
opening of Tenant's business. Tenant shall at all times after the erection of
any such sign by Tenant, or by Landlord as the case may be, maintain such sign
in good condition. In the event Tenant fails to operate and maintain said sign,
the Landlord may at its discretion, provide the maintenance and operation for
said sign and charge Tenant Landlord's cost plus fifteen percent (15%).
ARTICLE 13
USE OF NAMES AND PICTURES OF PREMISES OR THE COMPLEX
Tenant shall not have or acquire any property right or interest in or to
any name or distinctive designation which may become identified or associated
with the business to be conducted in or at the Premises if such name or
distinctive designation shall contain as a part thereof the name or any
reference to the Premises, the Complex or any part or combination of part of any
of the same, but all property rights and rights of use of such name or
distinctive designation shall be and remain the property of Landlord.
ARTICLE 14
COMMON FACILITIES
(a) The term "Common Facilities" as used in this lease shall mean and
refer to those facilities within the Complex for the nonexclusive use of Tenant
in common with other authorized users, driveways, areas of ingress and egress,
sidewalks, and other pedestrian ways, planted areas together with plants and
planting thereon, and areas containing signs, pylons or structures constructed
thereon.
(b) It is expressly understood and agreed that the term "Common
Facilities" shall not in any manner be deemed to refer to any portion of the
Premises leased to Tenant hereunder, or any of the space leased or held or to be
held for lease by Landlord for the operation of business or for offices.
ARTICLE 15
USE OF COMMON FACILITIES
Subject to the provisions of this lease, Landlord hereby grants to Tenant,
its subtenants, licensees, concessionaires, suppliers, business invitees,
customers, agents, representatives and employees, but only during the term of
this lease, the nonexclusive right, in common with others duly authorized by
Landlord, to use the Common Facilities and the various portions thereof,
respectively for the uses and purposes designated therefor by Landlord. It shall
be the duty of Tenant to keep said Common Facilities free and clear of any
obstructions, barricades or barriers placed or created by Tenant or resulting
from Tenant's operations or use of the Premises.
ARTICLE 16
CONTROL OF COMMON FACILITIES
The Common Facilities shall be subject to the exclusive management and
control of Landlord. Landlord shall have the right from time to time to
reasonably designate, relocate and limit the use of particular areas or portions
of the Common Facilities and to construct or permit the construction of
additional buildings thereon, to add additional area to the Common Facilities,
and to establish, promulgate and enforce such reasonable rules and regulations
concerning the Common Facilities as it may deem necessary or advisable for the
proper and efficient management, operation, maintenance, and use thereof, and
Tenant shall comply with the same. Landlord shall have the right to make changes
in the Common Facilities or any part thereof wherever, in its opinion, it shall
be desirable and for the best interests of the Complex, including, without
limitation, the changes in the location and relocation of driveways, entrances,
exits, vehicular parking spaces, the direction and flow of traffic, the setting
apart of prohibited areas, the exclusion of employee parking therefrom as
Landlord may deem necessary and advisable for the proper and efficient operation
and maintenance of the Common Facilities, and removing area from the Common
Facilities, provided Tenant and its customers shall have reasonable ingress,
egress and regress to and from the Premises. Notwithstanding the foregoing,
Landlord agrees to allocate to Tenant five parking spaces to be designated for
usage by Tenant; however, the policing of such spaces shall be the
responsibility of Tenant.
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ARTICLE 17
MAINTENANCE AND OPERATION OF COMMON FACILITIES
Landlord shall throughout the term of this lease maintain the Common
Facilities in good order, condition and repair. Landlord shall, as a minimum,
keep the Common Facilities open to the general public from the hours of 8:00
A.M. to 5:00 P.M. each normal business day.
ARTICLE 18
MANAGEMENT AGREEMENTS FOR COMMON FACILITIES
At any time, hereafter, Landlord shall have the right to employ any
person, firm or corporation to operate and maintain the Common Facilities or any
part or parts thereof or any particular function or functions operated in
connection therewith, on such terms and conditions and for such time as Landlord
shall, in its sole judgment, deem reasonable and proper. Any such employment
agreement shall require the operator to be bound by, and to perform all
obligations of the Landlord relative to the part or parts of the maintenance and
operation of the Common Facilities to be undertaken by such operator.
ARTICLE 19
MAINTENANCE AND REPAIRS
Landlord, at its sole cost and expense, shall maintain and keep in
reasonable repair the roof, foundation, and exterior and supporting walls of the
building, provided, however, that the cost of any such repairs required as the
result of the negligent or willful act of Tenant, or any subtenant or
concessionaire of Tenant or any customer, licensee, agent, servant or employee
of any of them, shall be borne by Tenant.
ARTICLE 20
TENANT'S OBLIGATIONS
Tenant, at its sole cost and expense, whether the same shall be the
property of Tenant or Landlord, shall promptly repair and replace, as necessary,
and at all times maintain the Premises in good condition, including fixtures,
equipment, electrical fixtures and equipment, electrical installations,
plumbing, plumbing equipment and fixtures, all ceilings, all interior walls, all
floors, all hardware, all interior painting or decorations of every kind, and
all door and window screens, and promptly replace all broken or damages glass,
including window glass and plate glass; and Tenant, at its sole cost and
expense, whether the same shall be the property of Tenant or Landlord, shall
promptly repair and replace, as necessary, and at all times maintain in good
condition all signs and all heating units and air conditioning equipment serving
said Premises wherever located, and regardless of whether inside or outside of
the building. Notwithstanding the foregoing, any repair to the plumbing,
electrical and/or HVAC system servicing the demised Premises in excess of
$1000.00 shall be regarded as a "major repair" and the responsibility of
Landlord but only for the portion of such repair bill in excess of $1000.00. The
Tenant shall be responsible for the first $1000.00 of the costs of any such
repair. For purposes of this agreement, a "major repair" shall mean a repair
which in each instance requires an expenditure for parts costing in excess of
One Thousand Dollars ($1000). For purposes of this Article, routine maintenance
and service on the plumbing, electrical and HVAC system servicing the demised
Premises, regardless of the amount of such routine maintenance and service,
shall be the sole and exclusive responsibility of the Tenant unless such service
necessitates a major repair as herein defined. Notwithstanding the foregoing,
any repairs to the plumbing, electrical and/or HVAC system servicing the
Premises in excess of One Thousand Dollars ($1,000) during any lease year (July
1 to June 30 during the lease term) shall be the responsibility of Landlord but
only for the portion of such repair bills in the aggregate exceeding One
Thousand Dollars ($1,000) during any lease year.
ARTICLE 21
UTILITIES
Tenant shall pay, at its sole cost and expense, all charges for gas,
electricity, and telephone service attributable to the Premises, and all other
services or utilities used in, upon, or about the Premises by Tenant or any of
its subtenants, licensees, or concessionaires during the term hereof, including
cost of installation of meters. Landlord shall pay for water consumed on or
about the Premises, however, Tenant agrees to pay any extraordinary usage
resulting from the failure of Tenant to repair promptly any defective plumbing
system in the Premises. Notwithstanding the foregoing, if any such services or
utilities shall be billed to Landlord and are not separately metered to the
Premises (such as water), the amount thereof shall be reasonably prorated by
Landlord; and Tenant shall pay to Landlord upon demand as additional rental
hereunder that amount which bears the same relationship to the total charges
therefor as the number of square feet of floor area in the Premises bears to the
total number of square feet of floor area leased or held for lease in the area
covered by such combined charges.
ARTICLE 22
INTERRUPTION OR FAILURE OF UTILITIES
Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service being furnished the Complex or the Premises,
and no such failure or interruption shall entitle Tenant to terminate this
lease.
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ARTICLE 23
TENANT'S PUBLIC LIABILITY INSURANCE
Tenant shall, at all times during the term hereof, at its sole cost and
expense, procure and maintain in force and effect a policy or policies of
comprehensive public liability insurance issued by an insurance carrier approved
by Landlord, insuring against loss, damage, or liability for injury to or death
of persons and loss or damage to property occurring from any cause whatsoever
in, upon or about the said Premises. Such liability insurance shall be in
amounts of not less than $1,000,000.00 for Combined Single Unit Bodily Injury
and Property Damage. Tenant and Landlord shall be the named insureds under each
such policy of insurance.
ARTICLE 24
TENANT'S OTHER INSURANCE
Tenant shall, at all times during the term hereof, at its sole cost and
expense, procure and maintain in force and effect standard form of fire with
extended coverage insurance covering Tenant's property and its merchandise, and
the personal property of others in Tenant's possession, in, upon, or about the
Premises. Such insurance shall be in an amount adequate to cover the cost of
replacement.
ARTICLE 25
CERTIFICATES OF INSURANCE
A certificate issued by the insurance carrier for each policy of insurance
required to be maintained by Tenant under the provisions of this lease shall be
delivered to Landlord on or before the commencement date hereof and thereafter,
as to policy renewals, within thirty (30) days prior to the expiration of the
term of each such policy. Each of said certificates of insurance and each such
policy of insurance required to be maintained by Tenant hereunder shall express
evidence as to insurance coverage as required by this lease (including an
express waiver of rights of subrogation thereunder as required hereunder) and
shall contain an endorsement or provision requiring not less than twenty (20)
days written notice to Landlord prior to the cancellation, diminution in the
perils insured against, or reduction of the amount of coverage of the particular
policy in question.
ARTICLE 26
LANDLORD'S INSURANCE
Landlord at all times during the term hereof shall procure and maintain in
force and effect fire and extended coverage insurance on the Complex (building,
common area, land and improvements) to such extent as it deems advisable and in
its best interests (but not in excess of the full replacement cost of the
Complex).
ARTICLE 27
INCREASE IN PREMIUMS
Tenant shall not do or suffer to be done, or keep or suffer to be kept,
anything in, upon, or about the Premises which contravenes Landlord's fire or
extended coverage insurance, boiler insurance, casualty insurance, or liability
insurance or which shall prevent Landlord from securing any such policies in
companies acceptable to Landlord or which shall cause an increase in the rate
payable by Landlord from that existing at the beginning of the term hereof. If,
however, during the term hereof, as a result of any act or neglect of Tenant,
its invitees, agents, employees, or representatives, or the nature of the
business conducted in or at the Premises, Landlord's fire and extended coverage
insurance rate, boiler insurance rate, casualty insurance or liability insurance
rate shall be increased over the rate existing at the beginning of the term for
such type of insurance, in addition to all other remedies Landlord may have
hereunder, Tenant, upon demand, shall pay to Landlord, as an additional charge,
a sum equal to the increase in the cost of each such type of insurance coverage
caused by such activities of Tenant which activities resulted in an increase in
said insurance rate.
In addition, Tenant shall be responsible for a portion of insurance
premium increases incurred by Landlord as provided in Article 5.2(b) hereof.
ARTICLE 28
WAIVER OF SUBROGATION
(a) Landlord releases Tenant, to the extent of Landlord's insurance
coverage on the Complex from any liability for loss or damage caused by fire to
any of the Complex even if such fire or other casualty should be brought about
by the default or negligence of Tenant or its subtenants or concessionaires or
the agents or employees of any of them; provided that this release shall be in
effect only with respect to loss or damage occurring during the time that
Landlord's policies for fire and extended coverage insurance contain a clause to
the effect that this release shall not affect the right of Landlord to recover
under such policies. Landlord will request each insurance company writing fire
and extended coverage insurance policies covering the Complex to include a
clause but only so long as it is includable without extra cost or, extra cost is
chargeable therefor, only so long as Tenant pays for extra cost. If extra cost
is chargeable therefor, Landlord will advise Tenant of such extra cost, and
Tenant at its election may pay the same, but shall have no obligations to do so.
(b) Tenant releases Landlord, to the extent of Tenant's insurance coverage
on its property on the Premises, from any liability for loss or damage caused by
fire or any of the extended coverage perils included in Tenant's insurance
policies covering its property on the Premises even if such fire or other
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casualty should be brought about the default or negligence of Landlord, its
agents, or employees; provided that this release shall be in effect only with
respect to loss or damage occurring during the time that Tenant's policies for
fire and extended coverage insurance contain a clause to the effect that this
release shall not affect the right of Tenant to recover under such policies.
Tenant will request each insurance company writing fire and extended coverage
insurance policies covering its property on the Premises to include such a
clause but only so long as it is includable without extra cost or, if extra cost
is chargeable therefor, Tenant will advise Landlord of such extra cost, and
Landlord at its election may pay the same, but shall have no obligation to do
so.
ARTICLE 29
INDEMNIFICATION
Tenant will indemnify Landlord against and save it harmless from any and
all claims, actions, damages, liability, and expense in connection with loss of
life, personal injury, or damage to property arising from or out of any
occurrence in, upon or at the Premises, or the occupancy or use by Tenant of the
Premises or any part thereof, or occasioned wholly or in part by an act or
omission of Tenant, its subtenants, or concessionaires, or the agents, servants,
contractors, employees, invitees, or licensees of any of them. Tenant will
further reimburse Landlord for all reasonable attorneys' fees incurred by
Landlord in defending any such claim or action.
ARTICLE 30
NONLIABILITY OF LANDLORD
Landlord shall not be responsible or liable to Tenant for any loss or
damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining Premises or any part of the Premises adjacent to or
connected with the Premises hereby leased or any part of the Complex or any
persons transacting any business in the Complex or present in the Complex for
any purpose or for any loss or damage resulting to Tenant or its property from
burst, stopped or leaking water, gas, sewer, sprinkler, or steam pipes or
plumbing fixtures or from any failure of or defect in any electric line, circuit
or facility.
ARTICLE 31
DAMAGE OR DESTRUCTION
If at any time after the execution of this lease, the Premises, or any
portion thereof, should be damaged or destroyed by any casualty insured under
any fire and extended coverage insurance policy or policies required on the part
of Landlord to be maintained hereunder, Landlord shall forthwith and immediately
commence to repair and restore the Premises so far as practicable to the
condition the Premises were in immediately prior to such damage or destruction,
and Landlord shall complete the same within a reasonable time, and the rent from
the time of such damage or destruction until the completion of repair and
restoration shall be equitably abated in proportion to the extent and value of
the space which is unusable during said period for the purpose of operating
Tenant's business.
Tenant agrees to notify Landlord in writing not less than thirty (30) days
prior to the date Tenant opens for business in the Premises of the actual cost
of all permanent leasehold improvements and betterments installed or to be
installed by Tenant in the Premises (whether same have been paid for entirely or
partially by Tenant), but exclusive of Tenant's personal property, moveable
trade fixtures and contents. Similar notifications shall be given to Landlord
not less than thirty (30) days prior to the commencement of any proposed
alterations, additions or improvements to the Premises by Tenant (if same are
permitted under the terms of this lease) subsequent to the initial construction
of the Premises. If Tenant fails to comply with the foregoing provisions, any
loss or damage Landlord shall sustain by reason thereof shall be borne by Tenant
and shall be paid immediately by Tenant upon receipt of a bill therefor and
evidence of such loss; and, in addition to any other rights or remedies reserved
by Landlord under this lease, Landlord's obligation to repair, replace and/or
rebuild the Premises to the condition in which they existed prior to such loss.
In either case, Tenant shall pay the cost of such restoration.
In the event the Premises shall be untenantable, the Annual Rent and other
sums payable hereunder shall abate to the extent of proceeds actually received
by Landlord under any rent insurance policy.
No damage or deduction to the Premises shall allow Tenant to surrender
possession of the Premises nor affect Tenant's liability for the payment of rent
or any other covenant herein contained, except as may be specifically provided
in this lease.
Notwithstanding anything else to the contrary contained in this Section or
elsewhere in this lease, Landlord, at its option, may terminate this lease on
thirty (30) days notice to Tenant if--
(a) the Premises and/or building in which the Premises are located shall
be damaged or destroyed as a result of an occurrence which is not covered by
Landlord's insurance; or
(b) the Premises shall be damaged or destroyed during the last two (2)
years of the term or the last 25% of the term, whichever is greater, and, in
such event, the Tenant also shall have the option to terminate this lease on
thirty (30) days written notice to Landlord; or
(c) any or all of the building or common areas of the Complex are damaged
(whether or not the Premises are damaged) to such an extent that, in the sole
judgment of Landlord, the Complex cannot be operated as an economically viable
unit.
Tenant shall give to Landlord prompt written notice of any damage to or
destruction of any portion
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of the Premises resulting from fire or other casualty.
ARTICLE 32
NEGLIGENCE OR WILLFUL ACT
Any of the foregoing provisions to the contrary notwithstanding, if the
Premises are damaged or destroyed by any casualty resulting, in whole or in
part, from the negligence or from the willful act of Tenant or any subtenant or
concessionaire of Tenant or any agent, servant, employee, licensee, or invitee
of any of them, there shall not be any abatement of rent because of said
casualty, and, in addition, Tenant shall be required promptly to repair said
damage at its own expense unless the Premises are damaged or destroyed by a
casualty insured under any fire and extended coverage insurance policy or
policies required on the part of Landlord to be maintained hereunder.
ARTICLE 33
DISCLAIMER OF INSURANCE PROCEEDS
Tenant shall have no interest in or claim to any portion of the proceeds
of any insurance maintained by Landlord hereunder.
ARTICLE 34
CONTINUATION OF BUSINESS
Tenant agrees at all times after any damage to or destruction of Premises,
or any portion thereof, to continue the operation of its business therein to the
extent practicable from the standpoint of good business, and in the event
Landlord is required or elects to repair such damage or destruction to the
Premises under any of the foregoing provisions, Tenant shall not be entitled to
any damages by reason of any inconvenience or loss sustained by Tenant as a
result thereof.
ARTICLE 35
CONDEMNATION OF PREMISES
If the whole or any part of the Premises shall be taken for a public or
quasi-public use or purpose under power of eminent domain, the term of this
lease shall terminate as of the date actual physical possession thereof shall be
so taken.
ARTICLE 36
CONDEMNATION OF COMMON FACILITIES
If any portion of the Common Facilities in the Complex shall be taken for
a public or quasi-public use of purpose under the power of eminent domain and
such taking deprives Tenant, its subtenants, licensees, concessionaires,
business invitees, customers, suppliers, agents, representatives, or employees
of reasonable ingress and egress to and from the Complex or the Premises, or if
such taking reduces the area of the customer vehicular parking portions of the
Common Facilities by an amount in excess of twenty percent (20%), then, and in
either such event, Tenant shall have the right, within thirty (30) days after
the date of such actual taking, to cancel and terminate this lease by giving
Landlord written notice of its election to do so; provided, however, that Tenant
shall have no such right to cancel or terminate this lease if Landlord promptly
takes steps to restore reasonable means of ingress and egress or (as the case
may be) to restore the customer vehicular parking portions of the Common
Facilities to not less than eighty percent (80%) of their area immediately prior
to such taking by substituting thereof additions to or portions of the Complex
or lands reasonable adjacent to the Complex and complete such restoration within
a reasonable period of time thereafter in light of the then existing
circumstances.
ARTICLE 37
DAMAGES AWARDED
All damages awarded or other sums paid on account of any condemnation of
taking under the power of eminent domain of the Premises, the Common Facilities
or the Complex or any portion or portions thereof, shall belong to and shall be
the sole property of Landlord, whether such damages or other sums are awarded as
compensation for loss or diminution in value of the leasehold, or for the fee of
the Premises, or otherwise.
Tenant in no event shall have any claim whatsoever against Landlord for
loss or diminution in value of the leasehold or for the value of any unexpired
term of this lease, Tenant hereby expressly waiving any such right or claim;
provided, however, that Tenant shall be entitled to receive from the condemning
authority any award or portion thereof made for the taking of any of Tenant's
property (hereinabove described) under the power of eminent domain, and for
damages thereto caused thereby and for any cost to which Tenant might be put in
removing Tenant's property.
ARTICLE 38
VOLUNTARY SALE
A voluntary sale of all or any part of the Premises or of the Complex by
Landlord to any public or quasi-public body, agency or person, corporate or
otherwise, having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed to
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be a taking under the power of eminent domain.
ARTICLE 39
AD VALOREM TAXES
The Landlord shall pay all ad valorem taxes and assessments (except those
described in the next succeeding paragraph) which may be levied, accessed, or
charged against the demised Premises subject however to the provisions of
Article 5.2(a) providing for a portion of tax increases over those charged
during the Base Year to be paid by Tenant.
Tenant shall pay all ad valorem taxes accessed against any office
equipment, fixtures, goods, and other personal property which it may install or
store in the leased Premises, and all licenses required in the operation of its
business.
ARTICLE 40
ASSIGNMENT AND SUBLETTING
Tenant shall not assign or in any manner transfer this lease or any
estate, interest or benefit therein or sublet the Premises or any part or parts
thereof or permit the use of the same or any part thereof by anyone other than
Tenant without the prior written consent of Landlord which consent will not be
unreasonably withheld. This prohibition against assigning or subletting shall be
construed to include a prohibition against any assignment or subletting by
operation of law; provided, however, a merger or other consolidation shall not
require Landlord"s approval provided such successor-in-interest has a net wroth
(calculated in accordance with generally accepted accounting principles) at
least equal to that of Tenant as of the date of the execution of this Agreement.
Consent by Landlord to any assignment or transfer of interest under this lease,
or subletting of the Premises or any part thereof shall be limited to the
instance stated in such written consent and shall not constitute a release,
waiver or consent to any other assignment, transfer or interest, or subletting;
and notwithstanding any such assignment, transfer or interest, or subletting,
Tenant shall continue liable for the performance of Tenant's obligations under
this lease. If Landlord consents to any transfer, assignment or subletting, that
consent shall not be effective unless and until Tenant gives to Landlord such
information as to the financial responsibility and standing of the proposed
assignee or subtenant as Landlord may reasonably require, and the transferee,
assignee or sublessee delivers to Landlord a written agreement in form and
substance satisfactory to Landlord pursuant to which such transferee, assignee
or sublessee assumes all of the obligations and liabilities of Tenant under this
lease.
ARTICLE 41
DEFAULT
The happening of any one or more of the following listed events shall
constitute a breach of this lease on the part of Tenant, namely:
(a) The commencement in any court or tribunal of any proceeding, voluntary
or involuntary, to declare Tenant insolvent or unable to pay its debts.
(b) The appointment by any court or under any law of a receiver, trustee,
or other custodian of the property, assets or business of Tenant.
(c) The assignment by Tenant of all or any part of its property or assets
for the benefit of creditors.
(d) The levy or execution, attachment, or taking of property, assets, or
the leasehold interest of Tenant by process of law or otherwise in satisfaction
of any judgment, debt or claims.
(e) The failure of Tenant to perform fully and promptly any act required
of it in the performance of this lease or to comply otherwise with any term or
provision thereof other than those requiring the payment of rent or other
charges.
(f) The failure of Tenant to pay any rent or other payment or charge
payable under this lease agreement for a period of ten (10) days after the same
is due and payable.
Upon the happening of any event of default described under the provisions
of paragraphs (a) through (e), and the failure of Tenant to cure or remove the
same within ten (10) days after written notice of such default given to Tenant
by Landlord or upon the happening of any one type of event of default described
in paragraphs (a) through (e), both inclusive, on three or more occasions in any
period of twelve (12) consecutive months during the term (regardless of whether
said events of default shall have been cured or removed) Landlord, if it shall
so elect, may (without prejudice to any other remedies which Landlord may have
as provided by law) terminate the term hereof and if Landlord shall exercise
such right of election, the same shall be effective as of the date of the event
of default upon written notice of Landlord's election given by Landlord to
Tenant at any time after the date of such event of default, or Landlord, if it
shall so elect, may terminate Tenant's right to possession or occupancy only,
without terminating the term of the lease.
Upon any termination of the term hereof, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession or occupancy
of the Premises without terminating the term hereof, Tenant shall surrender
possession and vacate the Premises and deliver possession thereof to Landlord;
and Tenant hereby grants to Landlord full and free license to enter into and
upon the Premises
9
<PAGE>
in such event and with or without process of law to repossess the Premises and
to expel or remove Tenant and any others who may be occupying the Premises and
to remove therefrom any and all property using for such purpose such force as
may be necessary without being guilty of or liable for trespass, eviction for
forcible entry or detainer and without relinquishing Landlord's right to rent or
any other right given to Landlord hereunder or by operation of law. Except as
otherwise expressly provided in this lease, Tenant hereby expressly waives the
service and demand for the payment of rent or for possession of the Premises or
to re-enter the Premises, including and every form of demand and notice
prescribed by any statute or other law.
If Landlord shall elect to terminate Tenant's right to possession only as
above provided, without terminating the term hereof, Landlord at its option may
enter into the Premises, remove Tenant's property and other evidence of tenancy
and take and hold possession thereof without such entry and possession
terminating the term hereof or otherwise releasing Tenant in whole or in part
from its obligation to pay the rent herein reserved for the full term hereof.
Upon and after entry into possession without termination of the term hereof,
Landlord may relet the Premises or any part for the account of Tenant to any
person, firm or corporation other than Tenant for such rent, for such time, and
upon such terms as Landlord in its sole discretion shall determine. If any rent
collected by Landlord upon such reletting for Tenant's account is not sufficient
to pay monthly the full amount of the rent herein reserved (including rent, and
all other charges of any type which Tenant has agreed are in this lease) and not
theretofore paid by Tenant, together with the costs incurred by Landlord in
connection with the reletting of the Premises including advertising and broker's
commission as well as all costs of repairs, alterations, redecoration or
remodeling, Tenant shall pay to Landlord the amount of each monthly deficiency
upon demand, and if the rent so collected from such reletting is more than
sufficient to pay the full amount of the rent reserved hereunder, together with
the aforementioned costs, Landlord, at the end of the stated term hereof, shall
apply any surplus to the extent thereof to the discharge of any obligation of
Tenant to Landlord under the terms of this lease, and any balance then remaining
shall belong go Landlord. Any suit or proceeding brought to collect any
deficiency or rent shall not prejudice or preclude in any way the right of the
Landlord to collect any deficiencies thereafter arising by similar suit or
proceeding.
ARTICLE 42
INTEREST
Whenever this lease refers to "Interest", same shall be computed at a rate
equal to (i) the Average Prime Rate (as hereinafter defined) plus four percent
(4%), or (ii) twelve percent (12%), which is greater. If, however, payment of
interest at such rate by Tenant (or by the tenant then in possession having
succeeded to the Tenant's interest in accordance with the terms of this lease)
should be unlawful, that is, violative of usury statutes or otherwise, then
"interest" shall, as against such party, be computed at the maximum lawful rate
payable by such party.
"Average Prime Rate" shall mean the average of the prime rate being
charged by NationsBank, or its successor, for the quarter (January - March,
April - June, July - September, October - December) immediately prior to the
time in question.
ARTICLE 43
LATE PAYMENTS AND ATTORNEY'S FEES
Should Tenant fail to pay when due any installment of Annual Rent,
Percentage Rent or any other sum payable to Landlord under the terms of this
lease, then Interest shall accrue from and after the date on which any such sum
shall be due and payable, and such Interest together with a Late Charge of
$25.00 to cover the extra expenses involved in handling such delinquency shall
be paid by Tenant to Landlord at the time of payment of the delinquent sum. In
addition, in the event that the Tenant shall fail to pay any sum due under this
lease or shall otherwise be in default hereunder, then the Tenant shall be
responsible for and shall pay all attorney's fees and other expenses reasonably
incurred by the Landlord in connection therewith. If Landlord shall be in
default hereunder and Tenant prevails in any legal action it may file to cure or
recover damages for such default, Tenant shall be entitled to attorney fees and
other expenses reasonably incurred in connection therewith. In either case,
attorney fees shall be based upon regular hourly rates for the attorney(s)
performing such services.
ARTICLE 44
SECURITY DEPOSIT
Tenant has deposited with Landlord the sum of $2,452.08 as a "Security
Deposit", the receipt of which is hereby acknowledged. Said deposit shall be
held by Landlord without liability for interest as security for the faithful
performance by Tenant of all the terms of this lease by said Tenant to be
observed and performed. The security deposit shall not be mortgaged, assigned,
transferred or encumbered by Tenant without the written consent of Landlord and
any such act on the part of Tenant shall be without force and effect and shall
not be binding upon the Landlord.
ARTICLE 45
USE OF FUNDS
If any of the rents herein reserved or any other sum payable by Tenant to
Landlord shall be overdue and unpaid or should Landlord make payments on behalf
of the Tenant, or Tenant shall fail to
10
<PAGE>
perform any of the terms of this lease, then Landlord may, at its option and
without prejudice to any other remedy which Landlord may have on account
thereof, appropriate and apply said entire security deposit or so much thereof
as may be necessary to compensate Landlord toward the payment of rent or
additional rent or loss or damage sustained by Landlord due to such breach on
the part of Tenant; and Tenant shall forthwith upon demand restore said security
to the original sum deposited. Should Tenant comply with all of said terms and
promptly pay all of the rentals as they fall due and all other sums payable by
Tenant to Landlord, said deposit shall be returned in full to Tenant at the end
of the term or applied against the last month's rental due, in the discretion of
Landlord.
ARTICLE 46
BANKRUPTCY
In the event of bankruptcy or other debtor-creditor proceeding against
Tenant, such security deposit shall be deemed to be applied first to the payment
of rent and other charges due Landlord for all periods prior to the filing of
such proceedings.
ARTICLE 47
TRANSFER
Landlord may deliver the funds deposited hereunder by Tenant to the
purchaser of Landlord's interest in the Premises in the event that such interest
be sold and thereupon Landlord shall be discharged from any further liability
with respect to such deposit, and this provision shall also apply to any
subsequent transferees.
ARTICLE 48
SALE OR ASSIGNMENT
It is agreed that Landlord may at any time assign or transfer its interest
as Landlord in and to this lease, or any part thereof, and may at any time sell
or transfer its interest in the fee of the Premises, or its interest in and to
the whole or any portion of the Premises.
ARTICLE 49
ATTORNMENT
Tenant hereby agrees to attorn to any assignee, transferee or purchaser of
Landlord from and after the date of notice to Tenant of such assignment,
transfer or sale, in the same manner and with the same force and affect as
though this lease were made, in the first instance, by and between Tenant and
such assignee, transferee or purchaser. In the event of the exercise of the
power of sale under, or the foreclosure of, any deed of trust, mortgage or other
encumbrance placed by Landlord against all or any portion of the Premises,
Tenant shall upon such sale or foreclosure of any such deed of trust, mortgage
or other encumbrance, and shall recognize the purchaser or judgment creditor as
the Landlord under the lease.
ARTICLE 50
SUBORDINATION
Tenant agrees upon request of Landlord to subordinate this lease and its
rights hereunder to the lien of any mortgage, deed of trust, or other
encumbrances, together with any conditions, renewals, extensions or replacements
thereof, now or hereafter placed, charged or enforced against the Landlord's
interest in the lease and the leasehold estate thereby created, the Premises or
the land, building or improvements included therein or of which the Premises are
a part, or any portion or portions thereof, and to execute and deliver (but
without cost to Tenant) at any time and from time to time upon demand by
Landlord such documents as may be required to effectuate such subordination, and
in the event that Tenant shall fail, neglect or refuse to execute and deliver
any such document within ten (10) days after receipt of written notice so to do
and the receipt by Tenant of the document to be executed by it, Tenant hereby
appoints Landlord, its successors and assigns, the attorney-in-fact of Tenant
irrevocably to execute and deliver any and all documents for and on behalf of
Tenant; provided, however, that Tenant shall not be required to effectuate such
subordination, nor shall Landlord be authorized to effect such subordination on
behalf of Tenant, unless the mortgagee or trustee named in such mortgage, deed
of trust, or other encumbrance shall first agree in writing, for the benefit of
Tenant, that so long as Tenant is not in default under any of the provisions,
covenants or conditions of this lease nor any of the rights of Tenant hereunder
shall be terminated or modified or be subject to termination or modification
except as herein otherwise provided, nor shall Tenant's possession of the
Premises be disturbed or interfered with, by any trustee's sale or by any action
or proceeding to foreclose said mortgage, deed of trust or other encumbrances.
ARTICLE 51
ACKNOWLEDGMENT OF LEASE
Tenant agrees that at any time, or from time to time, at reasonable
intervals within ten (10) days after written request by Landlord, Tenant will
execute, acknowledge, and deliver to Landlord or to such other party as may be
designated by Landlord, a certificate stating that this lease in full force and
effect, and has not been modified, supplemented, or amended in any way, except
as indicated in such certificate; that all conditions and agreements under this
lease to be performed by Landlord have been satisfied or performed, except as
set forth in said certificate; that there are no existing defenses or offsets;
except as
11
<PAGE>
indicated on said certificate; that Tenant has not paid any rental in advance,
except as indicated in said certificate; that Tenant is not in default in the
payment of rent or any of the other obligations required of Tenant under this
lease; and that Tenant has paid basic rentals and percentage rentals as of the
date set forth in this certificate.
ARTICLE 52
NOTICES
Any notice provided herein shall be deemed sufficient and to have been
duly served if the same shall be in writing and mailed postage prepaid addressed
as follows:
If intended for Landlord, to Landlord at:
Frank B. Peters, Jr.
P. O. Box 1349
High Point, North Carolina 27261
or to such other address as Landlord may from time to time direct.
If intended for Tenant, to Tenant at:
Quaker Fabric Corporation of Fall River
941 Grinnell Street
Fall River, Massachusetts 02721
or to such other address as Tenant may from time to time direct in writing
delivered to Landlord.
ARTICLE 53
HOLDING OVER
In the event Tenant remains in possession of the Premises after the
expiration of the term hereof and without the execution of a new lease, Tenant
thereby shall not acquire any right, title or interest in or to the Premises;
provided, however, that at the option of Landlord, by written notice of the
exercise thereof given to Tenant within thirty (30) days next following the last
day of the term hereof or any extension thereof, Tenant as a result of such
holding over thereby shall be deemed to have renewed this lease for the further
period of the term herein provided, and if Landlord shall not exercise the
option above described, Tenant as a result of such holding over, shall occupy
the Premises as a tenant at will, and in either event subject to all the
conditions, provisions, and obligations of this lease insofar as the same shall
then be applicable to whichever of such tenancies shall result.
ARTICLE 54
NONWAIVER
The acceptance of rentals and fees by Landlord for any period or periods
after a default of any of the terms, covenants and conditions herein contained
to be performed, kept and observed by Tenant shall not be deemed a waiver of any
rights on the part of Landlord to terminate this lease for any other failure or
for the continued failure by Tenant so to perform, keep or observe the terms,
conditions or covenants hereof to be performed, kept and observed by it. No
waiver by Landlord of any of the terms of this agreement to be kept, performed
and observed by Tenant shall be construed to be or act as a waiver by Landlord
of any subsequent default on the part of Tenant.
ARTICLE 55
MEMORANDUM OF LEASE
If either Tenant or Landlord request of the other the execution of a
Memorandum of Lease for recording purposes, the requesting party shall cause
said document to be prepared, and both Landlord and Tenant agree to execute said
Memorandum of Lease so long as said agreement contains only a description of the
leased Premises, term of lease and incorporates this lease by reference.
ARTICLE 56
IDENTITY OF INTEREST
The execution of this lease or the performance of any act pursuant to the
provisions thereof shall not be deemed or construed to have the effect of
creating between Landlord and Tenant the relationship of principal or agent or
of partnership or of joint venture and the relationship between them shall be
that only of Landlord and Tenant.
ARTICLE 57
JOINT AND SEVERAL LIABILITY
The word "Tenant" as used herein shall include all persons, firms,
associations and corporations named in the first paragraph of this lease and all
such persons, firms, associations and corporations shall
12
<PAGE>
be jointly and severally liable for the performance of all obligations to be
performed by Tenant under this lease. The foregoing to the contrary
notwithstanding, the word "Tenant", shall be construed to mean and refer to each
of such persons, firms, associations or corporations individually so that the
occurrence of any of the events described to any one of them shall constitute an
"Event of Default".
ARTICLE 58
PRONOUNS AND PLURAL REFERENCES
Unless the context requires otherwise, when referring to the Tenant, the
singular as used therein shall be construed as plural when more than one is the
Tenant, and the neuter shall be construed as masculine when the Tenant is
masculine, as feminine when the Tenant is feminine and to both when the Tenant
is plural and includes both masculine and feminine.
ARTICLE 59
INSPECTION OF Premises
Landlord, its agents, servants and employees shall have the right to enter
all parts of the Premises during business hours to inspect the same and enforce
and carry out any provision of this lease.
ARTICLE 60
SURRENDER OF Premises
On the expiration date or other termination of the term or the Tenant's
right of possession, Tenant shall quit and surrender the demised Premises, broom
clean and in good condition and repair, together with all alterations, fixtures,
heating and air conditioning equipment, installations, additions and
improvements which may have been made in or attached on or to the demised
Premises. Upon surrender, Tenant shall remove his trade fixtures, and Tenant
shall repair any damage to the demised Premises caused thereby. Landlord may
require Tenant to restore the demised Premises so that the demised Premises
shall be as they were on the commencement date except for ordinary wear and
tear.
Any personal property of the Tenant which shall remain in the Premises
after the expiration or termination of the term or the Tenant's right of
possession shall be deemed to have been abandoned by the Tenant and may be
retained by the Landlord as its property or disposed of in such manner as
Landlord may see fit; any proceeds from the sale thereof shall belong to the
Landlord.
ARTICLE 61
PARTIAL INVALIDITY
If any term, provision, covenant or condition of this lease should be held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of this lease shall continue in full force and effect and shall in no
way be affected, impaired or invalidated thereby.
ARTICLE 62
BINDING EFFECT
The provisions of this lease shall be binding upon Landlord, its successors and
assigns and upon Tenant, its successors and assigns or if Tenant is an
individual, upon his heirs, executors, administrators and assigns.
ARTICLE 63
ENTIRE AGREEMENT
This lease embodies the entire agreement between Landlord and Tenant
relative to the subject matter hereof and no representation or agreements, oral
or otherwise, between the parties not embodied herein or attached hereto shall
be of any force and effect. This lease shall not be modified, changed or altered
in any respect except by a writing signed on behalf of Landlord, and properly
signed on behalf of Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement
under the respective seals as of the day and year first above written.
LANDLORD:
F. B. Peters, Jr. (SEAL)
---------------------------------
Frank B. Peters, Jr.
TENANT:
Quaker Fabric Corporation of Fall River
(Corporate Seal)
By: [ILLEGIBLE]
------------------------------------
(Title) Vice President
<PAGE>
SEVENTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
Seventh Amendment dated as of September 30, 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 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 October 2, 1999, (B) 1.00 to
1.00 for the period of four consecutive fiscal quarters ending
January 1, 2000, (C) 1.25 to 1.00 for the period of four consecutive
fiscal quarters ending April 1, 2000 and (D) 1.50 to 1.00 for each
period of four consecutive fiscal quarters ending after April 1,
2000."
'SS'2. 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
<PAGE>
-2-
(b) an amendment fee of $20,000 paid by the Borrowers to the Agent
for the pro rata account of each Bank based on such Bank's Commitment
percentage.
'SS'3. Representations and Warranties. The representations and warranties
of the Borrowers and the Parent contained in the Credit Agreement were true and
correct when made and continue to be true and correct on and as of the date
hereof as if made on the date hereof except to the extent of changes resulting
from transactions contemplated or permitted by the Credit Agreement and to the
extent that such representations and warranties relate expressly to an earlier
date. No Default or Event of Default has occurred and is continuing.
'SS'4. 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'5. 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'6. 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'7. 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>
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: Paul Kelly
------------------------------------
Title: Vice President Finance
QUAKER TEXTILE CORPORATION
By: Paul Kelly
------------------------------------
Title: Vice President Finance
QUAKER FABRIC MEXICO, S.A. de C.V.
By: Paul Kelly
------------------------------------
Title: Vice President Finance
QUAKER FABRIC CORPORATION
By: Paul Kelly
------------------------------------
Title: Vice President Finance
BANKBOSTON, N.A., (f/k/a The First
National Bank of Boston) as Agent, as
Issuing Bank and as a Bank
By:
------------------------------------
Title:
FLEET NATIONAL BANK
By:
------------------------------------
Title:
<PAGE>
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: Christopher S. Allen
------------------------------------
Title: Director
FLEET NATIONAL BANK
By:
------------------------------------
Title:
<PAGE>
WAREHOUSE OFFICE LEASE
HAMRIYAH FREE ZONE AUTHORITY
QUAKER FABRIC CORPORATION OF FALL RIVER
DATED 28TH NOVEMBER, 1999
<PAGE>
INDEX
CLAUSE PAGE
SECTION 1
DEFINITIONS AND INTERPRETATION
1. DEFINITIONS........................................................ 6
2. INTERPRETATION..................................................... 8
SECTION 2
GRANT OF LEASE
3. GRANT, RIGHTS AND OTHER MATTERS.................................... 9
3.1 Demise and Term.............................................. 9
3.2 Covenants, easements etc.................................... 10
3.3 No implied easements........................................ 10
3.4 Encroachments and easements................................. 10
3.5 Covenants relating to other property........................ 10
3.6 Rights of entry by Landlord................................. 10
3.7 Landlord's Covenants........................................ 11
3.8 Terms of entry by Landlord.................................. 11
3.9 Inventory................................................... 11
SECTION 3
FINANCIAL PROVISIONS
4. RENTS............................................................. 12
4.1 Tenant's obligation to pay.................................. 12
4.2 Dates of payment of Principal Rent.......................... 12
4.3 Method of payment of Principal Rent......................... 12
4.4 Dates of payment of Outstanding Rent........................ 12
4.5 No right of set-off......................................... 12
5. RENT REVIEW....................................................... 13
5.1 Review...................................................... 13
5.2 Memoranda of reviewed rent.................................. 13
6. INTEREST.......................................................... 13
6.1 Interest on late payments................................... 13
6.2 Interest on refused payments................................ 13
7. OUTGOINGS......................................................... 14
7.1 Tenant's obligation to pay.................................. 14
7.2 Costs of utilities etc...................................... 14
7.3 Common facilities........................................... 14
<PAGE>
8. .................................................................. 14
9. LANDLORD'S COSTS................................................... 14
SECTION 4
REPAIRS, ALTERATIONS AND SIGNS
10. REPAIRS............................................................ 15
11. YIELD UP........................................................... 15
11.1 Reinstatement of Premises.................................... 15
11.2 Yielding up in good repair................................... 16
12. COMPLIANCE WITH NOTICES............................................ 16
12.1 Tenant to remedy breaches of covenant........................ 16
13. ALTERATIONS AND IMPROVEMENTS....................................... 16
13.1 No alterations............................................... 16
13.2 No alterations to Landlord's fixtures........................ 16
13.3 Non-structural alterations................................... 17
13.4 Demountable partitioning..................................... 17
13.5 Covenants by Tenant.......................................... 17
14. SIGNS AND ADVERTISEMENTS........................................... 17
SECTION 5
USE
15. USE OF PREMISES.................................................... 17
15.1 Permitted use................................................ 17
15.2 Tenant not to leave Premises unoccupied...................... 18
15.3 Details of keyholders........................................ 18
15.4 Keys ........................................................ 18
16. USE RESTRICTIONS................................................... 18
17. EXCLUSION OF WARRANTY AS TO USER................................... 18
17.1 No warranty by Landlord...................................... 18
SECTION 6
DISPOSALS
18. ASSIGNMENT AND UNDERLETTING........................................ 18
SECTION 7
LEGAL REQUIREMENTS
19. STATUTORY REQUIREMENTS............................................. 19
<PAGE>
19.1 Tenant to refrain from certain acts.......................... 19
20. COMPLIANCE WITH FREE ZONE RULES AND REGULATIONS.................... 19
20.1 General Compliance........................................... 19
20.2 Compliance with Licence...................................... 19
20.3 Tenant to comply with statutes............................... 19
21. LEGAL NOTICES...................................................... 19
22. FIRE PRECAUTIONS AND EQUIPMENT..................................... 20
22.1 Compliance with requirements................................. 20
22.2 Access to be kept clear...................................... 20
23. DEFECTIVE PREMISES................................................. 20
SECTION 8
INSURANCE
24. INSURANCE PROVISIONS............................................... 20
24.1 Insurance of personal belongings............................. 21
24.2 Insurance becoming void...................................... 21
24.3 Requirements of insurers..................................... 21
24.4 Notice by Tenant............................................. 21
SECTION 9
DEFAULT OF TENANT AND RIGHTS OF RE-ENTRY
25. DEFAULT OF TENANT.................................................. 22
25.1 Re-entry..................................................... 22
25.2 Events of default............................................ 22
25.3 Tenant's right to terminate.................................. 23
SECTION 10
MISCELLANEOUS
26. QUIET ENJOYMENT.................................................... 23
27. EXCLUSION OF IMPLIED COVENANTS BY LANDLORD......................... 23
28. RELETTING NOTICES.................................................. 23
29. SECURITY........................................................... 24
30. DISCLOSURE OF INFORMATION.......................................... 24
31. INDEMNITY.......................................................... 24
32. REPRESENTATIONS.................................................... 24
<PAGE>
33. EFFECT OF WAIVER................................................... 24
34. NOTICES............................................................ 25
35. GOVERNING LAW...................................................... 25
SCHEDULE 1: EXCEPTIONS AND RESERVATIONS.................................. 26
SCHEDULE 2: USE RESTRICTIONS............................................. 28
<PAGE>
THIS LEASE is made on the 28th day of November, 1999
BETWEEN:-
(1) HAMRIYAH FREE ZONE AUTHORITY of P.O. Box 1377, Sharjah, United Arab
Emirates (the "Landlord"); and
(2) QUAKER FABRIC CORPORATION OF FALL RIVER, 941 Grinnell Street, Fall River,
MA 02721, United States of America (the "Tenant").
WITNESSES as follows:-
SECTION 1
DEFINITIONS AND INTERPRETATION
1. DEFINITIONS
In this Lease, unless the context requires otherwise, the following
expressions shall have the following meanings:-
1.1 "Outstanding Rent" means all sums referred to in Clause 6, and all sums
which are recoverable as rent in arrear or stated in this Lease to be due
to the Landlord;
1.2 "Adjoining Property" means any land and/or buildings adjoining or
neighbouring the Premises;
1.3 "Conduits" means all drains, pipes, gullies, gutters, sewers, ducts,
mains, channels, subways, wires, cables, conduits, flues and any other
conducting media of whatsoever nature;
1.4 Left blank
1.5 "Environmental Regulations" means the Implementing Rules and Regulations
relating to waste disposal and other such matters issued by HFZ Authority
(as amended from time to time) and the Free Zone Circulars issued pursuant
thereto from time to time;
1.6 "Free Zone" means Hamriyah Free Zone established pursuant to Sharjah Emiri
Decree No 6 of 1995;
1.7 "Free Zone Circulars" means the circulars issued from time to time by the
Free Zone pursuant to the Implementing Rules and Regulations;
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1.8 "HFZ Authority" means Hamriyah Free Zone Authority;
1.9 "Implementing Rules and Regulations" means the Implementing Rules and
Regulations issued by HFZ Authority (as the same may be amended from time
to time) pursuant to Sharjah Emiri Decree No 6 of 1995;
1.10 "Initial Rent" means the sum of UAE Dirhams 40,000/- (Dhs. Forty thousand
only ) per annum for the offices attached to the 416 Sq.m Hamriyah Free
Zone Warehouse as described in the Annex to this Lease;
1.11 "Landlord" means the person for the time being entitled to the reversion
immediately expectant on the determination of the Term;
1.12 "this Lease" means this Lease, all Schedules and Annexes hereto, and any
document which is supplemental to it, whether or not it is expressly
stated to be so;
1.13 "Permitted Use" means subject to obtaining all necessary approvals from
the landlord and other authorities, if any, the office may be used for a
Commercial Project which includes for the import, export and distribution
of Woven Upholstery Fabric;
1.14 "Plan/s" means the plan/s or numbered HFZA-WH-1K-08/2 - 001, annexed to
this Lease;
1.15 "Premises" means the office attached to Hamriyah Free Zone Warehouse shown
on the Plan numbered HFZA-WH-1K-08/2 - 001 annexed to this Lease and each
and every part of the office, including:-
(a) any Conduits in, on, under or over and exclusively serving them,
except those of any utility company;
(b) all landlord's fixtures, fittings, plant, machinery, apparatus and
equipment now or after the date of this Lease in or upon the same;
and
(c) any additions, alterations and improvements.
1.16 "Prescribed Rate" means three per cent (3%) per annum above the Prime
Rate;
1.17 "Prime Rate" means the base rate for the time being of UAE Central Bank or
some other bank nominated from time to time by the Landlord or, in the
event of base rate being abolished, such other comparable rate of interest
as the Landlord shall reasonably specify;
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1.18 "Principal Rent" means the rent payable under clause 4.1.1;
1.19 "Rent Commencement Date" means 1st December, 1999;
1.20 "Rents" means the sums payable by the Tenant under clause 4;
1.21 "Review Date" means 1st December, 2004 and "Relevant Review Date" shall be
construed accordingly;
1.22 "Revised Rent" means the rent as determined by the Landlord on a Relevant
Review Date;
1.23 "Tenant" means the party named as "Tenant" in this Lease and includes the
Tenant's successors in title and assigns and, in the case of an
individual, his personal representatives;
1.24 "Term" means the term of years specified in clause 3.1;
1.25 "Term Commencement Date" means 1st December, 1999;
1.26 "UAE" means United Arab Emirates;
1.27 "UAE Dirhams" means the lawful currency of the UAE;
1.28 "Utilities" means water, soil, steam, air, electricity, radio, television,
telegraphic, telephone, telecommunications and other services and supplies
of whatsoever nature; and
1.29 "Working Day" means any day, other than a Friday, on which clearing banks
in Sharjah are open to the public for the transaction of business.
2. INTERPRETATION
Unless there is something in the subject or context inconsistent with the
same:-
2.1 every covenant by a party comprising more than one person shall be deemed
to be made by such party jointly and severally;
2.2 words importing persons shall include firms, companies and corporations
and vice versa;
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2.3 any covenant by the Tenant not to do any act or thing shall include an
obligation not to permit or suffer such act or thing to be done;
2.4 any reference to the right of the Landlord to have access to, or to enter,
the Premises shall be construed as extending to all persons authorised by
the Landlord, including agents, professional advisers, contractors,
workmen and others;
2.5 any reference to a law (whether specifically named or not) shall include
any amendment or re-enactment of it for the time being in force, and all
instruments, orders, notices, regulations, directions, by-laws,
permissions and plans for the time being made, issued or given under it,
or deriving validity from it;
2.6 all agreements and obligations by any party contained in this Lease
(whether or not expressed to be covenants) shall be deemed to be, and
shall be construed as, covenants by such party;
2.7 the words "including" and "include" shall be deemed to be followed by the
words "without limitation";
2.8 the titles or headings appearing in this Lease are for reference only and
shall not affect its construction;
2.9 all dates herein shall be construed with reference to and in accordance
with the Gregorian Calendar but not otherwise; and
2.10 any reference to a clause schedule or annex shall mean a clause or annex
schedule of this Lease.
SECTION 2
GRANT OF LEASE
3. GRANT, RIGHTS AND OTHER MATTERS
3.1 Demise and Term
In consideration of the rents, covenants and agreements reserved by, and
contained in, this Lease to be paid and performed by the Tenant, the
Landlord leases the Premises to the Tenant from and including the Term
Commencement Date for the term of one year paying the Rents to the
Landlord in accordance with Clause 4.
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3.2 Covenants, easements etc
This Lease is granted subject to any rights, easements, reservations,
privileges, covenants, restrictions, stipulations and other matters of
whatever nature affecting the Premises; provided, however, that none of
the above shall materially disrupt, interfere with or otherwise limit or
affect the tenancy and other rights granted to the Tenant hereunder
including but without limitation the rights to quiet enjoyment further
described in Clause 26.
3.3 No implied easements
Nothing contained in this Lease except those related to the quiet
enjoyment of the Premises for performing the Permitted Use, all such
easements, rights or privileges required to provide the Tenant access to
the Premises in connection with undertaking the Permitted Use thereon,
including all rights of ingress and egress thereto, and the nonexclusive
use of the common areas and facilities of the Free Zone, shall confer on,
or grant to, the Tenant any easement, right or privilege, other than any
expressly granted by this Lease.
3.4 Encroachments and easements
The Tenant shall not stop up or obstruct any of the windows or lights
belonging to the Premises and shall not permit any new window, light,
opening, doorway, passage, Conduit or other encroachment or easement to be
made or acquired into, on or over the Premises or any part of them. If any
person shall attempt to make or acquire any encroachment or easement
whatsoever, the Tenant shall give written notice of that fact to the
Landlord immediately after it shall come to the notice of the Tenant and,
at the request of the Landlord but at the cost of the Tenant, adopt such
means as may be reasonably required by the Landlord for preventing any
encroachment or the acquisition of any easement.
3.5 Covenants relating to other property
Nothing contained in, or implied by, this Lease shall give the Tenant the
benefit of, or the right to enforce or prevent the release or modification
of, any covenant or agreement entered into by any tenant of the Landlord
in respect of any property not comprised in this Lease.
3.6 Rights of entry by Landlord
3.6.1 The Tenant shall permit the Landlord with all necessary materials
and appliances to enter and remain on the Premises:-
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(a) to examine the condition of the Premises and to take details
of the Landlord's fixtures in them;
(b) to exercise any of the rights excepted and reserved by this
Lease; and
(c) for any other purpose connected with the interest of the
Landlord in the Premises, including valuing or disposing of
the Landlord's interest in them.
3.6.2 In the event of any emergency whatsoever at the Free Zone and if
required by the Landlord, the Tenant shall allow free entry on and
across the Premises for personnel of the Landlord and other persons
authorised by the Landlord and for any emergency personnel.
3.7 Landlord's Covenants
Covenants on the part of the Landlord are covenants to do or not to do
that which is covenanted for so long only as the Landlord remains entitled
to the reversion immediately expectant on the determination of the Term.
3.8 Terms of entry by Landlord
In exercising any of the rights mentioned in Clause 3.6, the Landlord or
the person exercising the right shall:-
3.8.1 give to the Tenant reasonable prior notice that the right to be
exercised and shall only exercise it at reasonable times (except in
an emergency, when no notice need be given and when it can be
exercised at any time);
3.8.2 cause as little inconvenience as practicable to the Tenant or any
other permitted occupier of any part of the Premises; and
3.8.3 make good, as soon as practicable and to the reasonable satisfaction
of the Tenant, any damage caused to the Premises.
3.9 Left blank.
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SECTION 3
FINANCIAL PROVISIONS
4. RENTS
4.1 Tenant's obligation to pay
The Tenant covenants to pay to the Landlord at all times during the Term:-
4.1.1 yearly, and proportionately for any fraction of a year, the Initial
Rent and from and including each Rent Review Date, such yearly rent
as shall become payable under Clause 5;
4.1.2 the Insurance Charges; and
4.1.3 the Outstanding Amount.
4.2 Dates of payment of Principal Rent
The Principal Rent shall be paid in one annual instalment in advance on
the Rent Commencement Date.
4.3 Method of payment of Principal Rent
The Principal Rent shall be paid in such manner as the Landlord may, from
time to time, determine so that the Landlord shall receive full value in
cleared funds on the date when payment is due.
4.4 Dates of payment of Insurance Charges and Outstanding Amount
The Insurance Charges and Outstanding Amount shall be paid on demand, the
first payment of the Insurance Charge being on Term Commencement Date.
4.5 No right of set-off
The Tenant shall not exercise any rights of set-off, deduction, abatement
or counterclaim which it may have to reduce its liability for Rents.
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5. RENT REVIEW
5.1 Review
The Principal Rent shall be reviewed at each Review Date and from and
including each Review Date the Principal Rent shall equal the Revised
Rent.
5.2 Memoranda of reviewed rent
Within ten (10) Working Days after the Revised Rent has been determined,
memoranda recording that fact shall be prepared by the Landlord or its
solicitors and shall be signed by or on behalf of the Landlord and the
Tenant and annexed to this Lease and its counterpart. The parties shall
each bear their own costs in relation to the preparation and signing of
such memoranda.
6. INTEREST
6.1 Interest on late payments
Without prejudice to any other right, remedy or power contained in this
Lease or otherwise available to the Landlord, if any of the Rents (whether
formally demanded or not) or any other sum of money payable to the
Landlord by the Tenant under this Lease shall not be paid so that the
Landlord receives full value in cleared funds:-
6.1.1 in the case of the Principal Rent, on the date when payment is due
(or, if the due date is not a Working Day, the next Working Day
after the due date); or
6.1.2 in the case of any other Rents or sums, within five (5) Working Days
of the date when payment is due
the Tenant shall pay interest on such Rents and/or sums at the Prescribed
Rate from and including the date when payment was due to the date of
payment to the Landlord (both before and after any judgment).
6.2 Interest on refused payments
Without prejudice to any other right, remedy or power contained in this
Lease or otherwise available to the Landlord, if the Landlord shall
decline to accept any of the Rents so as not to waive any existing breach
or alleged breach of covenant, the Tenant shall pay interest on such Rent
at the Prescribed Rate
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from and including the date when payment was due (or, where applicable,
would have been due if demanded on the earliest date on which it could
have been demanded) to the date when payment is accepted by the Landlord.
7. OUTGOINGS
7.1 Intentionally left blank.
7.2 Costs of utilities etc.
The Tenant shall pay all charges in respect of any water, electricity,
telephone, telefax or fax services incurred by the Tenant and levied from
time to time.
7.3 Common facilities
Intentionally left blank.
8. Intentionally left blank.
9. LANDLORD'S COSTS
Within ten (10) Working Days of written demand, the Tenant shall pay, or
indemnify the Landlord against, all reasonable costs, fees, charges,
disbursements and expenses properly incurred by the Landlord, including
those payable to solicitors, counsel, surveyors, architects and bailiffs:-
9.1 in relation to, or in contemplation of, the preparation and service of all
notices and schedules relating to any wants of repair, whether served
during or after the expiration of the Term (but relating in all cases only
to such wants of repair which accrued not later than the expiration or
earlier determination of the Term);
9.2 in connection with the recovery or attempted recovery of arrears of rent
or other sums due from the Tenant, or in procuring the remedying of the
breach of any covenant by the Tenant;
9.3 in relation to any application for consent required or made necessary by
this Lease (such costs to include reasonable management fees and expenses)
whether or not it is granted (except in cases where the Landlord is
obliged not to withhold its consent unreasonably and the withholding of
its consent is held to be unreasonable), or the application is withdrawn;
and
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9.4 in connection with the settling, amending and termination of this Lease
and the costs of disbursements of the Landlord's agents incurred in
connection with the approval of the Tenant's plans and specifications and
any amendment thereto.
SECTION 4
REPAIRS, ALTERATIONS AND SIGNS
10. REPAIRS
The Tenant shall at all times during the Term of this Lease keep the
interior of the Premises including all fixtures and fittings therein and
the furniture in good and tenantable repair, normal wear and tear
excepted, and shall make good and pay for, on demand, all damage including
accidental damage howsoever caused by the Tenant to the Premises, to any
person therein or to the furniture or to any article provided by the
Landlord and not to remove any of the furniture or any article provided by
the Landlord from the Premises.
11. YIELD UP
11.1 Reinstatement of Premises
Immediately prior to the expiration or earlier determination of the Term,
the Tenant shall at its cost:-
11.1.1 replace any of the Landlord's fixtures and fittings which shall be
missing, damaged or destroyed, normal wear and tear excepted, with
new ones of similar kind and quality or (at the option of the
Landlord) pay to the Landlord the cost of replacing any of them;
11.1.2 remove from the Premises any sign, writing or painting of the name
or business of the Tenant or any occupier of them and all Tenant's
fixtures, fittings, furniture and effects and make good, normal
wear and tear excepted, to the reasonable satisfaction of the
Landlord, all damage caused by such removal;
11.1.3 if so required by the Landlord, but not otherwise, remove and make
good any alterations or additions made to the Premises during the
Term, and well and substantially reinstate the Premises in such
manner as the Landlord shall direct and to the Landlord's
reasonable satisfaction, reasonable wear and tear excepted.
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11.2 Yielding up in good repair
At the expiration or earlier determination of the Term, the Tenant shall
quietly yield up the Premises to the Landlord in good and substantial
repair and condition, normal wear and tear excepted, and in accordance
with the covenants by the Tenant contained in this Lease.
12. COMPLIANCE WITH NOTICES
12.1 Tenant to remedy breaches of covenant
Whenever the Landlord shall give written notice to the Tenant of any
defects, wants of repair or breaches of covenant, the Tenant shall, within
sixty (60) days of such notice, or sooner if requisite, make good such
defects or wants of repair and remedy the breach of covenant to the
reasonable satisfaction of the Landlord.
13. ALTERATIONS AND IMPROVEMENTS
13.1 The Tenant shall not carry out any alterations or improvements in the
Premises without the prior written consent of the Landlord and at any time
during the currency of the Lease upon reasonable notice (save in the case
of emergency) given by the Landlord permit the Landlord or its agent full
and unhindered access to the Premises for the purpose of:-
13.1.1 cleaning the same; or
13.1.2 inspecting the Premises and repairing any damage; or
13.1.3 viewing the Premises in the company of other prospective tenants.
The Tenant shall not hold or seek to hold the Landlord or its agents
responsible for any damage to any person or loss of property or goods;
provided however, that the Landlord shall be responsible and liable to the
Tenant for any damage to any person or loss of property or goods arising
out of access by the Landlord or its agents to the Premises or their
activities in the Premises.
13.2 No alterations to landlord's fixtures
The Tenant shall not make any alteration or addition to any of the
Landlord's fixtures or to any of the Conduits in the Premises without the
prior written consent of the Landlord.
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13.3 Non-structural alterations
The Tenant shall not make any alteration or addition of a non-structural
nature to the Premises without the prior written consent of the Landlord.
13.4 Demountable partitioning
The Tenant shall not install, alter or remove demountable partitioning in
the Premises without the prior written consent of the Landlord.
13.5 Covenants by Tenant
The Tenant shall enter into such covenants as the Landlord may require
regarding the execution of any works to which the Landlord consents under
this Clause, and the reinstatement of the Premises at the end or earlier
determination of the Term.
14. SIGNS AND ADVERTISEMENTS
The Tenant shall not erect or display on the exterior of the Premises or
in the windows of them so as to be visible from the exterior, any
advertisement, poster, notice, pole, flag, aerial, satellite dish or any
other sign or thing, without the prior written approval of the Landlord to
the size, style and position and the materials to be used.
SECTION 5
USE
15. USE OF PREMISES
15.1 Permitted use
The Tenant shall not use the Premises or any part of them except for the
Permitted Use.
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15.2 Tenant not to leave Premises unoccupied
The Tenant shall not leave the Premises continuously unoccupied for more
than thirty (30) consecutive days without notifying the Landlord and
providing, or paying for, such caretaking or security arrangements as the
Landlord shall reasonably require in order to protect the Premises from
vandalism, theft or unlawful occupation.
15.3 Details of keyholders
The Tenant shall ensure that, at all times, the Landlord has particulars
of the name, home address and home telephone number of at least two
keyholders of the Premises.
15.4 Keys
The Landlord shall give keys to the Premises to the Tenant. The Tenant
shall provide the Landlord with a set of keys to the Premises to enable
the Landlord or its agents and others authorised by the Landlord to enter
the Premises for security purposes or in cases of emergency.
16. USE RESTRICTIONS
The Tenant shall perform and observe the obligations set out in Schedule
2.
17. EXCLUSION OF WARRANTY AS TO USER
17.1 Intentionally left blank
SECTION 6
DISPOSALS
18. ASSIGNMENT AND UNDERLETTING
18.1 The Tenant shall not assign, charge, underlet or part with possession or
share the occupation of, or permit any person to occupy, or create any
trust in respect of the Tenant's interest in, the whole or any part of the
Premises.
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SECTION 7
LEGAL REQUIREMENTS
19. STATUTORY REQUIREMENTS
19.1 Tenant to refrain from certain acts
The Tenant shall not do, or omit to be done, in or near the Premises, any
act or thing by reason of which the Landlord may, under any law, incur or
have imposed upon it, or become liable to pay, any damages, compensation,
costs, charges, expenses or penalty.
20. COMPLIANCE WITH FREE ZONE RULES AND REGULATIONS
20.1 General Compliance
The Tenant shall comply in all respects with all Implementing Rules and
Regulations issued by HFZ Authority (as amended from time to time) and all
Free Zone Circulars issued pursuant thereto and shall indemnify the
Landlord on demand against all actions, proceedings, claims, demands,
losses, expenses, damages and liability whatsoever in respect of any
non-compliance.
20.2 Compliance with Licence
The Tenant shall obtain and pay for during each year of the Term a Licence
and all other approvals and consents necessary to operate in the Free
Zone. The Tenant shall comply in all respects with the terms of the
licences held by the Tenant and shall indemnify the Landlord on demand
against all actions, proceedings, claims, demands, losses, costs,
expenses, damages and liability whatsoever in respect of any non
compliance.
20.3 Tenant to comply with statutes
The Tenant shall, at its expense, comply in all material respects with all
laws, decrees, regulations and orders, whether governmental, municipal,
local or otherwise from time to time in force, now in force or which may
after the date of this Lease, be in force relating to the Premises or the
business being carried on from time to time at the Premises and shall
indemnify the Landlord on demand against all actions, proceedings, claims,
demands, losses, expenses, damages and liability whatsoever in respect of
any non compliance.
21. LEGAL NOTICES
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The Tenant shall:-
21.1 within five (5) Working Days (or sooner if necessary having regard
to the requirements of the notice or order in question or the time
limits stated in it) of receipt of any notice or order or proposal
for a notice or order given to the Tenant and relevant to the
Premises or any occupier of them by any government department,
local, public or other competent authority or court of competent
jurisdiction, provide the Landlord with a true copy of it and any
further particulars required by the Landlord;
21.2 without delay, take all necessary steps to comply with the notice or
order so far as the same is the responsibility of the Tenant; and
21.3 at the request of the Landlord but at the cost of the Tenant, make
or join with the Landlord in making such objection, complaint,
representation or appeal against or in respect of any such notice,
order or proposal as the Landlord shall deem expedient.
22. FIRE PRECAUTIONS AND EQUIPMENT
22.1 Compliance with requirements
The Tenant shall comply with the requirements and recommendations of the
insurers of the Premises and the requirements of the Landlord so long as
the same are notified in advance to the Tenant in writing in relation to
fire precautions affecting the Premises.
22.2 Access to be kept clear
The Tenant shall not obstruct the access to, or means of working, any fire
fighting appliances or the means of escape from the Premises in case of
fire or other emergency.
23. DEFECTIVE PREMISES
Immediately upon becoming aware of the same, the Tenant shall give written
notice to the Landlord of any defect in the Premises and shall display and
maintain in the Premises all notices which the Landlord may, from time to
time, reasonably require to be displayed in relation to any such matters.
SECTION 8
INSURANCE
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24. INSURANCE PROVISIONS
24.1 Insurance of personal belongings
It shall be the responsibility of the Tenant to insure all the personal
belongings and effects brought by the Tenant into the Premises against
loss theft or damage and the Landlord shall not in any way or at any time
acquire any responsibility for any loss theft or damage of such personal
belongings or effects howsoever occasioned either through the neglect
fault or misconduct of any servant agent or employee of the Landlord or
otherwise.
24.2 Insurance becoming void
The Tenant shall not do, or omit to do:-
24.2.1 anything which could cause any policy of insurance covering the
Premises or any Adjoining Property owned by the Landlord as long as
the same are notified in advance to the Tenant in writing to become
wholly or partly void or voidable; or
24.2.2 anything whereby any abnormal or loaded premium may become payable
in respect of the policy as long as the conditions related thereto
are notified in advance to the Tenant, unless the Tenant has
previously notified the Landlord and agreed to pay the increased
premium
and, in any event, the Tenant shall pay to the Landlord on written demand
all expenses incurred by the Landlord in renewing any such policy.
24.3 Requirements of insurers
The Tenant shall, at all times, comply with any requirements and
recommendations of the insurers of the Premises so far as the same are
notified in advance to the Tenant.
24.4 Notice by Tenant
The Tenant shall give notice to the Landlord immediately on the happening
of any event or thing which might affect any insurance policy relating to
the Premises so long as the requirements of such insurance are notified in
advance to the Tenant.
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SECTION 9
DEFAULT OF TENANT AND RIGHTS OF RE-ENTRY
25. DEFAULT OF TENANT
25.1 Re-entry
Without prejudice to any other right, remedy or power contained in this
Lease or otherwise available to the Landlord, on or at any time after the
happening of any of the events mentioned in clause 25.2, the Landlord may
re-enter the Premises or any part of them in the name of the whole, and
the Term shall then end, but without prejudice to any reasonable claim
which the Landlord may have against the Tenant for any previous breach of
covenant or sum previously accrued due.
25.2 Events of default
The events referred to in clause 25.1 are the following:-
25.2.1 if the Rents or any part of them shall be unpaid for ten (10)
Working Days after becoming payable (whether formally demanded or
not); or
25.2.2 if any of the covenants by the Tenant contained in this Lease shall
not be materially performed and observed; or
25.2.3 if the Tenant, for the time being, (being a body corporate):-
(a) calls, or a nominee on its behalf calls, a meeting of any of
its creditors; or
(b) shall enter into liquidation whether compulsory or
voluntarily; or
(c) takes any steps to wind itself up; or
(d) shall cease for any reason to maintain its corporate
existence.
25.2.4 left blank;
25.2.5 if analogous proceedings or events to those referred to in this
Clause shall be instituted or occur in relation to the Tenant, for
the time being; or
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25.2.6 if the Tenant, for the time being, suffers any distress or
execution to be levied on the Premises which is not discharged in
full within twenty one (21) days after the levy has been made; or
becomes unable to pay its debts as and when they fall due; or
25.2.7 if the Tenant, for the time being, is in breach of Clause 20 of
this Lease.
25.3 The Tenant shall be entitled to terminate the Lease upon any breach
or default of this Lease by the Landlord and the failure of the
Landlord to cure the same within 30 days after notice of thereof
from Tenant, upon which the Tenant shall be entitled to prorata
reimbursement of the payments made pursuant to Clause 4 of this
Lease or otherwise. The Tenant shall also be entitled to all other
reasonable relief.
SECTION 10
MISCELLANEOUS
26. QUIET ENJOYMENT
The Landlord covenants with the Tenant that the Tenant, paying the Rents
and performing and observing the covenants on the part of the Tenant
contained in this Lease, shall and may peaceably hold and enjoy the
Premises during the Term without any interruption by the Landlord or any
person lawfully claiming through, under, or in trust for it.
27. EXCLUSION OF IMPLIED COVENANTS BY LANDLORD
Any covenants on the part of the Landlord which would otherwise be implied
by law are hereby expressly excluded.
28. RELETTING NOTICES
The Tenant shall permit the Landlord, at all reasonable times during the
last two (2) months of the Term, to enter the Premises and affix and
retain, without interference, on any suitable parts of them (but not so as
materially to affect the access of light or air to the Premises) notices
for reletting them and the Tenant shall not remove or obscure such notices
and shall permit all persons with the written authority of the Landlord to
view the Premises at all reasonable hours in the daytime, upon prior
appointment having been made.
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29. SECURITY
The Tenant shall strictly observe and abide by and use its best endeavours
to ensure that employees of the Tenant and visitors to the Premises
strictly observe and abide by the rules and regulations from time to time
laid down by the landlord for the security of the Free Zone and all
applicable traffic and safety regulations.
30. DISCLOSURE OF INFORMATION
Intentionally left blank.
31. INDEMNITY
The Tenant and the Landlord shall mutually keep each other fully
indemnified from and against all actions, proceedings, claims, demands,
losses, costs, expenses, damages and liability arising in any way directly
or indirectly out of:-
31.1 any act, omission, neglect or default of the Tenant/Landlord or any
persons in the Premises expressly or impliedly with the
Tenant's/Landlord's authority; or
31.2 any breach of any covenant by the Tenant /Landlord contained in this
Lease.
32. REPRESENTATIONS
The Tenant acknowledges that this Lease has not been entered into in
reliance, wholly or partly, on any statement or representation made by, or
on behalf of, the Landlord, except any such statement or representation
that is expressly set out in this Lease.
33. EFFECT OF WAIVER
Each covenant by the Tenant/Landlord shall remain in full force even
though the Tenant /Landlord may have waived or released it temporarily or
waived or released (temporarily or permanently, revocably or irrevocably)
a similar covenant affecting other property belonging to the
Landlord/Tenant.
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34. NOTICES
All correspondence shall be sent to the parties at the address set out
below or such addresses as may be notified by the parties:
Hamriyah Free Zone Authority
PO Box 1377
Sharjah
United Arab Emirates
Tel: 9716-5263333
Fax: 9716-5263555
QUAKER FABRIC CORPORATION OF FALL RIVER
941 Grinnell Street
Fall River, MA 02721
United States of America
Tel: 508-678-1951
Fax: 508-678-2656
Any such notice, communication or demand given shall be deemed to have
been received at the time of confirmed delivery.
35. GOVERNING LAW
This Lease shall be governed by and construed in accordance with the laws
in force from time to time in the Emirate of Sharjah.
IN WITNESS whereof the parties hereto have caused this Lease to be duly executed
the day and year first before written.
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<PAGE>
SCHEDULE 1: EXCEPTIONS AND RESERVATIONS
1. There are excepted and reserved to the Landlord and the tenants and
occupiers of any Adjoining Property and all other persons authorised by
the Landlord or having similar rights:-
1.1 the right to the passage and running of the Utilities through any relevant
Conduits which are now, or may at any time be in, under, or over the
Premises;
1.2 the right to enter the Premises in order to:-
1.2.1 inspect, clean, maintain, repair, connect, remove, lay, renew,
relay, replace, alter or execute any works whatsoever to, or in
connection with, any of the Conduits or any other services;
1.2.2 execute repairs, decorations, alterations or any other works, and to
make installations to, any Adjoining Property; or
1.2.3 do anything which the Landlord may do under this Lease.
1.3 the right to erect scaffolding for the purpose of repairing or cleaning
any building now, or after the date of this Lease, erected on any
Adjoining Property, or in connection with the exercise of any of the
rights mentioned in this Schedule even though such scaffolding may
temporarily restrict the access to, or enjoyment or use of, the Premises;
1.4 any rights of light, air, support, protection and shelter or other
easements and rights now, or after the date of this Lease, belonging to,
or enjoyed by, any Adjoining Property;
1.5 full right and liberty at any time after the date of this Lease to raise
the height of, or make any alterations or additions or execute any other
works to, any buildings on any Adjoining Property, or to erect any new
buildings of any height on any Adjoining Property in such manner as the
Landlord or the person exercising the right shall think fit and even
though they may obstruct, affect or interfere with the amenity of, or
access to, the Premises or the passage of light and air to the Premises,
but not so that the Tenant's use and occupation of them is materially
affected;
1.6 the right:-
1.6.1 to build on to or into any boundary or party wall of the Premises;
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1.6.2 after giving not less than seven (7) days written notice, to enter
the Premises to place and lay in, under or on them such footings for
any intended party structure or party wall with such foundations for
it as the Landlord may reasonably think necessary;
1.6.3 for that purpose, to excavate the Premises along the line of the
junction between the Premises and any Adjoining Property; and
1.6.4 to keep and maintain those footings and foundations.
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SCHEDULE 2: USE RESTRICTIONS
1. Dangerous materials and use of machinery
The Tenant shall not:-
1.1 keep in the Premises any article or thing which is or may become
combustible, dangerous, explosive, inflammable, offensive or
radio-active, or which might increase the risk of fire explosion;
1.2 keep or operate in the Premises any machinery which is unduly noisy
or causes vibration, or which is likely to disturb any owner or
occupier of any Adjoining Property.
2. Overloading floors and services
The Tenant shall not:-
2.1 overload the floors of the Premises nor suspend any excessive weight
from any ceiling, roof, stanchion, structure of wall of them nor
overload any Utility in or serving them;
2.2 do anything which may subject the Premises to any strain beyond that
which they are designed to bear (with due margin for safety), and
shall pay to the Landlord, on written demand, any expense reasonably
incurred by the Landlord in obtaining the opinion of a qualified
structural engineer as to whether the structure of the Premises is
being, or is about to be, overloaded;
2.3 exceed the weight limits prescribed for any lift in the Premises.
3. Discharge into Conduits
The Tenant shall not discharge into any Conduit any oil or grease or any
noxious or deleterious effluent or substance which may cause an
obstruction or might be or become a source of danger, or which might
damage any Conduit or the drainage system of the Premises
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or any Adjoining Property or which in the Landlord's opinion is
detrimental to the use and development of the Free Zone.
4. Disposal of refuse
The Tenant shall not deposit on any part of the Premises any refuse,
rubbish or trade empties of any kind other than in proper receptacles, and
shall not burn any refuse or rubbish on the Premises. The Tenant shall
ensure that all waste of whatsoever nature is treated prior to disposal in
a manner approved by the Landlord. The Tenant shall keep the Premises free
from pollution of any kind.
5. Obstruction of common areas
The Tenant shall not do anything as a result of which any forecourt, path,
road or other area over which the Tenant may have rights of access or use
may be damaged, or their fair use by others may be obstructed in any way
and shall not park any vehicle on any road or open area forming part of
the Premises [other than in any approved parking area].
6. Prohibited uses
The Tenant shall not use the Premises for any public or political meeting,
or public exhibition or public entertainment, show or spectacle; or for
any dangerous, noisy, noxious or offensive business, occupation or trade;
or for any illegal or immoral purpose; or for residential or sleeping
purposes; or for betting, gambling, gaming or wagering; or as a betting
office; or as a club; or for the sale of any beer, wines or spirits; or
for any auction.
7. Nuisance
The Tenant shall not:-
7.1 do anything in the Premises which may be or become a nuisance, or
which may cause annoyance, damage, disturbance or inconvenience to,
the Landlord or any owner or occupier of any Adjoining Property, or
which may be injurious to amenity, character, tone or value of the
Premises;
7.2 play any musical instrument, or use any loudspeaker, radio, tape
recorder, record or compact disc player or similar apparatus in such
a manner as to be audible outside the Premises;
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<PAGE>
7.3 place outside any building on the Premises or expose from any
windows of them any articles, goods or things of any kind.
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<PAGE>
SIGNED
for and on behalf of
HAMRIYAH FREE ZONE AUTHORITY
by
........................................
Mr. Tariq Bin Faisal Al Qassimi
(Chairman)
in the presence of:
........................................
Mr. Saeed Bardan
(Witness)
SIGNED
for and on behalf of
QUAKER FABRIC CORPORATION OF FALL RIVER
by Mark Edwin Bisch
.....................................
Mr. Mark Edwin Bisch
( Negotiator )
in the presence of:
Valsara Janinik
........................................
Valsara Janinik
(Witness)
<PAGE>
AGREEMENT
Agreement made as of the ___ day of December, 1999, by and between
QUAKER FABRIC CORPORATION, a corporation incorporated under the laws of Delaware
with its principal office at 941 Grinnell Street, Fall River, Massachusetts
02721 (the "Company") and ____________, residing at _____________________ (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance
of a sound and vital management of the Company and its affiliates is essential
to the protection and enhancement of the interests of the Company and its
stockholders;
WHEREAS, the Company also recognizes that the possibility of a
Change in Control of the Company (as defined in Exhibit A attached hereto), with
the attendant uncertainties and risks, might result in the departure or
distraction of key employees of the Company to the detriment of the Company; and
WHEREAS, the Company has determined that it is appropriate to take
steps to induce key employees to remain with the Company, and to reinforce and
encourage their continued attention and dedication, when faced with the
possibility of a Change in Control in the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Term. This Agreement shall commence on the date hereof and shall
expire on the earliest of: (i) three (3) years from the date hereof, subject to
the right of the Board of Directors of the Company (the "Board") and the
Executive to extend it, provided that if a Change in Control takes place prior
to three (3) years from the date hereof, this Agreement shall continue until one
(1) year after the Change in Control regardless of whether such one (1) year
period ends before or after the end of such three (3) year period; (ii) the date
of the Executive's death, retirement or termination of employment (voluntarily
or involuntarily) with the Company prior to a Change in Control other than as a
result of a termination by the Company without Cause (as defined below) or by
the Executive for Good Reason (as defined below); or (iii) ninety-one (91) days
after a termination by the Company without Cause or by the Executive for Good
Reason provided that a Change in Control has not occurred within ninety (90)
days from the date of the Executive's termination of employment. Notwithstanding
anything in this Agreement to the contrary, if the Company becomes obligated to
make any payment to the Executive pursuant to the terms hereof at or prior to
the expiration of this Agreement, then this Agreement shall remain in effect for
all purposes until all of the Company's obligations hereunder are fulfilled.
Further, the provisions of Sections 4, 9 and 15 hereunder shall survive and
remain in effect notwithstanding the termination of this Agreement, the
termination of the Executive's employment or any breach or repudiation or
alleged breach or repudiation by the Company of this Agreement or any one or
more of its terms.
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2. Termination Following Change in Control. If a Change in Control
occurs and the Executive's employment with the Company is terminated by the
Company without Cause or by the Executive for Good Reason at any time during the
period beginning on the date of the Change in Control and ending one (1) year
after the date of such Change in Control, then the Executive shall be entitled
to the amounts provided in Section 3 upon such termination. In addition,
notwithstanding the foregoing, in the event the Executive is terminated without
Cause or terminates employment for Good Reason within ninety (90) days prior to
the occurrence of a Change in Control, such termination shall, upon the
occurrence of a Change in Control, be deemed to be covered under this Agreement
and the Executive shall be entitled to the amounts provided under Section 3
hereof. The foregoing terms shall have the following meanings:
(i) Termination for Good Reason. For purposes of this Agreement,
termination for Good Reason shall mean a termination by the Executive effected
by a written notice given within sixty (60) days after the occurrence of the
Good Reason event. For purposes of this Agreement, "Good Reason" shall mean the
occurrence or failure to cause the occurrence of any of the following events
without the Executive's express written consent: (A) any material diminution in
the Executive's duties and responsibilities, authority, or title, except in each
case in connection with the termination of the Executive's employment for Cause
or as a result of the Executive's death, or temporarily as a result of the
Executive's illness or other absence, or, if after a Change in Control, the
assignment to the Executive of duties and responsibilities materially
inconsistent with the position held by the Executive immediately prior to the
Change in Control; (B) a reduction in the Executive's annual base salary; (C) a
relocation of: (x) the Executive's principal business location to an area
outside a fifty (50) mile radius of the Executive's current principal business
location, (y) the Executive's principal business location to a location which is
more than 70 miles from the Executive's principal residence, or (z) the
Company's headquarters to a location that is not substantially the same as the
Executive's current principal business location; (D) failure of the Company to
continue in effect any health and welfare plan, employee benefit plan, pension
plan, fringe benefit plan or compensation plan in which the Executive (and
eligible dependents) are participating immediately prior to such Change in
Control, unless the Executive (and eligible dependents) are permitted to
participate in other plans providing the Executive (and eligible dependents)
with substantially comparable benefits at no greater after-tax cost to the
Executive (and eligible dependents), or the taking of any action by the Company
which would adversely affect the Executive's (and eligible dependents)
participation in or reduce Executive's (and eligible dependents) benefits under
any such plan; (E) a material breach by the Company of any other agreement with
the Executive without proper justification that remains uncured for ten (10)
days after written notice of such breach is given to the Company; or (F) failure
of any successor (as defined in Section 10 herein) to assume in writing the
obligations hereunder.
(ii) Cause. As used herein, the term "Cause" shall mean: (A) willful
insubordination to a board resolution after a written demand for substantial
performance is delivered to the Executive by the Company, which demand
specifically identifies the manner in which the Company believes that the
Executive has not substantially performed his duties or responsibilities; (B)
breach of Section 9(a) of this Agreement after a written demand for substantial
performance is delivered to the Executive by the Company, which demand
specifically identifies the manner in which the Company believes that the
Executive has breached this Agreement; (C) acts or omissions
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<PAGE>
intentionally and materially inimical to the Company after a written demand for
cessation of such conduct is delivered to the Executive by the Company, which
demand specifically identifies the manner in which the Company believes that the
Executive has engaged in such conduct and the injury to the Company; (D) gross
negligence, after written demand for cessation of such conduct is delivered to
the Executive by the Company, which demand specifically identifies the manner in
which the Company believes that the Executive has engaged in such conduct; or
(E) conviction of a crime involving moral turpitude. Cause shall also mean a
Disability of the Executive. Disability shall mean the Executive's disability
pursuant to the Company's Long-term Disability Plan (the "LTD Plan"), provided
that the Executive is eligible for and receiving benefits under the LTD Plan.
The Executive's continued employment for a period of up to sixty
(60) days after the occurrence of any act or failure to act constituting Good
Reason hereunder shall not constitute consent to, or a waiver of rights with
respect to, any such act or failure to act.
3. Compensation on Change in Control Termination. If pursuant to
Section 2 the Executive is entitled to amounts and benefits under this Section
3, the Company shall, subject to Section 4, pay and provide to the Executive:
(A) a lump sum amount, payable within ten (10) days after such termination (or,
if such termination occurred prior to a Change in Control, within ten (10) days
after the Change in Control) equal to (i) one and one-half (1 1/2) times the
highest annual base salary paid by the Company to the Executive at any time
prior to the Change in Control, and (ii) one and one-half (1 1/2) times the
annual bonus paid, or required to be paid, by the Company to the Executive for
the year preceding the year in which the Change in Control occurs; (B) a lump
sum amount, payable within ten (10) days after such termination (or if such
termination occurred prior to a Change in Control within ten (10) days after the
Change in Control) equal to (i) any incurred but unreimbursed business expenses
for the period prior to termination payable in accordance with the Company's
policies, and (ii) any base salary, bonus, vacation pay or other deferred
compensation accrued or earned under law or in accordance with the Company's
policies applicable to the Executive but not yet paid ("Accrued Benefits"); (C)
any other amounts or benefits due under the then applicable employee benefit,
equity or incentive plans of the Company applicable to the Executive as shall be
determined and paid in accordance with such plans; (D) job outplacement at a
level and of a type appropriate for senior-level executives in an amount not to
exceed $20,000; (E) payment by the Company of the premiums for the Executive
(except in the case of Executive's death) and Executive's dependents' health and
welfare coverage (including, without limitation, medical, dental, life insurance
and disability coverage) for one and one-half (1 1/2) years from the date of
termination of Executive's employment under the Company's health and welfare
plans which cover the senior executives of the Company or materially similar
benefits ("Continuation Coverage"), subject to Executive's payment of customary
premiums (if any) in effect prior to the Change in Control; and (F) upon the
occurrence of a Change in Control, full and immediate vesting of all stock
options held by the Executive. Payments under (E) above may, at the discretion
of the Company, be made by continuing the Executive's participation in the plan
as a terminee or by covering the Executive and the Executive's dependents under
substitute arrangements, provided that, notwithstanding anything herein to the
contrary, to the extent the Executive incurs tax that the Executive would not
have incurred as an active employee as a result of the aforementioned coverage
or the benefits provided thereunder, the Executive shall receive from the
Company an additional grossed up payment in the amount necessary so that the
Executive will have no additional cost for
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receiving such items or any additional payment. Notwithstanding anything herein
to the contrary, the Executive (and his eligible dependents) shall retain all
rights under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and such COBRA continuation coverage shall be available to the
Executive (and his eligible dependents) at the expiration of the Continuation
Coverage described herein.
4. Limitation on Payments. (a) In the event that the Executive shall
become entitled to the payments and/or benefits provided by Section 3 or any
other amounts (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions result
in a change of ownership covered by Section 280G(b)(2) of the Code or any person
affiliated with the Company or such person) as a result of a Change of Control
(collectively the "Company Payments"), and such Company Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any
similar tax that may hereafter be imposed) the Company shall pay to the
Executive at the time specified in subsection (d) below an additional amount
(the "Gross-up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Company Payments and any federal,
state, and local income or payroll tax upon the Gross-up Payment provided for by
this paragraph (a), but before deduction for any federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company
Payments. Notwithstanding the foregoing provisions of this Section 4 to the
contrary, if it shall be determined that the Executive is entitled to a Gross-up
Payment, but the Company Payments do not exceed one hundred ten percent (110%)
of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Company Payments would not give rise to any
Excise Tax, then no Gross-up Payment shall be made to the Executive and the
Company Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) For purposes of determining whether any of the Company Payments and
Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and determining the amount of such Excise Tax: (i) the Total Payments
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants (the "Accountants") such Total Payments
(in whole or in part), (A) do not constitute "parachute payments," (B) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code or (C) are otherwise not subject to the Excise
Tax; and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Employee's residence for the
calendar year in which the Company Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local
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taxes if paid in such year. In the event that the Excise Tax is subsequently
determined by the Accountants to be less than the amount taken into account
hereunder at the time the Gross-up Payment is made, the Executive shall repay to
the Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the prior Gross-up Payment attributable to
such reduction (plus the portion of the Gross-up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the portion of the
Gross-up Payment being repaid by the Executive if such repayment results in a
reduction in Excise Tax or a federal, state and local income tax deduction),
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Gross-up Payment to be refunded to the Company has been paid to
any federal, state and local tax authority, repayment thereof (and related
amounts) shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not exceed
the interest received or credited to the Executive by such tax authority for the
period it held such portion. Executive and the Company shall mutually agree upon
the course of action to be pursued (and the method of allocating the expense
thereof) if Executive's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the Accountants or
the Internal Revenue Service to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up Payment in respect of
such excess (plus any interest or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.
(d) The Gross-up Payment or portion thereof provided for in
subsection (c) above shall be paid not later than the thirtieth (30th) day
following an event occurring which subjects the Executive to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by the
Accountants, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in Code Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection
(c) hereof, as soon as the amount thereof can reasonably be determined, but in
no event later than the ninetieth (90th) day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(e) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 4, the Executive shall
permit the Company to control issues related to this Section 4 (at its expense),
provided that such issues do not potentially materially adversely affect the
Executive, but the Executive shall control any other issues. In the event the
issues are interrelated, the Executive and the Company shall in good faith
cooperate so as not to jeopardize resolution of either issue, but if the parties
cannot agree, the Executive shall make the final determination with regard to
the issues. In the event of any conference with any taxing authority as to the
Excise Tax or associated income taxes, the Executive shall permit the
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representative of the Company to accompany him, and the Executive and his
representative shall cooperate with the Company and its representative.
(f) The Company shall be responsible for all charges of the
Accountants.
5. Notice of Termination. After a Change in Control, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 13. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice provided to the
Executive not less than thirty (30) days prior to the date of termination
(except in the case of a termination for Cause, which shall be provided to the
Executive not less than fourteen (14) days prior to the date of termination, as
specified below), which shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause without: (i) advance written notice provided to
the Executive not less than fourteen (14) days prior to the date of termination
setting forth the Company's intention to consider terminating the Executive
including a statement of the date of termination and the specific detailed basis
for such consideration for Cause; (ii) an opportunity of the Executive, together
with his counsel, to be heard before the Board during the fourteen (14) day
period ending on the date of termination; (iii) a duly adopted resolution of the
Board stating that in accordance with the provisions of the next to the last
sentence of this Section 5, that the actions of the Executive constituted Cause
and the basis thereof; and (iv) a written determination provided by the Board
setting forth the acts and omissions that form the basis of such termination of
employment. Any determination by the Board hereunder shall be made by the
affirmative vote of at least a two-thirds majority of the members of the Board
(other than the Executive if the Executive is a member of the Board). Any
purported termination of employment of the Executive by the Company which does
not meet each substantive and procedural requirement of this Section 5 shall be
treated for all purposes under this Agreement as a termination of employment
without Cause. Upon a termination for Cause, the Company shall pay the Executive
the Accrued Benefits.
6. Date of Termination. "Date of termination," with respect to any
purported termination of the Executive's employment after a Change in Control,
shall mean the date specified in the Notice of Termination which, in the case of
a termination by the Company, shall not be less than thirty (30) days prior to
the date of termination (except it shall not be less than fourteen (14) days in
the case of a termination for Cause, and not less than five (5) days nor more
than sixty (60) days in the case of a termination by the Executive for Good
Reason). In the event of Notice of Termination by the Company, the Executive may
treat such notice as having a date of termination at any date between the date
of the receipt of such notice and the date of termination indicated in the
Notice of Termination by the Company; provided, that the Executive must give the
Company written notice of the date of termination if he or she deems it to have
occurred prior to the date of termination indicated in the notice.
7. No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Company is terminated pursuant to this Agreement
during the term of this Agreement, the Executive shall not be required to seek
other employment or to attempt in any way
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to reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned by the Executive or
benefit provided to the Executive as the result of employment by another
employer or otherwise. The Company's obligations to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any circumstances, including without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company may have
against the Executive.
8. Service with Subsidiaries. For purposes of this Agreement,
employment by a subsidiary of the Company shall be deemed to be employment by
the Company and references to the Company shall include all such entities and
the Company and all such entities shall be jointly and severally responsible for
the payment obligations hereunder.
9. Confidentiality; Insurance. (a) The Executive shall not at any
time during the term of this Agreement, or thereafter, directly or indirectly,
for any reason whatsoever, communicate or disclose to any unauthorized person,
firm or corporation, or use for the Executive's own account, without the prior
written consent of the Board, any proprietary processes, trade secrets or other
confidential data or information of the Company and its related and affiliated
companies concerning their businesses or affairs, accounts, products, services
or customers, it being understood, however, that the obligations of this Section
shall not apply to the extent that the aforesaid matters (i) are disclosed in
circumstances in which the Executive is legally required to do so, or (ii)
become known to and available for use by the public or generally known in the
Company's industry, other than by the Executive's wrongful act or omission.
(b) The Company shall continue to cover the Executive under any
director and officer insurance maintained for directors and officers of the
Company or any affiliate at the highest level so maintained for other officers
or directors or, if greater, at the level maintained by the Company immediately
prior to a Change in Control, with regard to action or inaction while an officer
or director.
10. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder if the Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate. This Agreement is personal to the
Executive and neither this Agreement nor any rights hereunder may be assigned by
the Executive.
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11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
constitutes the entire Agreement between the parties hereto pertaining to the
subject matter hereof. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. All references
to any law shall be deemed also to refer to any successor provisions to such
laws.
12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
registered mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, or, if mailed, five days after the date of deposit in the
United States mails:
(i) If to the Company, to:
Quaker Fabric Corporation
941 Grinnell Street
Fall River, Massachusetts 02721
Attention: General Counsel
(ii) If to the Executive, to his or her last shown
address on the books of the Company.
Any party may by notice given in accordance with this Section to the
other parties, designate another address or person for receipt of notices
hereunder.
14. Separability. If any provisions of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
15. Legal Fees. To the fullest extent permitted by law, the Company
shall promptly pay upon submission of statements all legal and other
professional fees, costs of litigation, prejudgment interest, and other expenses
incurred in connection with any dispute concerning payments, benefits and other
entitlements to which the Executive may have under this Agreement; provided,
however, the Company shall be reimbursed by the Executive for the fees and
expenses advanced in the event the Executive's claim is, in a material manner,
in bad faith or frivolous and the arbitrator or court, as applicable, determines
that the reimbursement of such fees and expenses is appropriate. The Company
shall pay to the Executive interest at the prime lending rate as announced from
time to time by Fleet National Bank (or any successor) on all or any part of any
amount to be
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paid to the Executive hereunder that is not paid when due. The prime rate for
each calendar quarter shall be the prime rate in effect on the first day of the
calendar quarter.
16. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive, equity or other plan or program provided by the
Company and for which the Executive may qualify, nor shall anything herein limit
or otherwise prejudice such rights as the Executive may have under any other
currently existing plan, agreement as to employment or severance from employment
with the Company or statutory entitlements. Amounts that are vested benefits or
which the Executive is otherwise entitled to receive under any plan or program
of the Company, at or subsequent to the date of termination shall be payable in
accordance with such plan or program, except as otherwise specifically provided
herein.
17. Not an Agreement of Employment. This is not an agreement
assuring employment and, subject to any other agreement between the Executive
and the Company, the Company reserves the right to terminate the Executive's
employment at any time with or without cause, subject to the payment provisions
hereof if such termination is after, or within ninety (90) days prior to a
Change in Control, as defined herein. The Executive acknowledges that he is
aware that he shall have no claim against the Company hereunder or for
deprivation of the right to receive the amounts hereunder as a result of any
termination that does not specifically satisfy the requirements hereof.
18. Governing Law. This Agreement shall be construed, interpreted,
and governed in accordance with the laws of the State of Delaware without
reference to rules relating to conflicts of law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand as of the date first set
forth above.
QUAKER FABRIC CORPORATION
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
EXECUTIVE
Name: ____________________________________
Title: ____________________________________
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EXHIBIT A
A "Change in Control" shall mean the occurrence of any of the
following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof), excluding the Company, any subsidiary of the Company,
any employee benefit plan sponsored or maintained by the Company or its
subsidiaries (including any trustee of any such plan acting in his capacity as
trustee), and Nortex Holdings, Inc, Larry A. Liebenow (or his estate,
beneficiaries or heirs) and any Affiliate (as such term is defined in Rule 12b-2
of the Exchange Act) of Larry A. Liebenow, becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company
representing twenty-five percent (25%) of the total combined voting power of the
Company's then outstanding securities;
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than a Transaction involving only the Company
and one or more of its subsidiaries, or a Transaction immediately following
which the stockholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity and no
person other than Nortex Holdings, Inc., Larry A. Liebenow (or his estate,
beneficiaries or heirs) or any Affiliate of Larry A. Liebenow is the beneficial
owner of securities of the resulting entity representing more than twenty-five
percent (25%) of the voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board immediately
before the beginning of such period (the "Incumbent Directors") ceasing (for any
reason other than death) to constitute at least a majority of the Board or the
board of directors of any successor to the Company, provided that, any director
who was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least a majority of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of an agreement
for the sale of all or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the Company to Nortex
Holdings, Inc., or Larry Liebenow (or his estate, beneficiaries or heirs) or to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding voting
securities of the Company or Nortex Holdings, Inc. at the time of such sale.
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AGREEMENT
Agreement made as of the ___ day of December, 1999, by and between
QUAKER FABRIC CORPORATION, a corporation incorporated under the laws of Delaware
with its principal office at 941 Grinnell Street, Fall River, Massachusetts
02721 (the "Company") and MICHAEL E. COSTA, residing at 206 High Street,
Rochester, MA 02770 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance
of a sound and vital management of the Company and its affiliates is essential
to the protection and enhancement of the interests of the Company and its
stockholders;
WHEREAS, the Company also recognizes that the possibility of a
Change in Control of the Company (as defined in Exhibit A attached hereto), with
the attendant uncertainties and risks, might result in the departure or
distraction of key employees of the Company to the detriment of the Company; and
WHEREAS, the Company has determined that it is appropriate to take
steps to induce key employees to remain with the Company, and to reinforce and
encourage their continued attention and dedication, when faced with the
possibility of a Change in Control in the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Term. This Agreement shall commence on the date hereof and shall
expire on the earliest of: (i) three (3) years from the date hereof, subject to
the right of the Board of Directors of the Company (the "Board") and the
Executive to extend it, provided that if a Change in Control takes place prior
to three (3) years from the date hereof, this Agreement shall continue until one
(1) year after the Change in Control regardless of whether such one (1) year
period ends before or after the end of such three (3) year period; (ii) the date
of the Executive's death, retirement or termination of employment (voluntarily
or involuntarily) with the Company prior to a Change in Control other than as a
result of a termination by the Company without Cause (as defined below) or by
the Executive for Good Reason (as defined below); or (iii) ninety-one (91) days
after a termination by the Company without Cause or by the Executive for Good
Reason provided that a Change in Control has not occurred within ninety (90)
days from the date of the Executive's termination of employment. Notwithstanding
anything in this Agreement to the contrary, if the Company becomes obligated to
make any payment to the Executive pursuant to the terms hereof at or prior to
the expiration of this Agreement, then this Agreement shall remain in effect for
all purposes until all of the Company's obligations hereunder are fulfilled.
Further, the provisions of Sections 4, 9 and 15 hereunder shall survive and
remain in effect notwithstanding the termination of this Agreement, the
termination of the Executive's employment or any breach or repudiation or
alleged breach or repudiation by the Company of this Agreement or any one or
more of its terms.
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2. Termination Following Change in Control. If a Change in Control
occurs and the Executive's employment with the Company is terminated by the
Company without Cause or by the Executive for Good Reason at any time during the
period beginning on the date of the Change in Control and ending one (1) year
after the date of such Change in Control, then the Executive shall be entitled
to the amounts provided in Section 3 upon such termination. In addition,
notwithstanding the foregoing, in the event the Executive is terminated without
Cause or terminates employment for Good Reason within ninety (90) days prior to
the occurrence of a Change in Control, such termination shall, upon the
occurrence of a Change in Control, be deemed to be covered under this Agreement
and the Executive shall be entitled to the amounts provided under Section 3
hereof. The foregoing terms shall have the following meanings:
(i) Termination for Good Reason. For purposes of this Agreement,
termination for Good Reason shall mean a termination by the Executive effected
by a written notice given within sixty (60) days after the occurrence of the
Good Reason event. For purposes of this Agreement, "Good Reason" shall mean the
occurrence or failure to cause the occurrence of any of the following events
without the Executive's express written consent: (A) any material diminution in
the Executive's duties and responsibilities, authority, or title, except in each
case in connection with the termination of the Executive's employment for Cause
or as a result of the Executive's death, or temporarily as a result of the
Executive's illness or other absence, or, if after a Change in Control, the
assignment to the Executive of duties and responsibilities materially
inconsistent with the position held by the Executive immediately prior to the
Change in Control; (B) a reduction in the Executive's annual base salary; (C) a
relocation of: (i) the Executive's principal business location to an area
outside a fifty (50) mile radius of the Executive's current principal business
location, or (ii) the Executive's principal business location to a location
which is more than 70 miles from the Executive's principal residence; (D)
failure of the Company to continue in effect any health and welfare plan,
employee benefit plan, pension plan, fringe benefit plan or compensation plan in
which the Executive (and eligible dependents) are participating immediately
prior to such Change in Control, unless the Executive (and eligible dependents)
are permitted to participate in other plans providing the Executive (and
eligible dependents) with substantially comparable benefits at no greater
after-tax cost to the Executive (and eligible dependents), or the taking of any
action by the Company which would adversely affect the Executive's (and eligible
dependents) participation in or reduce Executive's (and eligible dependents)
benefits under any such plan; (E) a material breach by the Company of any other
agreement with the Executive without proper justification that remains uncured
for ten (10) days after written notice of such breach is given to the Company;
or (F) failure of any successor (as defined in Section 10 herein) to assume in
writing the obligations hereunder.
(ii) Cause. As used herein, the term "Cause" shall mean: (A) willful
insubordination to a board resolution after a written demand for substantial
performance is delivered to the Executive by the Company, which demand
specifically identifies the manner in which the Company believes that the
Executive has not substantially performed his duties or responsibilities; (B)
breach of Section 9(a) of this Agreement after a written demand for substantial
performance is delivered to the Executive by the Company, which demand
specifically identifies the manner in which the Company believes that the
Executive has breached this Agreement; (C) acts or omissions intentionally and
materially inimical to the Company after a written demand for cessation of such
conduct is delivered to the Executive by the Company, which demand specifically
identifies the
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manner in which the Company believes that the Executive has engaged in such
conduct and the injury to the Company; (D) gross negligence, after written
demand for cessation of such conduct is delivered to the Executive by the
Company, which demand specifically identifies the manner in which the Company
believes that the Executive has engaged in such conduct; or (E) conviction of a
crime involving moral turpitude. Cause shall also mean a Disability of the
Executive. Disability shall mean the Executive's disability pursuant to the
Company's Long-term Disability Plan (the "LTD Plan"), provided that the
Executive is eligible for and receiving benefits under the LTD Plan.
The Executive's continued employment for a period of up to sixty
(60) days after the occurrence of any act or failure to act constituting Good
Reason hereunder shall not constitute consent to, or a waiver of rights with
respect to, any such act or failure to act.
3. Compensation on Change in Control Termination. If pursuant to
Section 2 the Executive is entitled to amounts and benefits under this Section
3, the Company shall, subject to Section 4, pay and provide to the Executive:
(A) a lump sum amount, payable within ten (10) days after such termination (or,
if such termination occurred prior to a Change in Control, within ten (10) days
after the Change in Control) equal to (i) fifty percent (50%) of the highest
annual base salary paid by the Company to the Executive at any time prior to the
Change in Control, and (ii) fifty percent (50%) of the annual bonus paid, or
required to be paid, by the Company to the Executive for the year preceding the
year in which the Change in Control occurs; (B) a lump sum amount, payable
within ten (10) days after such termination (or if such termination occurred
prior to a Change in Control within ten (10) days after the Change in Control)
equal to (i) any incurred but unreimbursed business expenses for the period
prior to termination payable in accordance with the Company's policies, and (ii)
any base salary, bonus, vacation pay or other deferred compensation accrued or
earned under law or in accordance with the Company's policies applicable to the
Executive but not yet paid ("Accrued Benefits"); (C) any other amounts or
benefits due under the then applicable employee benefit, equity or incentive
plans of the Company applicable to the Executive as shall be determined and paid
in accordance with such plans; (D) payment by the Company of the premiums for
the Executive (except in the case of Executive's death) and Executive's
dependents' health and welfare coverage (including, without limitation, medical,
dental, life insurance and disability coverage) for six (6) months from the date
of termination of Executive's employment under the Company's health and welfare
plans which cover the senior executives of the Company or materially similar
benefits ("Continuation Coverage"), subject to Executive's payment of customary
premiums (if any) in effect prior to the Change in Control; and (E) upon the
occurrence of a Change in Control, full and immediate vesting of all stock
options held by the Executive. Payments under (D) above may, at the discretion
of the Company, be made by continuing the Executive's participation in the plan
as a terminee or by covering the Executive and the Executive's dependents under
substitute arrangements, provided that, notwithstanding anything herein to the
contrary, to the extent the Executive incurs tax that the Executive would not
have incurred as an active employee as a result of the aforementioned coverage
or the benefits provided thereunder, the Executive shall receive from the
Company an additional grossed up payment in the amount necessary so that the
Executive will have no additional cost for receiving such items or any
additional payment. Notwithstanding anything herein to the contrary, the
Executive (and his eligible dependents) shall retain all rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
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such COBRA continuation coverage shall be available to the Executive (and his
eligible dependents) at the expiration of the Continuation Coverage described
herein.
4. Limitation on Payments. (a) In the event that the Executive shall
become entitled to the payments and/or benefits provided by Section 3 or any
other amounts (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions result
in a change of ownership covered by Section 280G(b)(2) of the Code or any person
affiliated with the Company or such person) as a result of a Change of Control
(collectively the "Company Payments"), and such Company Payments will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any
similar tax that may hereafter be imposed) the Company shall pay to the
Executive at the time specified in subsection (d) below an additional amount
(the "Gross-up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Company Payments and any federal,
state, and local income or payroll tax upon the Gross-up Payment provided for by
this paragraph (a), but before deduction for any federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company
Payments. Notwithstanding the foregoing provisions of this Section 4 to the
contrary, if it shall be determined that the Executive is entitled to a Gross-up
Payment, but the Company Payments do not exceed one hundred ten percent (110%)
of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Company Payments would not give rise to any
Excise Tax, then no Gross-up Payment shall be made to the Executive and the
Company Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) For purposes of determining whether any of the Company Payments
and Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and determining the amount of such Excise Tax: (i) the Total Payments
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants (the "Accountants") such Total Payments
(in whole or in part), (A) do not constitute "parachute payments," (B) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code or (C) are otherwise not subject to the Excise
Tax; and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of Employee's residence for
the calendar year in which the Company Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes if paid in such year. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the Executive shall
repay to the Company, at the time that the amount of such
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reduction in Excise Tax is finally determined, the portion of the prior Gross-up
Payment attributable to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Gross-up Payment being repaid by the Executive if such
repayment results in a reduction in Excise Tax or a federal, state and local
income tax deduction), plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in
the event any portion of the Gross-up Payment to be refunded to the Company has
been paid to any federal, state and local tax authority, repayment thereof (and
related amounts) shall not be required until actual refund or credit of such
portion has been made to the Executive, and interest payable to the Company
shall not exceed the interest received or credited to the Executive by such tax
authority for the period it held such portion. Executive and the Company shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expense thereof) if Executive's claim for refund or credit is
denied.
In the event that the Excise Tax is later determined by the Accountants or
the Internal Revenue Service to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up Payment in respect of
such excess (plus any interest or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.
(d) The Gross-up Payment or portion thereof provided for in
subsection (c) above shall be paid not later than the thirtieth (30th) day
following an event occurring which subjects the Executive to the Excise Tax;
provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by the
Accountants, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in Code Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection
(c) hereof, as soon as the amount thereof can reasonably be determined, but in
no event later than the ninetieth (90th) day after the occurrence of the event
subjecting the Executive to the Excise Tax. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(e) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 4, the Executive shall
permit the Company to control issues related to this Section 4 (at its expense),
provided that such issues do not potentially materially adversely affect the
Executive, but the Executive shall control any other issues. In the event the
issues are interrelated, the Executive and the Company shall in good faith
cooperate so as not to jeopardize resolution of either issue, but if the parties
cannot agree, the Executive shall make the final determination with regard to
the issues. In the event of any conference with any taxing authority as to the
Excise Tax or associated income taxes, the Executive shall permit the
representative of the Company to accompany him, and the Executive and his
representative shall cooperate with the Company and its representative.
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(f) The Company shall be responsible for all charges of the
Accountants.
5. Notice of Termination. After a Change in Control, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 13. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice provided to the
Executive not less than thirty (30) days prior to the date of termination
(except in the case of a termination for Cause, which shall be provided to the
Executive not less than fourteen (14) days prior to the date of termination, as
specified below), which shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause without: (i) advance written notice provided to
the Executive not less than fourteen (14) days prior to the date of termination
setting forth the Company's intention to consider terminating the Executive
including a statement of the date of termination and the specific detailed basis
for such consideration for Cause; (ii) an opportunity of the Executive, together
with his counsel, to be heard before the Board during the fourteen (14) day
period ending on the date of termination; (iii) a duly adopted resolution of the
Board stating that in accordance with the provisions of the next to the last
sentence of this Section 5, that the actions of the Executive constituted Cause
and the basis thereof; and (iv) a written determination provided by the Board
setting forth the acts and omissions that form the basis of such termination of
employment. Any determination by the Board hereunder shall be made by the
affirmative vote of at least a two-thirds majority of the members of the Board
(other than the Executive if the Executive is a member of the Board). Any
purported termination of employment of the Executive by the Company which does
not meet each substantive and procedural requirement of this Section 5 shall be
treated for all purposes under this Agreement as a termination of employment
without Cause. Upon a termination for Cause, the Company shall pay the Executive
the Accrued Benefits.
6. Date of Termination. "Date of termination," with respect to any
purported termination of the Executive's employment after a Change in Control,
shall mean the date specified in the Notice of Termination which, in the case of
a termination by the Company, shall not be less than thirty (30) days prior to
the date of termination (except it shall not be less than fourteen (14) days in
the case of a termination for Cause, and not less than five (5) days nor more
than sixty (60) days in the case of a termination by the Executive for Good
Reason). In the event of Notice of Termination by the Company, the Executive may
treat such notice as having a date of termination at any date between the date
of the receipt of such notice and the date of termination indicated in the
Notice of Termination by the Company; provided, that the Executive must give the
Company written notice of the date of termination if he or she deems it to have
occurred prior to the date of termination indicated in the notice.
7. No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Company is terminated pursuant to this Agreement
during the term of this Agreement, the Executive shall not be required to seek
other employment or to attempt in any way to reduce any amounts payable to the
Executive by the Company pursuant to this Agreement. Further, the amount of any
payment or benefit provided for in this Agreement shall not be reduced by any
compensation earned by the Executive or benefit provided to the Executive as the
result of
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employment by another employer or otherwise. The Company's obligations to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive.
8. Service with Subsidiaries. For purposes of this Agreement,
employment by a subsidiary of the Company shall be deemed to be employment by
the Company and references to the Company shall include all such entities and
the Company and all such entities shall be jointly and severally responsible for
the payment obligations hereunder.
9. Confidentiality; Insurance. (a) The Executive shall not at any
time during the term of this Agreement, or thereafter, directly or indirectly,
for any reason whatsoever, communicate or disclose to any unauthorized person,
firm or corporation, or use for the Executive's own account, without the prior
written consent of the Board, any proprietary processes, trade secrets or other
confidential data or information of the Company and its related and affiliated
companies concerning their businesses or affairs, accounts, products, services
or customers, it being understood, however, that the obligations of this Section
shall not apply to the extent that the aforesaid matters (i) are disclosed in
circumstances in which the Executive is legally required to do so, or (ii)
become known to and available for use by the public or generally known in the
Company's industry, other than by the Executive's wrongful act or omission.
(b) The Company shall continue to cover the Executive under any
director and officer insurance maintained for directors and officers of the
Company or any affiliate at the highest level so maintained for other officers
or directors or, if greater, at the level maintained by the Company immediately
prior to a Change in Control, with regard to action or inaction while an officer
or director.
10. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder if the Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate. This Agreement is personal to the
Executive and neither this Agreement nor any rights hereunder may be assigned by
the Executive.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition
7
<PAGE>
or provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
constitutes the entire Agreement between the parties hereto pertaining to the
subject matter hereof. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. All references
to any law shall be deemed also to refer to any successor provisions to such
laws.
12. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, or sent by
registered mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, or, if mailed, five days after the date of deposit in the
United States mails:
(i) If to the Company, to:
Quaker Fabric Corporation
941 Grinnell Street
Fall River, Massachusetts 02721
Attention: General Counsel
(ii) If to the Executive, to his or her last shown
address on the books of the Company.
Any party may by notice given in accordance with this Section to the
other parties, designate another address or person for receipt of notices
hereunder.
14. Separability. If any provisions of this Agreement shall be
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
15. Legal Fees. To the fullest extent permitted by law, the Company
shall promptly pay upon submission of statements all legal and other
professional fees, costs of litigation, prejudgment interest, and other expenses
incurred in connection with any dispute concerning payments, benefits and other
entitlements to which the Executive may have under this Agreement; provided,
however, the Company shall be reimbursed by the Executive for the fees and
expenses advanced in the event the Executive's claim is, in a material manner,
in bad faith or frivolous and the arbitrator or court, as applicable, determines
that the reimbursement of such fees and expenses is appropriate. The Company
shall pay to the Executive interest at the prime lending rate as announced from
time to time by Fleet National Bank (or any successor) on all or any part of any
amount to be paid to the Executive hereunder that is not paid when due. The
prime rate for each calendar quarter shall be the prime rate in effect on the
first day of the calendar quarter.
16. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive, equity or other
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plan or program provided by the Company and for which the Executive may qualify,
nor shall anything herein limit or otherwise prejudice such rights as the
Executive may have under any other currently existing plan, agreement as to
employment or severance from employment with the Company or statutory
entitlements. Amounts that are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company, at or
subsequent to the date of termination shall be payable in accordance with such
plan or program, except as otherwise specifically provided herein.
17. Not an Agreement of Employment. This is not an agreement
assuring employment and, subject to any other agreement between the Executive
and the Company, the Company reserves the right to terminate the Executive's
employment at any time with or without cause, subject to the payment provisions
hereof if such termination is after, or within ninety (90) days prior to a
Change in Control, as defined herein. The Executive acknowledges that he is
aware that he shall have no claim against the Company hereunder or for
deprivation of the right to receive the amounts hereunder as a result of any
termination that does not specifically satisfy the requirements hereof.
18. Governing Law. This Agreement shall be construed, interpreted,
and governed in accordance with the laws of the State of Delaware without
reference to rules relating to conflicts of law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand as of the date first set
forth above.
QUAKER FABRIC CORPORATION
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
EXECUTIVE
Name: ____________________________________
Title: ____________________________________
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EXHIBIT A
A "Change in Control" shall mean the occurrence of any of the
following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof), excluding the Company, any subsidiary of the Company,
any employee benefit plan sponsored or maintained by the Company or its
subsidiaries (including any trustee of any such plan acting in his capacity as
trustee), and Nortex Holdings, Inc, Larry A. Liebenow (or his estate,
beneficiaries or heirs) and any Affiliate (as such term is defined in Rule 12b-2
of the Exchange Act) of Larry A. Liebenow, becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company
representing twenty-five percent (25%) of the total combined voting power of the
Company's then outstanding securities;
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than a Transaction involving only the Company
and one or more of its subsidiaries, or a Transaction immediately following
which the stockholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity and no
person other than Nortex Holdings, Inc., Larry A. Liebenow (or his estate,
beneficiaries or heirs) or any Affiliate of Larry A. Liebenow is the beneficial
owner of securities of the resulting entity representing more than twenty-five
percent (25%) of the voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board immediately
before the beginning of such period (the "Incumbent Directors") ceasing (for any
reason other than death) to constitute at least a majority of the Board or the
board of directors of any successor to the Company, provided that, any director
who was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least a majority of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of an agreement
for the sale of all or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the Company to Nortex
Holdings, Inc., or Larry Liebenow (or his estate, beneficiaries or heirs) or to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding voting
securities of the Company or Nortex Holdings, Inc. at the time of such sale.
10
<PAGE>
AMENDMENT NUMBER ONE
TO THE
QUAKER FABRIC CORPORATION
DEFERRED COMPENSATION PLAN
WHEREAS, Quaker Fabric Corporation (the "Corporation") maintains
Quaker Fabric Corporation Deferred Compensation Plan, effective as of July 16,
1992 (the "Plan");
WHEREAS, the Corporation may amend the Plan by action of its board
of directors (the "Board"); and
WHEREAS, the Board deems it advisable to amend the Plan.
NOW, THEREFORE, pursuant to Article IX of the Plan, the Plan is
hereby amended, as follows:
1. Section 4.1 of the Plan is hereby amended by adding the following
language to the end thereof:
"Notwithstanding the foregoing, upon the occurrence of a Change in
Control (as defined in Exhibit A), the Participant shall receive
from the Corporation the Supplemental Retirement Benefit in the form
of a single lump sum payment in an amount equal to the credit
balance of the Retirement Account on the date of the Change in
Control divided by a decimal equal to one minus the Corporation's
marginal tax rate for the year preceding the year of the Change in
Control; such marginal rate to be set by the Board immediately prior
to the Change in Control. Such single lump sum shall be paid on the
Change in Control or as soon as practicable thereafter, but no later
than ten (10) days from the date of the Change in Control."
2. Section 4.2 of the Plan is hereby amended in its entirety to read as
follows:
"Payment on Termination of the Participant's Employment Before
Meeting Age or Service Requirements. If the Participant's
Termination of Employment occurs before the Participant has
completed five (5) years of Plan Participation or before attaining
age 55, the Participant shall receive from the Corporation the
Supplemental Retirement Benefit in the form of a single lump sum
payment in an amount equal to the credit balance of the Retirement
Account on the date of his or her Termination of Employment
multiplied by the applicable percentage set forth in Appendix B.
Notwithstanding the foregoing, upon the occurrence of a Change in
Control, the Participant shall receive from the Corporation the
Supplemental
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Retirement Benefit in the form of a single lump sum payment in an
amount equal to the credit balance of the Retirement Account on the
date of the Change in Control, multiplied by the applicable
percentage set forth in Appendix B, which product shall then be
divided by a decimal equal to one minus the Corporation's marginal
tax rate for the year preceding the year of the Change in Control;
such marginal rate to be set by the Board immediately prior to the
Change in Control. Such single lump sum shall be paid on the Change
in Control or as soon as practicable thereafter, but no later than
ten (10) days from the date of the Change in Control."
3. The first paragraph of Section 4.3 of the Plan is hereby amended by
adding the following language to the end thereof:
"Notwithstanding the foregoing, upon the occurrence of a Change in
Control, the Beneficiary(ies) shall receive from the Corporation the
Survivor's Benefit in the form of a single lump sum payment in an
amount equal to the credit balance of the Participant's Retirement
Account on the date of the Change in Control divided by a decimal
equal to one minus the Corporation's marginal tax rate for the year
preceding the year of the Change in Control; such marginal rate to
be set by the Board immediately prior to the Change in Control. Such
single lump sum shall be paid on the Change in Control or as soon as
practicable thereafter, but no later than ten (10) days from the
date of the Change in Control."
4. The last paragraph of Section 4.3 of the Plan is hereby amended in its
entirety to read as follows:
"Notwithstanding the foregoing, the Corporation shall have the
option, in the sole discretion of the Board, to pay to the
Participant's Beneficiary(ies) the Survivor's Benefit in the form of
a single lump sum payment equal to the credit balance of the
Participant's Retirement Account on the last day of the month in
which is included the date of the Participant's death, divided by a
decimal equal to one minus the Corporation's marginal tax rate for
the year of the Participant's death; such marginal rate to be
estimated by the Board."
5. Section 5.1 of the Plan is hereby amended in its entirety to read as
follows:
"Benefits on Disability. If the Participant's Termination of
Employment is on account of Disability (as defined herein), then the
Participant will not be entitled to receive any benefits under this
Agreement on account of such Disability, except as expressly
provided herein. The Participant's Retirement Account will, however,
continue to be credited with contributions pursuant to Section 3.2
(assuming that his base salary had continued unchanged from the rate
of base salary being paid to him at the time of his disability) and
interest credits pursuant to Section 3.3, as if there had not been a
Termination of the Participant's Employment until the earlier of the
following: (i) the Participant's attainment of
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<PAGE>
age 55 and completion of five (5) years of Plan Participation
(taking into account each year that the Company credits
contributions hereunder as an additional year of Plan
Participation); (ii) the Participant's death; or (iii) the
occurrence of a Change in Control (each of (i), (ii) and (iii) being
a "Disability Payment Event"). Upon the occurrence of a Disability
Payment Event, the Participant shall be entitled to those benefits
under Article IV to which the Participant would have been entitled
if the Termination of Employment had occurred on the date of the
Disability Payment Event. Disability shall mean the Participant's
disability pursuant to the Company's Long-term Disability Plan (the
"LTD Plan"), provided that the Participant is eligible for, and
receiving benefits under, the LTD Plan."
6. Article VI is hereby amended by adding the following new Section 6.2 to
the end thereof:
"6.2 Change in Control. In the event that a Change in Control shall
occur prior to the Participant's or Beneficiary's (as applicable)
receipt of all amounts payable under this Plan, any amounts due or
remaining to be paid under the Plan shall be paid to such
Participant or, if applicable, to or among such Beneficiary or
Beneficiaries in a single lump sum payment in an amount equal to any
remaining amount of the credit balance of the Retirement Account on
the date of the Change in Control divided by a decimal equal to one
minus the Corporation's marginal tax rate for the year preceding the
year of the Change in Control; such marginal rate to be set by the
Board immediately prior to the Change in Control. Such single lump
sum shall be paid on the Change in Control or as soon as practicable
thereafter, but no later than ten (10) days from the date of the
Change in Control."
IN WITNESS WHEREOF, the undersigned has caused this Amendment to be
executed this ________ day of December, 1999.
QUAKER FABRIC CORPORATION
By: ________________________________________
Title: _____________________________________
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EXHIBIT A
A "Change in Control" shall mean the occurrence of any of the
following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof), excluding the Company, any subsidiary of the Company,
any employee benefit plan sponsored or maintained by the Company or its
subsidiaries (including any trustee of any such plan acting in his capacity as
trustee), and Nortex Holdings, Inc, Larry A. Liebenow (or his estate,
beneficiaries or heirs) and any Affiliate (as such term is defined in Rule 12b-2
of the Exchange Act) of Larry A. Liebenow, becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company
representing twenty-five percent (25%) of the total combined voting power of the
Company's then outstanding securities;
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than a Transaction involving only the Company
and one or more of its subsidiaries, or a Transaction immediately following
which the stockholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity and no
person other than Nortex Holdings, Inc., Larry A. Liebenow (or his estate,
beneficiaries or heirs) or any Affiliate of Larry A. Liebenow is the beneficial
owner of securities of the resulting entity representing more than twenty-five
percent (25%) of the voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board immediately
before the beginning of such period (the "Incumbent Directors") ceasing (for any
reason other than death) to constitute at least a majority of the Board or the
board of directors of any successor to the Company, provided that, any director
who was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least a majority of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of an agreement
for the sale of all or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the Company to Nortex
Holdings, Inc., or Larry Liebenow (or his estate, beneficiaries or heirs) or to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding voting
securities of the Company or Nortex Holdings, Inc. at the time of such sale.
4
<PAGE>
AMENDMENT TO
SPLIT DOLLAR INSURANCE AGREEMENT
AMENDMENT NO. 1, dated as of December ___, 1999, to the Split Dollar
Insurance Agreement dated , 1993, between QUAKER FABRIC CORPORATION OF FALL
RIVER, a corporation duly organized and existing under the laws of Massachusetts
(the "Corporation"), and _____________ (the "Employee").
W I T N E S S E T H:
WHEREAS, the Corporation and the Employee entered into a Split Dollar
Insurance Agreement (the "Agreement") to assist the Employee in providing
protection for the beneficiaries of his choice in the event of the Employee's
death;
WHEREAS, the Corporation has applied for, and is the owner of, New England
Variable Life Insurance Company insurance policy no. ________ with a guaranteed
minimum death benefit of $___________ (the "Policy"), which policy insures the
life of the Employee;
WHEREAS, the Corporation has assigned its entire interest in the Policy to
the Quaker Fabric Corporation Deferred Compensation Trust (the "Trust") pursuant
to the Trust Agreement by and between the Company and State Street Bank and
Trust Company, as Trustee (the "Trust Agreement") under the Quaker Fabric
Corporation Deferred Compensation Plan (the "Deferred Compensation Plan"), for
the purpose of accumulating the amounts needed to pay benefits under the
Deferred Compensation Plan; and
WHEREAS, the parties wish to amend certain of the terms of the Agreement
as set forth in this Amendment.
NOW, THEREFORE, the Company, the Trust and the Employee agree as follows:
1. The last sentence of Section 1.2 of the Agreement is hereby amended to
read as follows:
"If the Employee terminates employment with the Corporation for any
reason other than death or Disability (as defined herein), the Trust
shall then automatically and immediately become the sole beneficiary
of the Policy."
2. Section 1.2 of the Agreement is hereby further amended by adding the
following language to the end thereof:
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<PAGE>
" 'Disability' shall mean the Employee's disability pursuant to the
Corporation's Long-term Disability Plan (the "LTD Plan"), provided
that the Employee is eligible for, and receiving benefits under, the
LTD Plan."
3. Section 1.3 of the Agreement is hereby amended in its entirety to read
as follows:
"The Trust shall be the beneficiary of the Policy in an amount equal
to the Policy's aggregate net cash surrender value, as calculated
immediately prior to the Employee's death, with respect to any death
benefit payable under Article III hereof; and an amount equal to the
aggregate death benefit of the Policy less the aggregate net cash
surrender value paid to the Trust (the "Excess Death Benefit") shall
be paid directly to the beneficiary(ies) designated by the
Employee."
4. Section 3.1 of the Agreement is hereby amended in its entirety to read
as follows:
"In the event of the Employee's death while he is either employed by
the Corporation or Disabled, the Trust shall be the beneficiary of
the Policy in an amount equal to the Policy's aggregate net cash
surrender value, as calculated immediately prior to the Employee's
death; and an amount equal to the Excess Death Benefit (as defined
in Section 1.3) shall be paid directly to the beneficiary(ies)
designated by the Employee. In the event of the death of the
Employee before he designates a beneficiary or if all named
beneficiaries are deceased, such Excess Death Benefit shall be paid
directly to the Employee's estate."
5. Section 5.1 of the Agreement is hereby amended by adding the following
sentence to the end thereof:
"In the event of a Change in Control (as defined in Exhibit A), this
Agreement shall remain in full force and effect and shall not be
extinguished until all obligations to the Employee under the
Deferred Compensation Plan are fully satisfied in accordance with
the provisions thereunder; and this Agreement shall inure to the
benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees."
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first written above.
QUAKER FABRIC CORPORATION
By: __________________________________
Name: ________________________________
Title: _______________________________
STATE STREET BANK AND
TRUST COMPANY
By: __________________________________
Name: ________________________________
Title: _______________________________
Employee: ____________________________
Address: _____________________________
______________________________________
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<PAGE>
EXHIBIT A
A "Change in Control" shall mean the occurrence of any of the
following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections
13(d) and 14(d) thereof), excluding the Company, any subsidiary of the Company,
any employee benefit plan sponsored or maintained by the Company or its
subsidiaries (including any trustee of any such plan acting in his capacity as
trustee), and Nortex Holdings, Inc, Larry A. Liebenow (or his estate,
beneficiaries or heirs) and any Affiliate (as such term is defined in Rule 12b-2
of the Exchange Act) of Larry A. Liebenow, becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company
representing twenty-five percent (25%) of the total combined voting power of the
Company's then outstanding securities;
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than a Transaction involving only the Company
and one or more of its subsidiaries, or a Transaction immediately following
which the stockholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity and no
person other than Nortex Holdings, Inc., Larry A. Liebenow (or his estate,
beneficiaries or heirs) or any Affiliate of Larry A. Liebenow is the beneficial
owner of securities of the resulting entity representing more than twenty-five
percent (25%) of the voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board immediately
before the beginning of such period (the "Incumbent Directors") ceasing (for any
reason other than death) to constitute at least a majority of the Board or the
board of directors of any successor to the Company, provided that, any director
who was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least a majority of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of an agreement
for the sale of all or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the Company to Nortex
Holdings, Inc., or Larry Liebenow (or his estate, beneficiaries or heirs) or to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding voting
securities of the Company or Nortex Holdings, Inc. at the time of such sale.
4
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AMENDMENT TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 2, dated as of December , 1999, to the Employment Agreement
dated as of March 12, 1993, between QUAKER FABRIC CORPORATION, a Delaware
corporation with its principal office at 941 Grinnell Street, Fall River,
Massachusetts 02721 (the "Company"), and LARRY LIEBENOW, residing at 66 Cooke
Street, Providence, Rhode Island 02906 ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has been employed by the Company as its President and
Chief Executive Officer pursuant to an Employment Agreement, dated as of March
12, 1993 (the "Employment Agreement");
WHEREAS, the Company wishes to continue the employment of Employee as
President and Chief Executive Officer of the Company and Employee desires to
continue such employment; and
WHEREAS, the parties wish to amend certain of the terms of the Employment
Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and mutual
promises herein contained, and other good and valuable consideration, it is
hereby covenanted and agreed by and between the parties hereto as follows:
1. Section 6(a) of the Employment Agreement is hereby amended by adding
the following language to the end thereof:
"In addition, the Company shall pay or provide to Employee any
incurred but unreimbursed business expenses for the period prior to
termination payable in accordance with the Company's policies, any
base salary, bonus, vacation pay or other deferred compensation
accrued or earned under law or in accordance with the Company's
policies applicable to Employee but not yet paid and any other
amounts or benefits due under any applicable employee benefit,
equity or incentive plans (the "Accrued Benefits")."
2. Section 6(b) of the Employment Agreement is hereby amended by adding
the following language to the end thereof:
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"In addition, the Company shall pay or provide to Employee the
Accrued Benefits."
3. Section 6(c) of the Employment Agreement is hereby amended in its
entirety to read as follows:
"Upon termination of employment of Employee for any other reason
including, without limitation, a termination of employment without
cause (other than pursuant to Section 2(b)(v)), Employee shall be
entitled to receive: (i) a lump sum payment equal to three (3) times
the highest annual Base Salary paid by the Company to Employee at
any time prior to the Change in Control and three (3) times the
annual bonus paid, or required to be paid, by the Company to the
Employee for the year preceding the year in which the termination
occurs; (ii) any Accrued Benefits; (iii) payment by the Company of
the premiums for Employee (except in the case of Employee's death)
and Employee's dependents' health and welfare coverage (including,
without limitation, medical, dental, life insurance and disability
coverage) for twelve (12) months from the date of termination of
Employee's employment under the Company's health and welfare plans
which cover the Employee or materially similar benefits
("Continuation Coverage"), subject to Employee's payment of
customary premiums in effect prior to the Change in Control.
Payments under (iii) above may, at the discretion of the Company, be
made by continuing Employee's participation in the plan as a
terminee or by covering Employee and Employee's dependents under
substitute arrangements, provided that, notwithstanding anything
herein to the contrary, to the extent Employee incurs tax that
Employee would not have incurred as an active employee as a result
of the aforementioned coverage or the benefits provided thereunder,
Employee shall receive from the Company an additional grossed up
payment in the amount necessary so that Employee will have no
additional cost for receiving such items or any additional payment.
Notwithstanding anything herein to the contrary, Employee (and his
eligible dependents) shall retain all rights under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
such COBRA continuation coverage shall be available to Employee (and
his eligible dependents) at the expiration of the Continuation
Coverage described herein."
4. Section 6(d) of the Employment Agreement is hereby amended by deleting
the phrase "(or in the case of installment payments, shall commence)."
5. A new subsection 6(e) and (f) is hereby added to the Employment
Agreement to read as follows:
"(e) Upon termination of employment by the Company without cause or
by Employee for Good Reason (as defined in Exhibit A), during the
period beginning on the date of the Change in Control (as defined in
Exhibit A) and ending one (1)
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year after the date of such Change in Control, then Employee shall
be entitled to receive: (i) a lump sum payment equal to three times
the highest annual Base Salary paid by the Company to Employee at
any time prior to the Change in Control and three (3) times the
annual bonus paid, or required to be paid, by the Company to
Employee for the year preceding the year in which the Change in
Control occurs; (ii) any Accrued Benefits; (iii) Continuation
Coverage for a period of three (3) years, subject to Employee's
payment of customary premiums in effect prior to the Change in
Control; (iv) upon the occurrence of a Change in Control, full and
immediate vesting of all stock options held by Employee; and (v) job
outplacement at a level and of a type appropriate for senior-level
executives in an amount not to exceed $20,000. Payments under (iii)
above may, at the discretion of the Company, be made by continuing
Employee's participation in the plan as a terminee or by covering
Employee and Employee's dependents under substitute arrangements,
provided that, notwithstanding anything herein to the contrary, to
the extent Employee incurs tax that Employee would not have incurred
as an active employee as a result of the aforementioned coverage or
the benefits provided thereunder, Employee shall receive from the
Company an additional grossed up payment in the amount necessary so
that Employee will have no additional cost for receiving such items
or any additional payment. Notwithstanding anything herein to the
contrary, Employee (and his eligible dependents) shall retain all
rights under COBRA and such COBRA continuation coverage shall be
available to Employee (and his eligible dependents) at the
expiration of the Continuation Coverage described herein. In
addition, notwithstanding the foregoing, in the event Employee is
terminated without cause or terminates employment for Good Reason
within ninety (90) days prior to the occurrence of a Change of
Control, such termination shall, upon the occurrence of a Change in
Control, be deemed to be covered under this section of the
Employment Agreement and Employee shall be entitled to all payments
and benefits provided hereunder reduced by any amounts otherwise
received by the Executive in connection with his termination of
employment.
"(f) Notwithstanding anything herein to the contrary, all payments
payable upon any termination shall be made as soon as practicable
following such termination, but in no event later than ten (10) days
after such termination (or, if such termination occurred within
ninety (90) days prior to a Change in Control, all payments shall be
made as soon as practicable following the Change in Control, but in
no event later than ten (10) days after the Change in Control)."
6. A new Section 9 is hereby added to the Employment Agreement to read as
follows:
"9. (a) In the event that the Employee shall become entitled to the
payments and/or benefits provided by Section 6 or any other amounts
(whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions
result in a change of ownership covered by
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<PAGE>
Section 280G(b)(2) of the Code or any person affiliated with the
Company or such person) as a result of a Change of Control
(collectively the "Company Payments"), and such Company Payments
will be subject to the tax (the "Excise Tax") imposed by Section
4999 of the Code (and any similar tax that may hereafter be imposed)
the Company shall pay to Employee at the time specified in
subsection (d) below an additional amount (the "Gross-up Payment")
such that the net amount retained by Employee, after deduction of
any Excise Tax on the Company Payments and any federal, state, and
local income or payroll tax upon the Gross-up Payment provided for
by this paragraph (a), but before deduction for any federal, state,
and local income or payroll tax on the Company Payments, shall be
equal to the Company Payments.
(b) For purposes of determining whether any of the Company Payments
and Gross-up Payments (collectively the "Total Payments") will be
subject to the Excise Tax and determining the amount of such Excise
Tax: (i) the Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"parachute payments" in excess of the "base amount" (as defined
under Code Section 280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax, unless and except to the extent that, in
the opinion of the Company's independent certified public
accountants appointed prior to any change in ownership (as defined
under Code Section 280G(b)(2)) or tax counsel selected by such
accountants (the "Accountants") such Total Payments (in whole or in
part), (A) do not constitute "parachute payments," (B) represent
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code" or (C) are otherwise not
subject to the Excise Tax; and (ii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by
the Accountants in accordance with the principles of Section 280G of
the Code.
(c) For purposes of determining the amount of the Gross-up Payment,
Employee shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in
which the Gross-up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and
locality of Employee's residence for the calendar year in which the
Company Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such
state and local taxes if paid in such year. In the event that the
Excise Tax is subsequently determined by the Accountants to be less
than the amount taken into account hereunder at the time the
Gross-up Payment is made, Employee shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the prior Gross-up Payment attributable
to such reduction (plus the portion of the Gross-up Payment
attributable to the Excise Tax and federal, state and local income
tax imposed on the portion of the Gross-up Payment being repaid by
Employee if such repayment results in a reduction in Excise Tax or a
federal, state and local income tax deduction), plus interest on the
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amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the
event any portion of the Gross-up Payment to be refunded to the
Company has been paid to any federal, state and local tax authority,
repayment thereof (and related amounts) shall not be required until
actual refund or credit of such portion has been made to Employee,
and interest payable to the Company shall not exceed the interest
received or credited to Employee by such tax authority for the
period it held such portion. Employee and the Company shall mutually
agree upon the course of action to be pursued (and the method of
allocating the expense thereof) if Employee's claim for refund or
credit is denied.
In the event that the Excise Tax is later determined by the
Accountants or the Internal Revenue Service to exceed the amount
taken into account hereunder at the time the Gross-up Payment is
made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-up Payment), the
Company shall make an additional Gross-up Payment in respect of such
excess (plus any interest or penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
(d) The Gross-up Payment or portion thereof provided for in
subsection (c) above shall be paid not later than the thirtieth
(30th) day following an event occurring which subjects Employee to
the Excise Tax; provided, however, that if the amount of such
Gross-up Payment or portion thereof cannot be finally determined on
or before such day, the Company shall pay to Employee on such day an
estimate, as determined in good faith by the Accountants, of the
minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Code
Section 1274(b)(2)(B) of the Code), subject to further payments
pursuant to subsection (c) hereof, as soon as the amount thereof can
reasonably be determined, but in no event later than the ninetieth
(90th) day after the occurrence of the event subjecting Employee to
the Excise Tax. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to Employee,
payable on the fifth (5th) day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(e) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 9, Employee
shall permit the Company to control issues related to this Section 9
(at its expense), provided that such issues do not potentially
materially adversely affect Employee, but Employee shall control any
other issues. In the event the issues are interrelated, Employee and
the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree,
Employee shall make the final determination with regard to the
issues. In the event of any conference with any taxing authority as
to the Excise Tax or associated income taxes, Employee shall
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permit the representative of the Company to accompany him, and
Employee and his representative shall cooperate with the Company and
its representative.
(f) The Company shall be responsible for all charges of the
Accountants."
7. A new Section 10 is hereby added to the Employment Agreement to read as
follows:
"10. To the fullest extent permitted by law, the Company shall
promptly pay upon submission of statements all legal and other
professional fees, costs of litigation, prejudgment interest, and
other expenses incurred in connection with any dispute concerning
payments, benefits and other entitlements to which Employee may have
under this Agreement; provided, however, the Company shall be
reimbursed by Employee for the fees and expenses advanced in the
event Employee's claim is, in a material manner, in bad faith or
frivolous and the arbitrator or court, as applicable, determines
that the reimbursement of such fees and expenses is appropriate. The
Company shall pay to Employee interest at the prime lending rate as
announced from time to time by Fleet National Bank (or any
successor) on all or any part of any amount to be paid to Employee
hereunder that is not paid when due. The prime rate for each
calendar quarter shall be the prime rate in effect on the first day
of the calendar quarter."
8. A new Section 11 is hereby added to the Employment Agreement to read as
follows:
"11. The Company agrees that if Employee's employment with the
Company is terminated pursuant to this Agreement during the term of
this Agreement, Employee shall not be required to seek other
employment or to attempt in any way to reduce any amounts payable to
Employee by the Company pursuant to this Agreement. Further, the
amount of any payment or benefit provided for in this Agreement
shall not be reduced by any compensation earned by Employee or
benefit provided to Employee as the result of employment by another
employer or otherwise. The Company's obligations to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances,
including without limitation, any set-off, counterclaim, recoupment,
defense or other right which the Company may have against Employee."
9. A new Section 12 is hereby added to the Employment Agreement to read as
follows:
"12. The Company shall continue to cover Employee under any director
and officer insurance maintained for directors and officers of the
Company or any affiliate at the highest level so maintained for
other officers or directors or, if
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greater, at the level maintained by the Company immediately prior to
a Change in Control, with regard to action or inaction while an
officer or director."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the day and year first written above.
QUAKER FABRIC CORPORATION
By: __________________________________
Name: ________________________________
Title: _______________________________
Employee: ____________________________
Address: _____________________________
______________________________________
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EXHIBIT A
(a) Termination for Good Reason. For purposes of this Employment
Agreement, termination for Good Reason shall mean a termination by
Employee effected by a written notice given within sixty (60) days
after the occurrence of the Good Reason event. For purposes of this
Agreement, "Good Reason" shall mean the occurrence or failure to
cause the occurrence of any of the following events without
Employee's express written consent: (A) any diminution in Employee's
duties and responsibilities, authority, or title, except in each
case in connection with the termination of Employee's employment for
Cause or as a result of Employee's death, or temporarily as a result
of Employee's illness or other absence, or, if it occurs after a
Change of Control, the assignment to Employee of duties and
responsibilities inconsistent with the position held by Employee
immediately prior to the Change of Control; (B) a reduction in
Employee's annual Base Salary; (C) a relocation of: (x) Employee's
principal business location to an area outside a fifty (50) mile
radius of Employee's current principal business location, (y)
Employee's principal business location to a location which is more
than seventy (70) miles from Employee's principal residence, or (z)
the Company's headquarters to a location that is not substantially
the same as Employee's current principal business location; (D)
failure of the Company to continue in effect any health and welfare
plan, employee benefit plan, pension plan, fringe benefit plan or
compensation plan in which Employee (and eligible dependents) are
participating immediately prior to such Change in Control, unless
Employee (and eligible dependents) are permitted to participate in
other plans providing Employee with substantially comparable
benefits at no greater after-tax cost to Employee, or the taking of
any action by the Company which would adversely affect Employee's
participation in or reduce Executive's benefits under any such plan;
(E) breach by the Company of any other agreement with Employee
without proper justification that remains uncured for ten (10) days
after written notice of such breach is given to the Company; or (F)
failure of any successor to the Company (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume in writing the obligations hereunder.
(b) A "Change in Control" shall mean the occurrence of any of the
following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in Section
13(d) and 14(d) thereof), excluding the Company, any subsidiary of the Company,
any employee benefit plan sponsored or maintained by the Company or its
subsidiaries (including any trustee of any such plan acting in his capacity as
trustee), and Nortex Holdings, Inc, Larry A. Liebenow (or his estate,
beneficiaries or heirs) and any Affiliate (as such term is defined in Rule 12b-2
of the Exchange Act) of Larry A. Liebenow, becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company
representing twenty-five percent (25%) of the total combined voting power of the
Company's then outstanding securities;
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<PAGE>
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than a Transaction involving only the Company
and one or more of its subsidiaries, or a Transaction immediately following
which the stockholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity and no
person other than Nortex Holding, Inc., Larry A. Liebenow (or his estate,
beneficiaries or heirs) or any Affiliate of Larry A. Liebenow is the beneficial
owner of securities of the resulting entity representing more than twenty-five
percent (25%) of the voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board immediately
before the beginning of such period (the "Incumbent Directors") ceasing (for any
reason other than death) to constitute at least a majority of the Board or the
board of directors of any successor to the Company, provided that, any director
who was not a director as of the date hereof shall be deemed to be an Incumbent
Director if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least a majority of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of the foregoing unless such election, recommendation or approval occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of an agreement
for the sale of all or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the Company to Nortex
Holdings, Inc., or Larry Liebenow (or his estate, beneficiaries or heirs) or to
a person or persons who beneficially own, directly or indirectly, at least fifty
percent (50%) or more of the combined voting power of the outstanding voting
securities of the Company or Nortex Holding, Inc. at the time of such sale.
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<PAGE>
QUAKER FABRIC CORPORATION
1999 STOCK PURCHASE LOAN PROGRAM
1. Purpose.
The Quaker Fabric Corporation (the "Company") 1999 Stock Purchase Loan Program
(the "Program") is designed to provide certain employees of the Company and its
affiliates a source of financing to facilitate the purchase of common stock, par
value $.01 per share of the Company (the "Common Stock") on the open market.
2. Participation.
The Compensation Committee (the "Committee") of the Board of Directors of the
Company shall determine in its sole and absolute discretion whether an employee
of the Company or its affiliates is eligible to participate in the Program
("Participant"). The Committee shall not reduce a Participant's rights under any
outstanding loan except as otherwise provided in this Program and the loan
documentation. Notwithstanding the foregoing, the Committee may, in its sole and
absolute discretion: (i) terminate a Participant's Program eligibility at any
time and for any reason (or for no reason); (ii) refuse to offer future loans to
any Participant; or (iii) withdraw the offer of any loan. A Participant's
participation in the Program shall immediately cease upon the individual's (i)
death; (ii) disability (as determined under the Company's long-term disability
program) ; (iii) leave of absence; or (iv) termination of employment with the
Company and any affiliate.
3. Administration.
The Program shall be administered and interpreted by the Committee. The
Committee shall have the exclusive authority and responsibility to make all
determinations necessary in connection with the administration of the Program,
to adopt forms of loan documents and agreements, to select the individuals
eligible to participate in the Program, and to take all other actions which the
Committee deems are appropriate or necessary to the proper administration of the
Program. All decisions of the Committee with respect to the Program shall be
final, conclusive, and binding upon all parties.
4. Loan Conditions.
(a) Purpose.
Loans shall be used solely for the purpose of purchasing shares of Common Stock
on the open market. No other uses are permitted.
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(b) Loan Amount.
The Committee shall determine, in its sole and absolute discretion, the maximum
aggregate amount of any loan or loans which may be outstanding with respect to a
Participant at any time under the Program provided, however, that such amount or
amounts shall at all times be less than $50,000. In no event will a Participant
be allowed to have more than two (2) loans outstanding at any time under the
Program (unless otherwise determined by the Committee in its sole and absolute
discretion). Notwithstanding anything in this Program document to the contrary,
in the event the Company becomes subject to the reporting requirements of
Regulation U, no loan shall exceed the "maximum loan value" (within the meaning
of Regulation U) of any Common Stock held by the Company as collateral with
respect to the loan until the Company terminates its registration under
Regulation U.
(c) Loan Terms.
The Committee shall determine, in its sole and absolute discretion, all
applicable terms of the loan, which shall be set forth in one or more of the
loan documents.
(d) Interest Rate.
The interest rate on each loan shall be determined by the Committee and set
forth in the applicable promissory note provided, however, that such interest
rate shall be at least equal to the minimum applicable federal rate, published
by the Internal Revenue Service for the month during which the promissory note
is executed, which is necessary to avoid imputed interest income under the
Internal Revenue Code of 1986, as amended (the "Code").
(e) Form of Repayment.
Repayment of Program loans shall be made in accordance with the schedule
provided in the promissory note by means of offset against a Participant's
annual bonus otherwise payable to the Participant, or by such other means as are
authorized by the Committee at the time of the granting of the loan, or at any
time thereafter, provided that no rights of a Participant are reduced. The
unpaid principal balance of a loan, together with accrued interest thereon, may
be prepaid in full or in part at any time without premium or penalty.
(f) Security.
In order to obtain a loan under the Program, a Participant shall execute all of
the loan documents required by the Company and pledge collateral adequate to
secure the loan. The adequacy of the collateral pledged by a Participant as
security for a loan will be determined by the Committee in its sole discretion,
but in all events, a pledge of the shares of Common Stock owned by the
Participant or the shares of Common Stock to be acquired by the Participant with
the loan proceeds will constitute adequate security. No additional collateral
shall be required.
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5. Miscellaneous Provisions.
(a) Amendment/Termination.
The Company or the Committee may, at any time, amend, modify, terminate or
freeze the Program, discontinue the making of new loans or cancel any
outstanding loan by forgiveness of the outstanding debt or otherwise, provided,
however, that neither the Company nor the Committee may change the terms of any
outstanding loan nor take any action which would affect the rights of a
Participant with respect to Common Stock previously purchased by such
Participant with a loan or loans under the Program. Without limiting the
generality of the foregoing, neither the Company nor the Committee may
unilaterally terminate any outstanding loan or force the sale of any shares of
Common Stock, except as expressly stated herein or in a Participant's promissory
note evidencing the loan.
(b) No Right to Continue as a Employee.
The Program is a voluntary undertaking on the part of the Company and shall not
constitute a contract between the Company (or any affiliate thereof) and any
Participant, or consideration for, or any inducement or condition of, the
employment of a Participant. Nothing contained in the Program shall give any
individual the right to continue in the service of the Company as an employee or
restrict the right of the Company to terminate the service of a Participant at
any time.
(c) No Third Party Beneficiaries.
Nothing in this Program shall create rights by any third party to rely upon the
terms hereof without the Committee's express written consent, including rights
of a spouse.
(d) Coordination with 401(k) Hardship Rules.
In the event a Participant makes a hardship withdrawal of employee deferral
(401(k)) contributions under a 401(k) profit sharing plan of the Company or an
affiliate or any other plan qualified under Section 401(a) of the Code that
contains a Code Section 401(k) feature, such Participant shall be prohibited
from obtaining new loans under the Program for the twelve (12) month period
following such hardship withdrawal.
6. Effective Date.
This Program is effective as of December ___, 1999.
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SECURED PROMISSORY NOTE
UNDER THE
QUAKER FABRIC CORPORATION
1999 STOCK PURCHASE
LOAN PROGRAM ("PROGRAM")
$________________ __________________
(Amount) (Date)
FOR VALUE RECEIVED, the undersigned _______________ (the "Borrower"),
promises to pay to the order of Quaker Fabric Corporation ("the Company"), the
principal amount of ___________________________ ($____________) (the "Principal
Amount") and all accrued interest thereon in accordance with the terms hereof
(the "Note Indebtedness").
Interest. Interest shall accrue on the unpaid Principal Amount commencing
on the date hereof at a rate equal to 6.37%, compounded semiannually.
Term. The term of this Promissory Note shall be for ten (10) years. The
Borrower shall repay the Note Indebtedness in substantially level amortized
payments over the term of this Promissory Note by means of offset against the
bonus otherwise payable to the Borrower under the Company annual bonus plan and
if no such bonus is payable (or if the annual bonus is insufficient to cover the
Note Indebtedness payment then due), by means of a check payable to the order of
the Company no later than 10 days after the bonus is paid, or if no bonus is
payable, would have been paid. Unless otherwise provided by the Committee (as
defined under the Program), the Note Indebtedness shall become due and payable
no later than thirty (30) days following the Borrower's termination of
employment with the Company and any affiliate (as defined under the Program) for
any reason. The Borrower shall have the right to prepay this Promissory Note, in
full or in part, at any time without premium or penalty.
Security. This Promissory Note shall be secured by such shares of common
stock, par value $.01 per share of the Company (the "Pledged Shares") as
evidenced by a Stock Pledge Agreement between the Borrower and the Company of
even date herewith (the "Pledge Agreement") and the Company and the Borrower
agree that the Company's recourse under this Promissory Note shall be for the
full amount of the Note Indebtedness and shall not be limited to the value of
the Pledged Shares. In no event shall any of the Pledged Shares be sold unless
the Committee consents to such sale and the amount of the Pledged Shares to be
sold. In the event that all or a portion of the Pledged Shares are sold by the
Borrower prior to the repayment of the Note Indebtedness, the proceeds from such
sale shall be used to repay the Note Indebtedness, provided, that in the event
the Company should become subject to registration under Regulation U, the amount
of the Note Indebtedness shall not exceed more than fifty percent (50%) of the
fair market value (as determined by the Committee, in its sole discretion) of
the remaining Pledged Shares. This Promissory Note is subject to the terms of
the Pledge Agreement. All the
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representations, warranties, agreements, terms and conditions contained in the
Pledge Agreement are incorporated herein.
Default. During the continuance of an Event of Default (as defined in the
Pledge Agreement), the Company shall have the right to offset any amounts owing
by the Company to the Borrower for any reason, including but not limited to,
salary or bonus, against any outstanding Note Indebtedness. If any action is
brought to collect this Promissory Note, the Company shall be entitled to
recover from the Borrower all the costs and expenses of that action, including,
but not limited to, reasonable attorney's fees, and the holder shall be entitled
to judgment for those additional amounts (in addition to the unpaid Note
Indebtedness).
Waiver of Rights. No failure or delay on the part of the Company to
exercise any right or remedy granted to the Company in this Promissory Note or
otherwise provided by law shall operate as a waiver of any such right or remedy.
The Borrower hereby waives presentment, demand, notice of dishonor, notice of
protest and all other notices and demands in connection with any delivery,
acceptance, performance or default of this Promissory Note and agrees that this
Promissory Note may be modified only by an agreement in writing signed by the
Borrower and the Company.
Governing Law. This Promissory Note shall be governed and interpreted in
accordance with the laws of the state of Delaware.
Accepted and Acknowledged by: Accepted and Acknowledged by:
QUAKER FABRIC CORPORATION BORROWER
By: _____________________________ Name: __________________________
Name: ___________________________
Title: __________________________
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<PAGE>
STOCK PLEDGE AGREEMENT
UNDER THE
QUAKER FABRIC CORPORATION
1999 STOCK PURCHASE
LOAN PROGRAM ("PROGRAM")
This is a Stock Pledge Agreement ("Agreement"), dated as of ____________,
1999, between ______________ ("Borrower") and Quaker Fabric Corporation (the
"Company").
WHEREAS, the Company has loaned Borrower the principal sum of $__________
pursuant to a Secured Promissory Note, dated as of the date hereof (the
"Promissory Note").
NOW, THEREFORE, in order to induce the Company to make the loan, and to
secure Borrower's obligations under the Promissory Note, the parties named
herein agree as follows:
1. Pledge. The Borrower hereby grants a first security interest to the Company
in the following collateral (the "Collateral"):
(a) All shares of common stock, par value $.01 per share of the Company
(the "Common Stock") identified on Exhibit A (the "Pledged Shares"),
represented by certificate nos. ___ as stated on the Common Stock
ownership certificates (the "Share Certificates," whether one or more).
(b) Any securities hereafter delivered to the Borrower in addition to or
in substitution for any of the Pledged Shares and all certificates and
instruments representing or evidencing such securities.
(c) All of Borrower's rights to, title and interest in the Pledged Shares,
all dividends or distributions arising therefrom, payable therein or
distributed in respect thereto, whether in cash, property, stock or
otherwise and whether now or hereafter declared, paid or made, together
with the right to receive and receipt therefor.
2. Perfection of Security Interest. In order to perfect the Company's security
interest in the Pledged Shares, the Borrower has delivered to the Company the
Share Certificates duly endorsed for transfer in blank (or accompanied by one or
more signed stock powers in blank), to be held by the Company pursuant to the
terms of this Agreement.
3. Representations, Warranties and Covenants. The Borrower hereby represents,
warrants and agrees with the Company as follows:
(a) The Borrower has the legal capacity to execute this Agreement and to
carry out all of the terms, conditions, covenants and provisions contained
herein.
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(b) The Borrower is the only and absolute owner of the Pledged Shares and
has full power to make the pledge contemplated hereby; the Pledged Shares
are free from all security interests, liens and encumbrances (other than
the security interest granted by this Agreement); immediately before
granting the security interest created by this Agreement, the Borrower was
the record and beneficial owner and holder of the Pledged Shares on the
stock books and records of the Company; and the Pledged Shares are freely
transferable without restriction or limitation.
(c) During the term of this Agreement, and so long as there is no default
in the observance and performance of any of the terms of this Agreement or
the Promissory Note by the Borrower, the Borrower shall have the right to
vote the Pledged Shares on all corporate questions.
(d) If at any time during the term of this Agreement, any stock dividend,
reclassification, readjustment or other change is declared or made in the
capital structure of any of the applicable corporations, all new,
substituted and additional shares or other securities issued in respect to
the Pledged Shares shall be held by the Company under the terms of this
Agreement in the same manner as the Pledged Shares.
(e) If at any time during the term of this Agreement, subscription
warrants or any other rights or options shall be issued in connection with
the Pledged Shares or any other securities at the time held by the Company
hereunder, such warrants, rights and options shall be held by the Company
as part of the Collateral hereunder and treated in the same manner as the
Pledged Shares, and if exercised by the Borrower, all new stock or other
securities so acquired by the Borrower shall be held by the Company under
the terms of this Agreement in the same manner as the Pledged Shares.
(f) The Borrower has good right and lawful authority to pledge,
hypothecate, mortgage, assign, transfer, deliver, set over and confirm
unto the Company the Collateral as provided in this Agreement, and the
Borrower shall warrant and defend the title thereto and the Company's
security interest therein against persons making claims through the
Borrower.
(g) So long as this Agreement shall be in effect, the Borrower shall not
sell, assign or transfer, and shall not pledge, hypothecate, mortgage or
otherwise encumber any right or rights with respect to the Collateral or
any rights or interest therein.
(h) Borrower agrees to execute any form required to be executed pursuant
to Regulation U and any other rules and regulations of the Federal Reserve
System.
4. Default. Each of the following events or conditions constitutes an "Event of
Default":
(a) Failure by the Borrower to make any payment of principal or interest
under the Promissory Note on or before thirty (30) days after the date
such payment is due.
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(b) Failure by the Borrower to comply with any other provision of the
Promissory Note or this Agreement and the continuance of such failure for
thirty (30) days or more after written notice from the Company.
(c) Any representation, warranty or other statement by or on behalf of the
Borrower contained in the Promissory Note or this Agreement is false or
misleading in any material respect when made.
(d) The Borrower becomes insolvent or bankrupt or makes an assignment for
the benefit of creditors, or consents to the appointment of a trustee,
receiver or liquidator.
(e) Bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings are instituted by or against the Borrower, which proceedings
are not dismissed or stayed within sixty (60) days after they are
instituted.
If at any time during the term of this Agreement, there shall have occurred an
Event of Default, the Company shall have at any time thereafter the rights and
remedies provided by law, including those contained in the Uniform Commercial
Code as interpreted by the courts in Delaware, and without limiting the
generality of the foregoing, (i) the right to declare all amounts then remaining
unpaid under the Promissory Note to be immediately due and payable, and (ii) the
right to take any available action or proceeding, at law or in equity, which it
deems necessary or advisable for its protection and security.
5. Governing Law. This transaction shall be governed by the laws of Delaware,
and the Company shall have all of the rights and remedies granted to a secured
party under the Uniform Commercial Code as interpreted by the courts of
Delaware.
6. Authority of the Company. The Borrower hereby irrevocably authorizes and
empowers the Company, in its absolute discretion, at any time after any Event of
Default as defined herein, to complete the stock powers and to transfer or cause
to be transferred on its books all of the Pledged Shares and the Share
Certificates relating thereto.
7. Termination. When and if the Borrower's obligations under the Promissory Note
have been paid in full, all rights and interests of the Company in and to the
Pledged Shares and the other Collateral shall thereupon revest in the Borrower,
and the Company thereupon shall release the security interest granted in this
Agreement, reassign the Pledged Shares and the other Collateral to the Borrower
and deliver the Share Certificates (together with any related stock powers) to
the Borrower.
8. Taxes. The Company shall pay for any and all documentary stamps or other
taxes on behalf of the Borrower on a grossed up basis (at the applicable rates)
which may be imposed on the transfer and delivery to the Company, or the
retransfer and redelivery to the Borrower, of the Pledged Shares, the other
Collateral to the Borrower and the Share Certificates.
3
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9. Waiver by Borrower. The Borrower hereby waives presentment, demand, protest
or notice of protest with respect to the Promissory Note.
10. The Company's Rights; Exculpation. The Collateral shall be held in the
possession of the Company, and in connection therewith, the Company shall have
the authority and power to take such actions and to exercise such powers
hereunder as are specifically delegated to the Company by the terms hereof,
together with such other powers as are reasonably incidental thereto. The
Company shall not be liable hereunder in its capacity as agent or bailee for any
action taken or omitted by it hereunder except for its gross negligence or
willful breach. The Company shall have no compensation hereunder and shall be
under no duty with respect to the Collateral except to account therefor in due
course, pursuant to the terms and conditions hereof.
11. Entire Agreement. This Agreement and the Promissory Note collectively
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
12. Modification of Agreement. This Agreement may not be modified except in
writing and executed with the same formality as this Agreement.
13. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
14. Notices. All notices required or permitted to be given hereunder shall be in
writing and addressed:
If to Quaker Fabric Corporation as follows:
Quaker Fabric Corporation
941 Grinnell Street
Fall River, Massachusetts 02721
Attention: General Counsel
If to the Borrower, at the address set forth below.
60 Westfield Road
East Greenwich, RI 02818
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15. Further Assurance. Each party shall execute and deliver to the other such
further documents and instruments, and shall perform such other acts, as
reasonably may be necessary or proper to carry out more effectually the purposes
of this Agreement.
BORROWER
By: __________________________________
Address: _____________________________
______________________________________
QUAKER FABRIC CORPORATION
By: __________________________________
Name: ________________________________
Title: _______________________________
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AMENDMENT NO. 2, effective as of December 28, 1999, to the Note Agreement
dated as of October 10, 1997, as amended, (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. Subparagraph 6D of the Agreement 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:
=======================================================
Period Ratio
=======================================================
January 3, 1999 through October 1, 1999 1.00 : 1.00
-------------------------------------------------------
October 2, 1999 through June 30, 2000 1.25 : 1.00
-------------------------------------------------------
July 1, 2000 and thereafter 1.50 : 1.00
=======================================================
2. Conditions to Effectiveness. This Amendment No. 2 shall be effective as of
the date first above written and the Agreement shall be deemed amended
hereby upon 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. 2 shall not
operate as a waiver of any
<PAGE>
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. 2 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.
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
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PARAGON[LOGO]
SOFTWARE LICENSE AGREEMENT
rev. 05/05/98
This SOFTWARE LICENSE AGREEMENT (the "Agreement") is entered into
this day of December, 1999 by and between PARAGON MANAGEMENT SYSTEMS, INC.,
a California corporation located at 5933 Century Boulevard, Suite 1220, Los
Angeles, California 90045 ("Paragon"), and QUAKER FABRIC CORPORATION OF FALL
RIVER, a Massachusetts corporation located at 941 Grinnell Street, Fall River,
Massachusetts 02721 ("Licensee").
1. Definitions
1.1. "includes"; "including". Except where followed directly by the word
"only", the terms "includes" or "including" shall mean "includes, but is not
limited to" and "including, but not limited to" respectively, it being the
intention of the parties that any listing following thereafter is illustrative
and not exclusive or exhaustive.
1.2. "Software". The term "Software" shall mean the computer software
programs of Paragon identified in Exhibit "A" attached hereto and incorporated
herein in object code form only, and any versions of such programs which are
provided to Licensee subsequent to the Effective Date (as defined below).
1.3. "Documentation". The term "Documentation" shall mean the operator and
user manuals, training manuals, guides specifications and other documentation
customarily supplied by Paragon with the Software to licensees.
1.4. "Products". The term "Products" shall mean the Software, the
Documentation and any other materials provided to Licensee by Paragon hereunder.
The plural term "Products" is used even though there may be only one Product
licensed hereunder.
1.5. "Facility". The term "Facility" shall mean a single unit or business
activity of a business entity, which unit or business activity may be a
manufacturing unit, production unit, assembly unit, storage unit or distribution
unit. There may be more than one Facility within a single business entity, and
there may be more than one Facility within a single site of a business entity.
1.6. "Licensed Facility". The term "Licensed Facility" shall mean a
Facility as to which Licensee has licensed a Product hereunder.
1.7. "Designated Computer". The term "Designated Computer" shall mean the
computer system owned by, or leased exclusively to, Licensee and operated by
Licensee at Licensee's premises, designated on Exhibit "A" attached hereto and
incorporated herein by this reference.
1.8. "Effective Date". The term "Effective Date" shall mean the date first
set forth above which, upon execution of this Agreement by both parties, shall
be the effective date of this Agreement.
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1.9. "New Release". The term "New Release" shall mean a new version of a
Product prepared to incorporate one or more of the following: (i) improvement of
speed, performance, capacity, ease of use or other aspects of a Product; (ii)
correction of Nonconformities in the Software; (iii) the addition of features
and/or functionality; or (iv) revision of a Product as necessary or desirable
for the Product to operate with any upgraded versions of, or replacements for,
any operating system.
1.10. "Corrected Version". The term "Corrected Version" shall mean a
version of the Software prepared primarily for the purpose of correcting
Nonconformities where it is undesirable or impractical to delay the correction
of such Nonconformities until the next New Release.
1.11. Other Terms. The following other terms are defined in the Sections
cited:
"Cessation" - Section 15.2.
"Confidential Information" - Section 10.
"Nonconformity" - Section 15.1.1
"Warranty Period" - Section 15.1.1
2. Third Party Software
Licensee shall be solely responsible for obtaining, installing and
maintaining any third party software necessary for, or useful in, the operation
of the Products licensed by Licensee hereunder, at Licensee's sole expense.
Paragon has identified all necessary and recommended third party software in
Exhibit "A".
3. License and Term of Agreement
3.1. License. Subject to the terms and conditions set forth herein,
Paragon hereby grants to Licensee a nonexclusive, nontransferable,
nonsublicensable license to use the Products during the term of this Agreement,
on the Designated Computers located at the Licensed Facility or Licensed
Facilities identified in Exhibit "A" and only for the number of concurrent users
identified in Exhibit "A", and only for Licensee's internal data processing
purposes. Licensee may use the Products on a different computer or at a
different Facility during a temporary emergency, provided that; (i) such use is
under the control of Licensee; and (ii) such use continues only so long as is
reasonably necessary to accommodate the emergency conditions (and in no event
longer than _26_ weeks). Licensee assumes full responsibility for the
management, supervision and control of the Products, and shall take all measures
necessary to reasonably assure that all personnel using the Products are, in the
opinion of both parties, suitably qualified and trained for such use.
3.2. Addition of Licensed Facilities. Licensee, at its sole discretion,
shall have the absolute right to add an additional Licensed Facility under this
Agreement, provided that Licensee notify Paragon of its decision to add an
additional Licensed Facility and pays to Paragon the current list price for the
license fee for the number of authorized concurrent users at such new Licensed
Facility.
3.3. Addition of Concurrent Users At Existing Licensed Facility. License,
at it is sole discretion, shall have the absolute right to add additional
concurrent users at a then-existing Licensed Facility, Licensee notify Paragon
and pay to Paragon the difference between the current list price for the
increased number of users and the original price paid for the lower number of
users at such existing Licensed Facility.
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3.4. Back-Up and Archival Copies. Licensee shall have the right to make a
reasonable number of copies for back-up purposes, provided that no such backup
copies are used for any other purpose, and further provided that the use of
back-up copies does not have the effect of increasing the number of permitted
concurrent users. In addition, Licensee shall be permitted to make archival
copies as part of a regular program of computer system data archiving, provided
that such archival copies are used only for archival purposes or emergency
purposes, and further provided that the use of archival copies does not increase
the number of permitted concurrent users.
3.5. Documentation. Licensee may make such copies of the Documentation as
are reasonably necessary for its internal use of the Products by the permitted
number of simultaneous users, but may not make copies of the Documentation for
any other purpose.
3.6. No Service Bureau Use. Licensee shall not, under any circumstances,
use or permit the use of the Software in or on any service bureau, time-sharing
or in any situation where the computer system on which the Software is installed
may be accessed by any party other than Licensee.
4. License Fees
4.1. License Fees. Licensee shall pay Paragon the license fees set forth
in Exhibit "A" for the Products licensed, at the Licensed Facilities,, payable
upon execution of this agreement.
4.2. Maintenance Fees. In consideration of the Software and services
provided hereunder, Licensee shall pay Paragon the annual maintenance fees set
forth in Exhibit "A" as adjusted for the number of Licensed Facilities and
Concurrent Users set forth therein. Such payments shall be made in full in
advance. Paragon may increase the annual maintenance fees in connection with any
renewal of the term of this Agreement. Paragon shall give Licensee written
notice of any increase in maintenance fees at least thirty (30) days' prior to
the renewal date on which such increase is to take effect. Any price increases
shall not exceed the increase in the Consumer Price Index from the prior annual
period.
4.3. Fees For Unnecessary Use of Technical Support. Paragon shall have the
right to charge additional maintenance fees at Paragon's then-current rates for
unreasonable time spent providing technical support to Licensee's personnel with
respect to basic questions or problems that could have been readily resolved by
consultation of the Documentation, or with respect to matters which are not
directly related to the operation of a Product. Paragon shall provide Licensee
with written notice immediately upon Paragon's determination that Licensee's
usage of Technical Support is becoming unreasonable.
4.4 Not Used
4.5. Taxes. Licensee shall be solely responsible for all sales, use,
withholding property or other taxes applicable to the license granted pursuant
to this Agreement, other than taxes based on Paragon's U.S. net income or
employee and payroll taxes.
4.6. Late Payments. All payments to Vendor will be made in United States
dollars. Amounts outstanding over thirty (30) days may be assessed interest at a
rate equal to the lesser of one and one-half percent (1 1/2%) per month or the
maximum rate allowed by law, and such accrual of interest will be in addition,
and not in limitation of, any other rights or remedies which Paragon may have
under this Agreement or at law or in equity. In the event that any interest has
accrued, all amounts paid by Licensee will be credited first against such unpaid
interest.
Computer Software License Agreeement
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<PAGE>
5. Delivery and Installation
5.1. Delivery. As soon as may be practicable after receipt of payment of
the initial license fee set forth in Exhibit "A" from Licensee, Paragon shall
deliver the Products to Licensee's Licensed Facility.
5.2. Installation. Licensee shall be solely responsible for installation
of the Software on each Designated Computer at each Licensed Facility.
6. Not Used
7. Maintenance
7.1. Support Period. The "Support Period" commences upon the Effective
Date and shall continue until the first anniversary of the Effective Date.
Licensee may renew the Support Period for one or more additional one-year terms
by giving notice of renewal not later than thirty (30) days before the
expiration of the then-current term and paying the annual renewal fee as set
forth in Section 4.2 and Exhibit A hereto.
7.2. Maintenance. During the Support Period, Paragon shall (i) provide to
Licensee reasonable telephone, facsimile, electronic mail or written
consultation concerning the use and operation of the Software during business
hours in the Eastern time zone and (ii) use reasonable diligence to correct
verifiable and reproducible Nonconformities on a timely basis. Should any
material Nonconformity be detected by either Licensee or Paragon, Paragon shall
immediately endeavor to either correct such Nonconformity, or provide a
reasonable workaround, within fourteen (14) days. Paragon shall endeavor to
provide Corrected Versions on a timely basis in light of the severity of the
Nonconformities existing at any particular time and the anticipated release of
the next New Release. Licensee understands and acknowledges that Nonconformity
corrections may be cumulative, and if Licensee fails to implement any
Nonconformity correction, Corrected Version or New Release delivered by Paragon,
subsequent Nonconformity corrections, Corrected Versions or New Releases may not
be effective. In addition, Paragon's response will be in accordance with Exhibit
B, which is attached hereto and incorporated herein.
7.3. New Releases. Each New Release which Paragon releases to its
customers during the Support Period shall be provided to Licensee at no charge
(other than the maintenance fee payable pursuant to this Agreement as set forth
in Exhibit A hereto). Licensee understands and acknowledges that New Releases
may be cumulative, and if Licensee fails to implement any New Release delivered
by Paragon, subsequent New Releases may not be effective. Paragon shall deliver
such New Release or Corrected Version to Licensee at each Licensed Facility
authorized to use the Product underlying the New Release. Each New Release
delivered to Licensee shall be subject to all of the rights, obligations, terms
and conditions of the License Agreement upon delivery.
7.4. No Paragon Obligation As To Hardware or Other Software. Paragon shall
not have any obligation to Licensee to provide maintenance or technical support
for any hardware or to any software other than the Software provided by Paragon
hereunder. Without limiting the generality of the foregoing, Paragon shall have
no maintenance or technical support obligation to Licensee for operating
systems, third party databases and related software, client/server tools,
networks, printers, personal computers, terminal emulation software,
communications packages or any hardware, whether or not purchased from Paragon.
The foregoing shall not be construed to relieve Paragon of responsibility for
any incompatibility or operational problem between the Software and any hardware
or other software where the specifications of or documentation for the
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<PAGE>
Software state that the Software is compatible or will operate with such
hardware or other software.
7.5. Exclusions From Maintenance and Technical Support. The following are
excluded from Paragon's obligations under this Agreement, and Paragon shall have
no obligations to Licensee with respect to:
(a) Any problem with a Product resulting from the misuse, improper use
or alteration of the Product or any portion thereof by Licensee, or
from the failure by Licensee to use the Product in accordance with
the Documentation and any instructions given by Paragon technical
personnel;
(b) Any problem caused by modifications not provided by Paragon;
(c) Any problem resulting from the combination of a Product with other
software programs or programming not provided by Paragon and not
expressly identified by Paragon as being compatible with the
Product;
(d) Any problem arising with respect to the use of a version of a
Product other than the most current New Release, where such problem
was corrected in a version subsequent to the version Licensee is
then using and the subsequent version was made available to
Licensee; and
(e) Any problem relating to the sufficiency, installation or maintenance
(or lack thereof) of any equipment, telecommunications lines,
communications interfaces or other hardware necessary to operate a
Product or used by Licensee in the operation of a Product.
7.6 Termination By Paragon For Failure To Implement New Releases. Paragon
shall have the right to terminate the Support Period in the event that Licensee
does not implement any New Release within one (1) year after such New Release is
delivered to Licensee, except in the case where Licensee does not accept such
New Release in accordance with Section 7.3 above. Such termination of the
Support Period shall be effected by giving Licensee sixty (60) days' advance
written notice of termination, and if Licensee does not implement the New
Release within such sixty-day period, this Agreement shall terminate.
8. Expenses
Except as expressly set forth herein, each party shall bear all expenses
incurred by such party in connection with its performance hereunder. In no event
shall either party incur any expense whatsoever on behalf of the other party
without first having received express written authorization from such other
party.
9. Escrow of Source Code
Paragon will promptly deliver a complete copy of the source code for the
Software to an escrow agent selected by mutual agreement of the parties, upon
execution of this Agreement. Paragon will provide the escrow agent with
reasonable written instructions specifying the conditions under which Licensee
shall be entitled to receive a copy of the source code. These conditions are
limited to cessation of operations by Paragon or its successors or if Paragon
ceases to support and maintain the Software. Paragon will provide Licensee with
copy of the final escrow agreement.
10. Term; Termination
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<PAGE>
10.1. Term of Agreement. This Agreement shall become effective on the
Effective Date and shall remain in full force and effect until terminated by
either party pursuant to the terms and conditions set forth in this Section 10.
10.2. Termination For Cause. Either party may terminate this Agreement at
any time in the event that the other party materially fails to perform any of
its material obligations hereunder. Such termination shall be effected by giving
thirty (30) days' written notice of termination to the other party stating in
reasonable detail the asserted failure. If before the end of the thirty (30) day
notice period the party against whom such failure was asserted cures the
asserted failure, to the reasonable satisfaction of the notifying party, then
the notice of termination shall be void and this Agreement shall continue in
force. (Termination shall be immediate if it is due to a breach of Section 11).
10.3. Termination Without Cause By Licensee. Licensee may terminate this
Agreement without cause at any time by giving thirty (30) days' written notice
of termination to Paragon, but such termination shall not entitle Licensee to a
refund of any fees paid under this Agreement, nor shall it relieve Licensee of
the obligation to pay any fees which were due and payable as of the date on
which notice of termination was given.
10.4. Effect of Termination. On or before the effective date of any
termination of this Agreement, whether for or without cause , Licensee shall:
(i) cease all use of the Products; (ii) remove all copies of the Software from
its computers; (iii) return to Paragon all Documentation and any other materials
provided by Paragon, and all copies thereof; and (iv) deliver a certificate to
Paragon certifying Licensee's compliance with the foregoing. Except as expressly
set forth, no termination of this Agreement shall relieve Licensee of any
obligation for amounts due to Paragon as of the effective date of termination.
10.5. Survival. The rights and obligations set forth in Sections 4.5, 4.6,
10.4 and Sections 11 through 18 shall survive any termination of this Agreement
for any reason whatsoever.
11. Confidentiality
11.1. Confidential Information. For purposes of this Agreement,
"Confidential Information" shall mean any information, whether or not owned or
developed by the disclosing party, which the receiving party may obtain
knowledge of through or as a result of the relationship established hereunder
with the disclosing party, access to the disclosing party's premises, or
communications with the disclosing party's employees or independent contractors.
"Confidential Information" includes, but is not limited to, information about
the disclosing party's finances, operations and maintenance, algorithms, trade
secrets, computer programs, design, technology, ideas, know-how, processes,
formulas, compositions, data, techniques, improvements, inventions (whether
patentable or not), works of authorship, business and product development plans,
call tracking tables, problem resolution data, customer history tables,
maintenance contract tables, other customer information and other information
concerning the disclosing party's actual or anticipated business, research or
development, or which is received in confidence by or for the Company from any
other person. Confidential Information also includes any information which the
disclosing party obtains from any third party which the disclosing party treats
as proprietary or designates as Confidential Information. Confidential
Information shall not include information that (i) is known by the receiving
party at the time of receipt from the disclosing party and which is not subject
to any other non-disclosure agreement between the parties; (ii) is now, or
hereafter becomes, generally known to the industry through no fault of the
receiving party, or which is later intentionally published or generally
disclosed to the public by the disclosing party; or (iii) is
Computer Software License Agreeement
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<PAGE>
otherwise lawfully and independently developed by the receiving party, or is
lawfully acquired from a third party without any obligation of confidentiality.
The receiving party shall bear the burden of showing that any of the foregoing
exclusions applies to any information or materials. The parties acknowledge that
any disclosure or unauthorized use of Confidential Information will constitute a
material breach of this Agreement and cause substantial harm to the disclosing
party for which damages would not be a fully adequate remedy, and, therefore, in
the event of any such breach, in addition to other available remedies, the
disclosing party shall have the right to obtain injunctive relief.
11.2. No Use or Disclosure. Each party agrees to hold in confidence, not
to use and not to disclose or reveal to any person or entity the Confidential
Information received hereunder without the clear and express prior written
consent of a duly authorized representative of the disclosing party. Each party
agrees that it shall only be permitted to use the other party's Confidential
Information to the limited extent necessary to fulfill its obligations under
this Agreement.
11.3. Legally Required Disclosure. In the event a receiving party hereto
is directed to disclose any portion of a disclosing party's Confidential
Information or any other materials proprietary to the disclosing party in
conjunction with a judicial proceeding or arbitration or pursuant to any other
legal order or requirement, such receiving party shall immediately notify the
disclosing party both orally and in writing, and shall provide reasonable
cooperation to the disclosing party should the disclosing party seek a
protective order or other relief with respect to the directed disclosure.
12. Nonsolicitation
Each party agrees that it will not, during the term of this Agreement and
for a period of twelve (12) months thereafter, directly or indirectly solicit,
interfere with, or entice away from the other party any employee or independent
contractor of such other party, or attempt to do so.
13. Ownership; Proprietary Rights
13.1. Paragon. As between the parties title to the Products and any and
all other products, trade secrets and other proprietary information of Paragon
and all copies of all or any portion thereof, all proprietary rights therein and
thereto, and all related intellectual property rights, shall remain with
Paragon. Licensee shall reproduce and include in all permitted copies of the
Products all proprietary rights notices or legends of Paragon as they appear in
the original from which the copies were made. Licensee shall not remove, cover,
alter, or obfuscate any copyright notices or other proprietary rights notices
placed or embedded by Paragon on or in the Products. Licensee shall not have a
right to, and shall not, modify, translate, adapt or create derivative works
based on any Product, or merge any Product into any other program or materials.
Licensee agrees not to, directly or indirectly, decompile, disassemble, reverse
engineer or otherwise attempt to discover the source code or underlying ideas or
algorithms of any Product. License shall not copy (except as otherwise permitted
hereunder), rent, lease, distribute, assign, or otherwise transfer rights to any
Product or use any Product for the benefit of a third party.
13.2. Licensee. Nothing in this Agreement shall be construed as giving
Paragon any ownership interest of any kind whatsoever in, or any right to use,
any data or property of Licensee.
14. Technical Disabling Measures
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Licensee understands and acknowledges that Paragon may have included
instructions within the Software that will make the Software inaccessible
without an authorized password or will render the Software inoperative in
unauthorized use (including unauthorized copies), and that the Software may
become inoperative in the event any attempt is made to disable these
instructions. Licensee agrees that it will not make, nor will it permit any
other person to make, any attempts, either direct or indirect, to disable,
circumvent or otherwise render ineffective these instructions. In the event that
the Software becomes inoperative as a result of a violation of this Section 14,
Paragon's warranties set forth in this Agreement will be void with respect to
the Software and product affected, and Paragon shall be under no obligation to
restore the operability of the Software or to provide Licensee with an operable
copy of the Software.
15. Paragon Representations and Warranties; Disclaimers; Limitations of
Liability
15.1. Product Operation.
15.1.1. Warranty. As used herein, the term "Nonconformity" shall
mean a material design error, design defect, functional defect, programming
error or anomaly, virus, data error or deviation from the Documentation. For a
period of ninety (90) days commencing upon the Effective Date (the "Warranty
Period"), Paragon represents and warrants to Licensee only that the Products as
delivered to Licensee are or will be free from any Nonconformities, and will
operate substantially in conformance with the Documentation when used in full
compliance with the instructions in the Documentation.
15.1.2. Correction and Remedies. Should any reproducible
Nonconformity be detected at any time during the Warranty Period, Paragon shall,
at its sole expense, either (i) correct such Nonconformity within a reasonable
time after Licensee gives detailed written notice of such Nonconformity to
Paragon, or (ii) provide a reasonable workaround. In the event that Licensee
discovers any apparent Nonconformity, Licensee shall notify Paragon in writing,
specifying the nature of the claimed Nonconformity and the conditions in which
it arises in sufficient detail for Paragon to reproduce the Nonconformity in as
much detail as Licensee is reasonably able to provide. Licensee agrees to give
Paragon reasonable cooperation, and reasonable access to Licensee's data and/or
computer system, in connection with Paragon's reproduction of the Nonconformity
and correction thereof. If Paragon is unable to, or otherwise does not, correct
the Nonconformity or provide a workaround within a reasonable time, then
Licensee may, as its sole remedy and Paragon's sole liability, terminate this
Agreement in accordance with Sections 10.2 and 10.4 above and receive a refund
of the license fees paid by Licensee to Paragon hereunder, provided that such
refund shall not become due until Licensee has completed compliance with Section
10.4 above.
15.2. Warranty Void. The representations and warranties set forth in
Section 15.1.1 above shall be void if Licensee makes any attempt to, or does:
(i) modify any Product; (ii) access the Software from unauthorized workstations
or computers; (iii) defeat any technical protection measures embedded in the
Software; or (iv) use any Product in any other unauthorized manner.
15.3 Year 2000 Warranty. Paragon applications are year 2000 compliant and
warranted on all supported platforms including without limitation the designated
computer shown in Exhibit A. Paragon Applications store dates internally in
integer format as seconds elapsed since January 1st 1970. For external display
purposes Paragon Applications offer a long (YYYY/MM/DD) and a short date format
(YY/MM/DD). The short format is default and interprets years less than 1970 as
21st century dates. The display of the long date format is dependent on a
display parameter that can be set statically at startup or dynamically during
run-time.
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15.4. DISCLAIMERS. EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 15.1.1
ABOVE, PARAGON MAKES NO WARRANTIES, EXPRESS, IMPLIED OR OTHERWISE, WITH RESPECT
TO THE PRODUCTS OR ANY SERVICES, AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT. PARAGON ALSO MAKES NO WARRANTIES
REGARDING NON-INTERRUPTION OF USE OR FREEDOM FROM BUGS. LICENSEE WILL NOT MAKE
ANY WARRANTIES, EXPRESS OR IMPLIED ON BEHALF OF PARAGON TO ANY THIRD PARTY
RELATING TO THE PRODUCTS OR ANY SERVICES. FURHTERMORE LICENSEE SHALL NOT HAVE
THE RIGHT TO PASS THROUGH ANY WARRANTIES MADE HEREUNDER.
15.5. No Combination Claims. Notwithstanding anything to the contrary
contained in this Agreement, Paragon shall not be liable to Licensee for any
claim of any kind arising from or based upon the combination, operation or use
of any Product with any other equipment, data or programming not supplied or
specified by Paragon, as set forth in Exhibit A or arising from problems
peculiar to Licensee's computer system configuration, or arising from any
alteration or modification of any Product not performed by Paragon.
15.6. LIMITATION OF PARAGON LIABILITY; EXCLUSION OF CERTAIN DAMAGES.
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, PARAGON WILL NOT
BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (I)
FOR ANY AMOUNTS IN EXCESS, IN THE AGGREGATE, OF THE LICENSE FEES PAID TO PARAGON
HEREUNDER, OR (II) FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES.
15.7 LIMITATION OF LICENSEE LIABILITY, EXCLUSION OR CERTAIN DAMAGES. IN NO
EVENT SHALL LICENSEE BE LIABLE TO PARAGON FOR ANY SPECIAL, LIQUIDATED, PUNITIVE,
CONSEQUENTIAL OR REPLACEMENT DAMAGES.
16. Indemnification
16.1. Indemnification By Paragon. If any alleged infringement of a U.S.
patent, copyright, trademark or misappropriation of a trade secret is asserted
by a third party against Licensee based upon its use of the Products, Licensee
will not be liable for and Paragon will indemnify, and hold Licensee harmless
against any loss, damage or amounts finally awarded by a court or in a
settlement to such party (and reasonable attorneys' fees and costs in connection
therewith), provided that Paragon shall have received from Licensee notice of
said claim within ten (10) days of Licensee's receipt of such claim; further
provided that Paragon shall have the right, if it so chooses, to control and
direct the investigation, defense, or settlement of such claims; and further
provided that Paragon shall receive the reasonable cooperation and assistance of
Licensee. In the event an infringement is determined or, if required by
settlement, Paragon may substitute for a Product a substantially similar
product, or, alternatively, Paragon may procure for Licensee the right to
continue using the Product, so as eliminate the infringement.
16.2. Correction and Remedies. In the event that any Product is, or in the
reasonable judgment of Paragon is likely to become, the subject of any legal
action based upon a claim of infringement, Paragon may demand that Licensee
cease to use such Product until and unless there is a final judgment or other
final resolution establishing Paragon's right to continue using the Product. In
the event that Licensee ceases to use the Product as a result of any legal
action or threatened legal action upon Paragon's demand (a "Cessation"), Paragon
shall (i) modify the Product so as to
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eliminate the infringement, (ii) procure the right for Licensee to use the
Product, or (iii) provide Licensee with functionally equivalent software to use
in place of the Product, so as to eliminate the infringement. In the event that
Paragon is not able to achieve any of the foregoing in a commercially reasonable
manner or at a commercially reasonable cost, in Paragon's reasonable discretion,
then except for Paragon's indemnification obligation provided in Section 16.1
above, Licensee's sole remedy, and Paragon's sole liability, with respect to a
Cessation and/or with respect to any infringement by a Product, shall be to
terminate this Agreement in accordance with Sections 10.2 and 10.4 above and
receive a refund of the unamortized portion of the license fees paid by Licensee
to Paragon hereunder, based upon three-year straight-line depreciation
commencing upon the Effective Date, provided that such refund shall not become
due until Licensee has completed compliance with Section 10.4 above.
16.3. Indemnification By Licensee. Paragon shall not be liable for, and
Licensee, at its sole expense, will defend, indemnify and hold Paragon harmless
from and with respect to, any loss or damage (including reasonable attorneys'
fees and costs) incurred in connection with, any suit or proceeding brought by a
third party against Paragon insofar as such suit or proceeding shall be based
upon:
(i) any claim incident to an infringement not resulting primarily
from the Products (including any claim under any theory of
product liability with respect to any product of Licensee or
any component thereof);
(ii) any claim with respect to the use of the Products not strictly
in accordance with this Agreement;
(iii) any claim arising out of or relating to any act or omission of
Licensee;
(iv) any claim with respect to the Products or portions or
components thereof modified after shipment by Paragon to the
extent the alleged infringement results from such
modification, or combined with other products, processes or
materials; or
(v) Any claim where the allegedly infringing activity continues
after Licensee is notified thereof and informed of
modifications that would have avoided the alleged
infringement,
provided Paragon gives Licensee prompt written notice within ten (10) days of
any such claim and provides Licensee such reasonable cooperation and assistance
as Licensee may request from time to time in the defense thereof. Licensee shall
pay any damages and costs assessed against Paragon (or paid or payable by
Paragon pursuant to a settlement agreement) in connection with such a suit or
proceeding, provided Paragon has given Licensee prompt written notice within ten
(10) days of such claim. Licensee shall have the right, if it chooses, to
control and direct the investigation, defense, or settlement of such claims.
17. Notices
Except as specifically provided herein, all notices required hereunder
shall be in writing and shall be given by: (i) personal delivery, in which case
notice shall be deemed effective upon personal delivery; or (ii) national
overnight courier service, in which case notice shall be deemed effective one
(1) business day following deposit with the national overnight courier service;
or (iii) U.S. mail, certified or registered, postage prepaid, return receipt
requested, in which case notice shall be deemed effective three (3) days
following deposit in the U.S. mail. The addresses for
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giving notice shall be the parties' respective addresses first set forth above,
or any other address as shall be specified by a party in a written notice to the
other party.
18. Miscellaneous
18.1. Entire Agreement. This Agreement (including all the exhibits hereto)
constitutes the entire understanding and agreement between the parties hereto
and supersedes any and all prior or contemporaneous representations,
understandings and agreements between Licensee and Paragon with respect to the
subject matter hereof. This Agreement shall not be modified, amended or in any
way altered except by an instrument in writing signed by an officer of Paragon
and by Licensee.
18.2. Amendments. All amendments or modifications of this Agreement shall
be binding upon the parties so long as the same shall be in writing and executed
by the parties hereto in accordance with the other terms of this Agreement
regarding modifications.
18.3. Waiver. No waiver of any provision of this Agreement or any rights
or obligations of either party hereunder shall be effective, except pursuant to
a written instrument signed by the party or parties waiving compliance, and any
such waiver shall be effective only in the specific instance and for the
specific purpose stated in such writing.
18.4. Paragon Right To Publicly Identify Licensee As User. Paragon shall
have the right to make reasonable reference to Licensee as a user of the
Products in communications between Paragon and individual customers or potential
customers and in public communications such as advertising, promotional
materials and press releases.
18.5 Cooperation and Assistance. Licensee agrees to give Paragon
reasonable cooperation, and reasonable access to Licensee's data and/or computer
system, in connection with Paragon's performance of its obligations under this
Agreement. Without limiting the generality of the foregoing, Licensee will
furnish to Paragon upon Paragon's reasonable request: (i) listings of output and
any other data that Paragon may require or request in order to reproduce any
problem and the operating conditions under which such problem occurred; and (ii)
information concerning Licensee's use of a Product and concerning Licensee's
operating, manufacturing and user environment.
18.5A Exclusivity. Paragon agrees not to license the Software to Culp
Inc., Mastercraft, Main Street Textiles L.P., Joan Fabrics Corp. or any of their
subsidiaries for a period of six (6) months from the Effective Date of this
Agreement.
18.6. No Assignment by Licensee. Licensee may not assign or transfer this
Agreement or any of its rights, duties or obligations hereunder and this
Agreement may not be involuntarily assigned or assigned by operation of law,
without the prior written consent of Paragon, which consent may be granted or
withheld by Paragon in its sole discretion, but with such consent of Paragon not
to be unreasonably withheld. The sale or transfer of any portion of Licensee's
business (including to any corporation owning, owned by or affiliated with
Licensee), or the combination of any of Licensee's business with any other
business (including with any corporation owning, owned by or affiliated with
Licensee), shall be considered an assignment for purposes of this Agreement and
subject to the prohibition set forth in this Section 18.6. Any attempted
assignment without such consent shall be null and void. Paragon shall have the
unrestricted right to assign or transfer this Agreement or any interest herein
(including rights and duties of performance). This Agreement shall be binding
upon and inure to the benefit of each of the parties hereto and their respective
legal successors and permitted assigns.
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18.7. Independent Parties. Nothing contained herein shall be deemed to
create or construed as creating a joint venture or partnership between Licensee
and Paragon. Neither party is, by virtue of this Agreement or otherwise,
authorized as an agent or legal representative of the other party. Neither party
is granted any right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of the other
party or to bind such other party in any manner. Further, it is not the
intention of this Agreement or of the parties hereto to confer a third party
beneficiary right of action upon any third party or entity whatsoever, and
nothing set forth in this Agreement shall be construed so as to confer upon any
third party or entity other than the parties hereto a right of action under this
Agreement or in any manner whatsoever.
18.8. Severability of Provisions. In the event that any provision hereof
is found invalid or unenforceable pursuant to judicial decree or decision, the
remainder of this Agreement shall remain valid and enforceable, and shall be
enforced, according to its terms.
18.9. Force Majeure. No party hereto shall be deemed in default if its
performance or obligations hereunder are delayed or become impossible or
impractical by reason of any act of God, war, fire, earthquake, labor dispute,
accident, civil commotion, epidemic, act of government or government agency or
officers, or any other cause beyond such party's control.
18.10. Governing Law. This Agreement shall be governed by the laws and
judicial decisions of the Commonwealth of Massachusetts, and the choice-of-law
provisions of Massachusetts law shall not be applied to substitute the law of
any other State or nation, to which jurisdiction the parties submit.
18.11. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
Paragon Management Systems, Inc. Quaker Fabric Corporation of Fall River
Signature: _______________________ Signature:____________________________
Name: ____________________________ Name:_________________________________
(Please Print) (Please Print)
Title:____________________________ Title:________________________________
Date:_____________________________ Date:_________________________________
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EXHIBIT A
1. SOFTWARE
Licensee is granted a Global Site License for the following Paragon
Products :
o Supply Chain Planner SCP
o Global Strategic Planner GSP
o Global Real-time ATP GRA
o Material and Capacity Planner MCP
o Reactive and Dynamic SchedulerRDS
o Demand Planner PDP
o Real-time Event Monitor REM
o I-Collaboration Tools Java Clients and Communication
Third Party Software
No purchase of third party software is needed for the standard use of
above Paragon Applications.
2. LICENSED FACILITIES & NUMBER OF CONCURRENT USERS
Licensee has the right, subject to this License Agreement, to install any
of the above Software (on single or multiple servers) as needed at any
Licensee's locations for which Licensee holds a minimum interest of
fifty-one percent (51%) of the voting shares, without limitation on the
numbers of users or required memory size, for a three (3) year period
commencing upon the execution of this Agreement. This includes sites that
may be acquired by Licensee within the next three (3) year period but
excludes any sites of any company that may acquire Licensee
Facilities.Thereafter, additional server licenses may be purchased as
outlined below in section 3.
3. LICENSE FEES & MAINTENANCE FEES
License Fees: $700,000.00; $231,000.00 due upon signing of this License
Agreement, $231,000.00 due March 31, 2000, $238,000.00 due May 15, 2000.
Additional Software: All additional Licenses of the Software listed above
in item 1of this Exhibit A may be purchased at a thirty-five percent (35%)
discount from the then current list price, for a period of three (3) years
from the date this contract is executed. Thereafter, Licensee shall pay
for any additional servers or in facilities at the then current list
prices less a thirty-five percent (35%) discount.
Maintenance Fees and Support Period: Maintenance Fees are $105,000.00for
the first year beginning one (1) year from the effective date. Maintenance
Fees are subject to annual increases not to exceed the increase in the
Consumer Price Index for the prior annual period and shall be due at
twelve (12) month intervals thereafter. Maintenance fees on additional
Licenses will be fifteen percent (15%) of the Licensee purchase cost.
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EXHIBIT B
MAINTENANCE PROCEDURES
Software Support Policy
The Software Support Policy covers the process and procedures surrounding the
correction of defects and management of enhancements to the existing release of
the software. The policy is structured so that the customer is given the highest
level of responsiveness possible, while still maintaining a quality release, and
efficiency in bringing new features to the market place. The policy is divided
into software defect support and software enhancement support.
Software Defect Support
Software Defects are reported and categorized into one of five categories by the
user. As progress is made on the problem or as an implementation proceeds, the
category will be changed. The problems are classified as follows:
Category 1 - Production system crashes or no work around is available to out of
production system problem.
Category 2 - Implementation system crashes or no work around is available to key
implementation feature or function. Production system problem has temporary work
around available, but is affecting the performance of the system.
Category 3 - Implementation system has functionality not working, but temporary
work around exists. Production system has satisfactory work around.
Category 4 - Functionality not working, but satisfactory work around exists for
key features.
Category 5 - Functionality not working, but satisfactory work around exists for
features that has alternative features available, or is not key to business
process.
Category 1
Defects are called into the support center and immediately reported to the
Director of development responsible for the particular area of the product. The
support center will instruct and help the client prepare the problem report and
test model that shows the defect. The problem is worked on during the current
workday. The support staff with the help of R&D staff works to determine a
software work around. Once a work around is determined the problem is
reclassified. If no workaround is possible with the installed software, then the
problem remains a level 1 bug and a software fix is released in the current
version of the software as soon as it can be determined and corrected. Releases
can be sent to the customer by FTP.
Category 2
Defects are given to the R&D support staff for corrective action as soon as the
supporting documentation and sample defect model are received. If the defect is
not corrected in three (3) days the problem is elevated to the attention of the
R&D Development Director. Once a correction has been determined and made in the
software, it is released in the current release as soon as possible to the
customer. Releases can be sent to the customer by FTP.
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Category 3
Defects are addressed by the support desk in three (3) working days to see if an
alternate work around or feature is available. After receipt of the defect
report and sample model, the defect is scheduled with the R&D department to be
corrected at a time that will not impact the production environment or
implementation. If the correction schedule for the defect is not met the R&D
Director is notified. The release is sent to the customer in the current
version, when a bug fix release is scheduled. The release date is driven based
on all defects Category 3 or higher.
Category 4 and Category 5
The support desk logs in the defect report along with the sample model. The R&D
staff corrects the defects in a future release. The defect is scheduled based on
the workload of the R&D department and the impact of the defect. The defect
correction is made available in the next production release after it is
corrected.
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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
1999 1998 Change
-------------------------------------------
<S> <C> <C> <C>
Net sales ............................ $250,824 $252,558 (0.7)%
Operating income...................... 8,270 13,989 (40.9)%
Net income............................ 2,073 5,770 (64.1)%
Earnings per common
share-diluted........................ $ 0.13 $ 0.40 (67.5)%
Working capital....................... 63,034 72,694 (13.3)%
Funded debt........................... 62,734 71,572 (12.3)%
Shareholders' equity.................. 127,278 124,993 1.8%
</TABLE>
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TO OUR SHAREHOLDERS
Last year was an important transition year for Quaker, as we finished laying the
foundation for additional market share gains in the U.S. and continued growth of
our export business by further consolidating our product leadership position and
making significant headway in our efforts to build an equally strong service
advantage. With a great product line and customer confidence in our service
capabilities very high, all of us at Quaker share a common belief that we have
built the platform needed to hit the ground running in 2000 and to position the
company as the supplier of choice to the worldwide furniture industry.
We were successful in generating significant top-line momentum as we
moved through last year -- with fourth quarter net sales of almost $69.0 million
setting a new record for us, and domestic fabric sales and yarn sales for the
quarter both up almost 9% versus the comparable period of 1998. But, our fourth
quarter top-line gains came too late to fully make up for last year's slow
start, and our 1999 financial performance as a whole was a disappointment - with
net sales, at $250.8 million, essentially flat in relationship to 1998, net
income at $2.1 million versus $5.8 million in 1998, and diluted EPS of $0.13
compared to $0.40 in 1998. At year-end, our book value per share was at $8.12
and our balance sheet was further strengthened -- reflecting the effort we have
made to maintain tight controls over inventory levels, capital spending,
operating costs, debt levels and working capital. In addition, the strong
operating cash flows we generated last year allowed us to reduce our long-term
debt by about $9.0 million, resulting in funded debt of approximately $63.0
million and a debt to total capitalization ratio of about 33% at year-end.
We have new initiatives underway in virtually every area of the company
to further improve our financial performance. Additional technology-based
analytical tools are being introduced in a number of key areas to improve the
quality and timeliness of our decision-making processes. We continue to have the
best yarn and fabric design and styling teams in the industry - and to help us
achieve our revenue objectives in every market, we have new product development
efforts underway to support each of our core business segments - including the
development of new softening and finishing techniques to continue responding to
strong demand for fabrics with a soft "hand." We have new marketing programs in
place to build our yarn sales into the home furnishings segment. We are
continuing to strengthen our sales and marketing team, both in the domestic
market and around the world, including new, dedicated marketing representatives
in China, the U.K. and Poland -- a new sales office and showroom in the Middle
East -- and a new wholly-owned subsidiary in Brazil, with both a sales and
marketing as well as a warehousing and distribution component to it. And we're
introducing new methods and procedures in our production areas to improve our
manufacturing efficiencies, increase throughput and reduce our overall operating
costs.
We're confident we are well positioned to take full advantage of the
continuing strength of the domestic economy and favorable U.S. demographic
trends -- and this year is off to a strong start. Incoming orders during the
fourth quarter of last year were up approximately 44% versus the fourth quarter
of 1998. Our production backlog at year-end was up about
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18% versus year-end 1998, despite a simultaneous reduction in our delivery lead
times. And we remain committed to reaching the goals we've set for ourselves
with respect to our yarn and fabric export businesses -- and have clear game
plans in place to do that.
We have a lot of work to do this year, but an enormous amount has
already been accomplished. Quaker has had many years of very solid financial
performance -- and significant investments have been made throughout the company
to create the opportunities we have today -- investments in hard assets and,
even more importantly, investments in Quaker's intellectual capital, including
the development of the company's supply chain management expertise, strong new
product development capabilities and equally strong technological competencies.
It is with those investments in mind and an understanding of what they mean to
our potential that we remain confident we have the product, the manufacturing
capacity, the service, the technical know-how and the people to get the job
done. And it is our objective during 2000 to use the investments we have made in
our product and service capabilities to achieve a strong financial performance
for our company.
As we pursue that objective, we remain deeply appreciative of your
continued support -- as well as the support of our associates and their
continuing commitment to our shared vision.
Sincerely,
Larry A. Liebenow Sangwoo Ahn
Larry A. Liebenow Sangwoo Ahn
President and Chief Executive Officer Chairman of the Board
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THE COMPANY
Quaker makes upholstery fabric -- great upholstery fabric. In fact, the company
is one of the largest residential upholstery fabric manufacturers in the United
States -- and with about 17% of our gross fabric sales made outside the U.S. --
we have a strong international presence as well. We are also the world's largest
producer of chenille yarn -- and our operations are vertically integrated --
from specialty yarn manufacturing through fabric weaving and finishing.
As an upholstery fabric manufacturer, our fortunes are tied to the
furniture business, rather than the broader textile industry -- with overall
demand levels in our business a function of general economic conditions,
consumer confidence levels and population demographics.
GREAT PRODUCTS
We offer a broad product line that serves the entire residential furniture
industry -- with our Whitaker'r' Collection fabrics offering our higher-end
customers a differentiated product -- and our Quaker'TM' line designed to meet
the product and pricing needs of our higher volume, mid-price and
promotional-end customers. Our customer base includes more than 3,000
manufacturers of fine furniture around the world, including virtually every
major domestic furniture manufacturer and over 600 fabric distributors and
furniture manufacturers in more than 40 other countries.
In a product-driven industry like ours, styling and design expertise is
a critical success factor -- and we have one of the best design departments in
the industry. In fact, our new product development expertise was acknowledged,
in a very public way, by our entire industry last April when -- in a survey
sponsored by one of the furniture industry's most widely-read trade publications
our customers voted overwhelmingly to award us "Design Giant" status in two
categories -- "Overall Design Innovation" and "Creative Use of Technology."
In addition to our fabrics, we also design and manufacture specialty
yarns -- and last year, we sold about $22.0 million of spun and chenille yarns
to manufacturers of home furnishings and apparel products in the U.S.
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[PHOTO]
5
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[PHOTO]
6
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THE COMPANY (CONTINUED)
QUALITY MANUFACTURING
The new equipment we have added over the past few years has given us one of the
most modern production operations in the industry and the capacity we need to
provide great service to our customers. All of our looms are equipped with
Jacquard heads -- the most versatile fabric formation equipment on the market
today -- and our newest looms are equipped with microprocessors to accelerate
product changeovers. It is our Jacquard weaving equipment, combined with our
chenille yarns, that allows our Jacquard products to compete effectively with
almost every other type of upholstery fabric.
In addition to making most of the specialty yarns we use in our
fabrics, the company is also vertically integrated in terms of its fabric
finishing operations -- where we have developed product advantages. Our Quaker
Plush'TM' products are a good example of this. They are rich in appearance -
durable -- distinctive -- and extraordinarily soft. We introduced our very first
Plush products in late 1997 -- and they have been a big hit with our customers.
Since then, we have also developed a collection of washed fabrics to provide
additional product choices to our upper-end customers -- and introduced
additional post-finishing equipment and processes into our manufacturing
operations to increase the softness of our promotional-end fabrics.
To ensure that all of the yarns and fabrics we produce meet our
exacting quality standards, Quaker is ISO 9001 certified on a company-wide basis
- - from new product design to final product shipment.
GREAT SERVICE
Our customers want our products fast -- and delivered on time. We offer
immediate delivery on the products we have in inventory at our distribution
centers in North Carolina, Mississippi, California and Mexico -- but most of
our products are made to customer order. Our current lead-time is four to
six weeks -- which ranks us among the best in the business.
One of our most important strategic initiatives is to lock in a service
advantage for ourselves. To further that objective, in 1998, we added an
experienced supply chain management professional to our senior management team,
and each of the functional areas at Quaker critical to "getting the right
product to the right customer at the right time" reports to him. With the
additional capacity we have added over the past few
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THE COMPANY (CONTINUED)
years -- and our increased emphasis on supply chain management opportunities --
we are proud to say that we have given our customers good reason to have a high
degree of confidence in our delivery performance.
BUSINESS STRATEGY
Our objective is to produce sustained, superior growth and profitability for the
company over the long-term by dominating our market. We believe that the
competitive advantages we have already developed -- strengthened by the addition
of a service advantage to our arsenal -- will allow us to do that. The key
components of our strategy include:
Increasing our share of the domestic fabric market
Expanding our international fabric sales
Capitalizing on the growing demand for softer upholstery fabric
Penetrating related fabric markets -- including the office furniture
market, and
Growing our specialty yarn sales.
In every case, our approach is to emphasize the superior styling and
performance of our fabrics and yarns -- and our continuing commitment to product
quality and customer service.
MANUFACTURING CAPACITY
The new fabrics we introduced in 1996 and 1997 -- particularly our new Whitaker
and Quaker Plush products -- created enormous demand, and in early 1997, we
began implementing a two-year, $67.0 million capacity expansion project. That
expansion program was completed in 1998, and it has given us the ability to
produce more than $300.0 million of yarn and fabric annually.
All of the new equipment included in our 1997-98 capacity expansion
program was installed at our six manufacturing facilities in the Fall River,
Massachusetts area. To plan for our long-term growth, we have purchased about
sixty acres of undeveloped land in Fall River -- so that, in the future, we can
add discrete production "modules" at a separate facility -- as customer demand
warrants -- without disruption to our existing operations.
8
<PAGE>
[PHOTO]
9
<PAGE>
THE COMPANY (CONTINUED)
During 1999, we made important gains in several critical areas -
product leadership, product innovation, supply chain management and overall
service levels -- and focused significant resources on building the platform
needed -- when it comes to both product and service -- to achieve our operating
and financial objectives in 2000. We're confident that we have the product, the
manufacturing capacity, the service, the technical expertise and the people to
get the job done. And our entire staff is committed to doing just that --
because everyone at Quaker knows that what we do -- every day -- matters to
our customers -- and to our shareholders.
10
<PAGE>
[PHOTO]
11
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except per share
and per yard data)
The following table sets forth certain consolidated financial and operating data
of the Company for the periods indicated, which data has been derived from the
Consolidated Financial Statements of the Company and the Notes thereto, which
have been audited by Arthur Andersen LLP, independent public accountants. This
selected financial and operating data should be read in conjunction with the
Consolidated Financial Statements, the Notes thereto and the other financial
information included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------------------
JANUARY 1, January 2, January 3, January 4, December 30,
2000 1999 1998 1997(1) 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ................... $250,824 $252,558 $219,174 $198,856 $173,487
Cost of products sold ....... 201,236 199,886 167,401 152,787 137,083
---------------------------------------------------------
Gross margin ................ 49,588 52,672 51,773 46,069 36,404
Selling, general and
administrative expenses .... 41,318 38,683 32,311 29,121 26,176
---------------------------------------------------------
Operating income ............ 8,270 13,989 19,462 16,948 10,228
Other expenses:
Interest expense, net ..... 5,127 5,405 3,700 4,092 3,898
Other, net ................ (46) (28) 65 77 98
---------------------------------------------------------
Income before provision
for income taxes ........... 3,189 8,612 15,697 12,779 6,232
Provision for income taxes .. 1,116 2,842 4,584 4,217 712
---------------------------------------------------------
Net income .................. $ 2,073 $ 5,770 $ 11,113 $ 8,562 $ 5,520
=========================================================
Earnings per common
share(2)--basic ........... $ 0.13 $ 0.42 $ 0.90 $ 0.71 $ 0.46
=========================================================
Earnings per common
share(2)--diluted .......... $ 0.13 $ 0.40 $ 0.85 $ 0.69 $ 0.44
=========================================================
Weighted average shares
outstanding(2)--basic....... 15,664 13,861 12,412 12,032 12,032
=========================================================
Weighted average shares
outstanding(2)--diluted .... 16,081 14,477 13,022 12,498 12,440
=========================================================
SELECTED OPERATING DATA:
EBITDA(3).................... $ 21,518 $ 24,633 $ 28,479 $ 24,569 $ 16,821
Depreciation and amortization 13,202 10,616 8,511 7,437 6,462
Net capital expenditures(4).. 19,030 41,487 25,484 11,979 13,165
Unit volume (in yards) ...... 48,036 50,397 44,976 43,552 40,761
Average gross sales price
per yard .................. $ 4.84 $ 4.54 $ 4.23 $ 4.05 $ 3.88
BALANCE SHEET DATA:
Working capital ............. $ 63,034 $ 72,694 $ 42,630 $ 32,620 $ 30,780
Total assets ................ 237,482 234,766 178,088 148,832 138,117
Long-term debt, net of
current portion,
and capital leases ........ 61,672 69,011 52,772 42,235 45,118
Stockholders' equity ........ 127,278 124,993 82,313 66,572 57,850
</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 reflect 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 reflects assets acquired by purchase and capital
lease.
12
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................................. $ 332 $ 432
Accounts receivable, less reserves of $1,755 and $1,939 at January 1,
2000 and January 2, 1999, respectively,
for doubtful accounts and sales returns and allowances .......... 41,191 40,661
Inventories .......................................................... 40,890 46,594
Prepaid and refundable income taxes .................................. 1,563 1,311
Prepaid expenses and other current assets ............................ 7,440 6,791
------------------------
Total current assets .................................... 91,416 95,789
Property, plant and equipment, net of accumulated depreciation and
amortization of $60,442 and $47,514 at January 1, 2000 and
January 2, 1999, respectively ........................................ 138,509 132,420
Other assets:
Goodwill, net of amortization ........................................ 5,818 6,011
Deferred financing costs, net ........................................ 293 252
Other assets ......................................................... 1,446 294
------------------------
Total assets ............................................ $237,482 $234,766
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................... $ 36 $ 700
Current portion of capital lease obligations ......................... 1,026 1,861
Accounts payable ..................................................... 19,983 13,754
Accrued expenses ..................................................... 7,337 6,780
------------------------
Total current liabilities ............................... 28,382 23,095
Long-term debt, less current portion ...................................... 59,000 65,536
Capital lease obligations, net of current portion ......................... 2,672 3,475
Deferred income taxes ..................................................... 17,504 15,874
Other long-term liabilities ............................................... 2,646 1,793
Commitments and contingencies (Note 7)
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;
15,681,649 and 15,646,551 shares issued and outstanding at
January 1, 2000 and January 2, 1999, respectively................ 157 156
Additional paid-in capital ....................................... 83,554 83,410
Retained earnings ................................................ 44,915 42,842
Other accumulated comprehensive loss ............................. (1,348) (1,415)
------------------------
Total stockholders' equity .............................. 127,278 124,993
------------------------
Total liabilities and stockholders' equity .............. $237,482 $234,766
========================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands,
except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
--------------------------------------
<S> <C> <C> <C>
Net sales ................................ $250,824 $252,558 $219,174
Cost of products sold .................... 201,236 199,886 167,401
--------------------------------------
Gross margin ............................. 49,588 52,672 51,773
Selling, general and
administrative expenses ................ 41,318 38,683 32,311
--------------------------------------
Operating income ......................... 8,270 13,989 19,462
Other expenses:
Interest expense, net .................. 5,127 5,405 3,700
Other, net ............................. (46) (28) 65
--------------------------------------
Income before provision
for income taxes ........................ 3,189 8,612 15,697
Provision for income taxes ............... 1,116 2,842 4,584
--------------------------------------
Net income ............................... $ 2,073 $ 5,770 $ 11,113
--------------------------------------
Earnings per common share -- basic ....... $ 0.13 $ 0.42 $ 0.90
======================================
Earnings per common share -- diluted ..... $ 0.13 $ 0.40 $ 0.85
======================================
Weighted average shares
outstanding -- basic ................... 15,664 13,861 12,412
======================================
Weighted average shares
outstanding -- diluted ................. 16,081 14,477 13,022
======================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands,
except share amounts)
<TABLE>
<CAPTION>
Other
Additional Accumulated Total
Common Paid-in Retained Comprehensive Stockholders'
Stock Capital Earnings Loss Equity
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Net income ........................... -- -- 2,073 -- 2,073
Proceeds from stock options exercised,
including tax benefits ........... 1 144 -- -- 145
Foreign translation adjustment ....... -- -- -- 67 67
-------------------------------------------------------------
BALANCE, JANUARY 1, 2000 ................ $157 $83,554 $44,915 $(1,348) $127,278
=============================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 2,073 $ 5,770 $ 11,113
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization ............................. 13,210 10,616 8,511
Stock option compensation expense ......................... -- -- 571
Deferred income taxes ..................................... 1,630 2,103 2,122
Changes in operating assets and liabilities-
Accounts receivable ....................................... (530) (7,665) (6,735)
Inventories ................................................ 5,704 (14,418) (5,219)
Prepaid expenses and other assets ......................... (2,053) (3,476) (455)
Accounts payable and accrued expenses ..................... 6,786 (4,789) 2,512
Other long-term liabilities ............................... 853 46 (1,335)
--------------------------------------------
Net cash provided by (used in) operating activities...... 27,673 (11,813) 11,085
--------------------------------------------
Cash flows from investing activities:
Net purchases of property, plant and equipment .............. (18,630) (41,487) (25,484)
--------------------------------------------
Net cash used for investing activities .................. (18,630) (41,487) (25,484)
--------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................... -- -- 45,000
Net borrowings (repayments) of debt ......................... (7,200) 17,805 (33,251)
Repayments of capital lease obligations ..................... (2,038) (1,167) (1,533)
Capitalization of financing costs ........................... (109) (50) (25)
Proceeds from issuance of common stock, net of
offering expenses ......................................... -- 36,484 3,267
Proceeds from exercise of common stock options .............. 145 426 790
--------------------------------------------
Net cash provided by (used in) financing activities ..... (9,202) 53,498 14,248
Effect of exchange rates on cash ................................. 59 -- --
--------------------------------------------
Net increase (decrease) in cash .................................. (100) 198 (151)
Cash, beginning of period ........................................ 432 234 385
--------------------------------------------
Cash, end of period .............................................. $ 332 $ 432 $ 234
============================================
Supplemental disclosure of cash flow information:
Cash paid for-
Interest .......................................... $ 5,093 $ 5,290 $ 3,108
Income taxes ...................................... $ 291 $ 2,055 $ 3,648
Supplemental disclosure of non-cash investing and financing
activities:
Capital lease obligations incurred for new equipment ........ $ 400 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<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 1, 2000, January 2, 1999,
and January 3, 1998 contain 52 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 1, 2000
and January 2, 1999:
<TABLE>
<CAPTION>
JANUARY 1 January 2,
2000 1999
---------------------
<S> <C> <C>
Raw materials ............................... $19,380 $20,137
Work-in-process.............................. 9,761 12,439
Finished goods............................... 11,809 14,297
------------------
Inventory at FIFO.......................... 40,950 46,873
LIFO reserve................................. (60) (279)
------------------
Inventory at LIFO.......................... $40,890 $46,594
==================
</TABLE>
(d) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. The Company provides for depreciation on property and equipment on a
straight-line basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements ......................... 32-39 years
Machinery and equipment ............................ 2-20 years
Furniture and fixtures ............................. 5-10 years
Motor vehicles ..................................... 4-5 years
Leasehold Improvements ............................. 1-15 years
</TABLE>
Maintenance and repairs are charged to operations as incurred. When equipment
and improvements are sold or otherwise disposed of, the assets cost and
accumulated depreciation are removed from the accounts, and the resulting gain
or loss, if any, is included in the results of operations. Fully depreciated
assets are removed from the accounts when they are no longer in use.
(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 $1,893 and $1,700
at January 1, 2000 and January 2, 1999, 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 $526 and $458 as
of January 1, 2000 and January 2, 1999, respectively.
(h) EARNINGS PER COMMON SHARE Basic income per common share is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. For diluted income per share, the denominator also includes
dilutive outstanding stock options determined using the treasury stock method.
The following table reconciles weighted average common shares outstanding to
weighted average common shares outstanding and dilutive potential common shares.
<TABLE>
<CAPTION>
-----------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
-----------------------------------
<S> <C> <C> <C>
Weighted average common shares outstanding ......... 15,664 13,861 12,412
Dilutive potential common shares ................... 417 616 610
------------------------------
Weighted average common shares outstanding
and dilutive potential common shares ............. 16,081 14,477 13,022
------------------------------
Antidilutive options ............................... 1,052 239 --
==============================
</TABLE>
17
<PAGE>
(i) FOREIGN CURRENCY TRANSLATION The assets and liabilities of the Company's
Mexican operations are translated at period-end exchange rates, and statement of
income accounts are translated at weighted average exchange rates. In Fiscal
1999, the resulting translation adjustments are included in the consolidated
balance sheet as a separate component of equity, "Other Accumulated
Comprehensive Loss," and foreign currency transactions 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.
(j) IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically assesses its
long-lived assets for impairment whenever events or changes in business
circumstances indicate the carrying value may not be recoverable. 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. Material estimates that are particularly susceptible to
significant changes in the near term relate to the determination of deferred
taxes, inventory reserves, accounts receivable reserves, and accruals.
(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 1, 2000 approximates fair
value due to the short term nature and terms of these instruments and also the
rates available to the Company for debt with similar terms and remaining
maturities.
(m) COMPREHENSIVE INCOME In accordance with Statement of Financial Accounting
Standards (SFAS) No. 130, the Company's "Other Comprehensive Items" consist of
foreign currency translation gains or losses. Foreign currency translation gains
during 1999 were $67. No foreign currency translation gains or losses were
reported in Fiscal 1998 or 1997. The Company's comprehensive income for Fiscal
1999, 1998 and 1997 was $2,140, $5,770, and $11,113, respectively.
(n) RECLASSIFICATIONS Certain reclassifications have been made to the prior
years' financial statements to conform to the presentation of the Fiscal 1999
Financial Statements.
(o) 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.
(p) REVENUE RECOGNITION Revenue is recognized upon the shipment of product.
(q) SELF INSURANCE The Company is primarily self insured for worker's
compensation and health benefits. Self insurance liabilities are based upon
claims filed and estimates of claims incurred but not reported.
3 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
-------------------------------
<S> <C> <C>
Land ............................................. $ 3,320 $ 236
Buildings and improvements ....................... 21,231 19,983
Leasehold improvements ........................... 3,775 2,165
Machinery and equipment .......................... 167,698 151,966
Furniture and fixtures ........................... 1,782 1,736
Motor vehicles ................................... 356 333
Construction in progress ......................... 789 3,515
------------------------
198,951 179,934
Less -- Accumulated depreciation and amortization. 60,442 47,514
------------------------
$138,509 $132,420
========================
</TABLE>
18
<PAGE>
Included in machinery and equipment is equipment under capital lease of $8,183
as of January 1, 2000 and $10,919 as of January 2, 1999. 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 1, JANUARY 2,
2000 1999
------------------------------
<S> <C> <C>
Accrued workers' compensation $1,280 $1,100
Accrued medical insurance 740 1,193
Other accrued expenses, including taxes 5,317 4,487
----------------------
$7,337 $6,780
======================
</TABLE>
5 DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, January 2,
2000 1999
---------------------------
<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 14,000 20,500
9.73% Note payable in monthly principal and interest
installments of $81 through August 1999, secured
by certain equipment -- 628
Note payable in monthly principal installments of $6
plus interest from August 1998 to July 2000,
interest at prime plus 1% (9.50% at January 1,
2000 and 8.75% at January 2, 1999), secured by
certain equipment 36 108
59,036 66,236
Less -- Current portion 36 700
-----------------------
$59,000 $65,536
=======================
</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 1, 2000, the commitment fee is 0.375% of the unused portion
of the Credit Agreement which was $56,000. As of January 1, 2000, the Company
had $14,000 outstanding under the Credit Agreement at an effective interest rate
of 8.08%. As of January 2, 1999, the Company had $20,500 outstanding under the
Credit Agreement at an effective interest rate of 6.45%.
19
<PAGE>
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 1, 2000, the Company is in compliance
with all debt covenants.
As of January 1, 2000, total debt principal payments for each of the next five
fiscal years and thereafter are as follows:
<TABLE>
<S> <C>
2000 .............................................. $ 36
2001 .............................................. --
2002 .............................................. 14,000
2003 .............................................. 5,000
2004 .............................................. 5,000
Thereafter ........................................ 35,000
-------
$59,036
=======
</TABLE>
6 INCOME TAXES
Income before provision for income taxes consists of:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
-----------------------------------------------
<S> <C> <C> <C>
Domestic ....................................... $3,039 $8,818 $14,471
Foreign ........................................ 150 (206) 1,226
-----------------------------------------------
$3,189 $8,612 $15,697
===============================================
</TABLE>
The following is a summary of the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
-----------------------------------------------
<S> <C> <C> <C>
Federal
Current ............................. $ (955) $ 597 $2,544
Deferred ............................ 1,690 1,814 1,341
----------------------------------------------
$ 735 $2,411 $3,885
----------------------------------------------
State
Current ............................. $ 220 $ 360 $ 410
Deferred ............................ 52 71 (195)
----------------------------------------------
$ 272 $ 431 $ 215
----------------------------------------------
Foreign
Current ............................. $ 97 $ 72 $ 60
Deferred ............................ 12 (72) 424
----------------------------------------------
$ 109 $ -- $ 484
----------------------------------------------
$1,116 $2,842 $4,584
==============================================
</TABLE>
20
<PAGE>
A reconciliation between the provision for income taxes computed at U.S. federal
statutory rates and the amount reflected in the accompanying consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
---------------------------------
<S> <C> <C> <C>
Computed expected tax provision ............................... $ 1,084 $ 2,928 $ 5,494
Increase in taxes resulting from:
Amortization of goodwill ............................... 67 67 67
State and foreign income taxes, net of federal benefit.. 390 456 893
Decrease in taxes resulting from:
State investment tax credits, net of federal provision.. (612) (1,124) (813)
Reversal of tax reserves no longer required ............ -- -- (1,081)
Foreign sales corporation benefit ...................... (275) (476) (485)
Valuation allowance .................................... 473 959 488
Other .................................................. (11) 32 21
-------------------------------
$ 1,116 $ 2,842 $ 4,584
===============================
</TABLE>
At January 1, 2000, the Company had net operating loss carryforwards of
approximately $9,425 for federal income tax purposes available to offset future
taxable income which have been benefitted for financial reporting purposes.
These carryforwards expire from 2003 to 2020. Additionally, the Company has
available for use $1,271 of federal tax credit carryforwards, of which
approximately $494 expire from 2000 to 2017. 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 applicable
federal income tax legislation. In addition, the Company has approximately
$4,300 of state investment tax credit carryforwards. These tax credits have
no expiration date, however, the timing and use of these credits is limited
under applicable state income tax legislation.
The significant items comprising the domestic deferred tax asset/liability are
as follows:
<TABLE>
<CAPTION>
JANUARY 1, 2000 January 2, 1999
---------------------------------------------
CURRENT LONG-TERM Current Long-term
---------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards ......... $ 270 $ 3,170 $ 270 $ 355
Tax credit carryforwards ................. 324 3,819 322 3,792
Receivable reserves ...................... 255 -- 137 --
Other .................................... 222 2,243 880 2,233
---------------------------------------------
Total assets ........................ $ 1,071 $ 9,232 $ 1,609 $ 6,380
Valuation allowance ................. -- (1,880) -- (1,447)
---------------------------------------------
Total assets, net of valuation allowance.. $ 1,071 $ 7,352 $ 1,609 $ 4,933
---------------------------------------------
Liabilities:
Property basis differences ............... $ -- $(24,856) $ -- $(20,807)
Inventory basis differences .............. (694) -- (1,002) --
---------------------------------------------
Total liabilities ................... $ (694) $(24,856) $ (1,002) $(20,807)
---------------------------------------------
Net assets (liabilities) .......... $ 377 $(17,504) $ 607 $(15,874)
=============================================
</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 1, 2000 January 2, 1999
---------------------------------------
CURRENT LONG-TERM Current Long-term
---------------------------------------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards ........ $ 216 $ -- $ 144 $ --
Liabilities:
Inventory ............................... $ (580) $ -- $ (569) $ --
---------------------------------------
Net assets (liabilities) ............ $ (364) $ -- $ (425) $ --
========================================
</TABLE>
21
<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 several putative class
action lawsuits filed during September and October 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"). These cases were consolidated and
an amended class action complaint (the "Complaint") was subsequently filed on
September 13, 1999. The Company and the individual defendants have moved to
dismiss the Complaint, and the court has reserved decision following the oral
argument heard on the matter in January 2000. 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 this matter will have a material adverse effect 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 2005. As of January 1, 2000, the aggregate minimum
future commitments under leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING Total
LEASES LEASES Leases
------------------------------
<S> <C> <C> <C>
2000 ....................................... $1,293 $1,990 $3,283
2001 ....................................... 2,114 1,647 3,761
2002 ....................................... 725 1,372 2,097
2003 ....................................... -- 1,211 1,211
2004 ....................................... -- 159 159
2005 ....................................... -- 6 6
-----------------------------
$4,132 $6,385 $10,517
==================
Less -- Amount representing interest ....... 434
------
$3,698
Less -- Current portion .................... 1,026
------
$2,672
======
</TABLE>
Rent expense for operating leases for the years ended January 1, 2000, January
2, 1999 and January 3, 1998 was $3,050, $1,982, and $953, respectively.
(c) LETTERS OF CREDIT In the normal course of its business activities, the
Company is required under certain contracts to provide letters of credit which
may be drawn down in the event the Company fails to perform under the contracts.
As of January 1, 2000 and January 2, 1999, the Company has issued or agreed to
issue letters of credit totaling $0 and $86, respectively.
(d) EMPLOYMENT CONTRACT In 1999, the Company's Board of Directors approved a
second 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 a 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 1, 2000, 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). During 1999, the Company entered into
change-in-control agreements with the Company's corporate officers. These
agreements provide certain benefits to the Company's officers in the event their
employment with the Company is terminated as a result of a change-in-control as
defined. The maximum contingent liability related to the change-in-control
agreements is approximately $2.5 million.
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 were granted to certain officers
22
<PAGE>
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
600,000 shares are reserved under this plan, and options to purchase 319,500
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 granted to directors in
1995, 1997 and 1998 vest over three years and are exercisable for ten years.
During 1999, options to purchase an aggregate of 30,000 shares of common stock
were granted to three directors of the Company. These options vested immediately
and are exercisable for ten years.
During 1997, the Company recorded $571 as stock option compensation expense.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE SFAS No. 123, "Accounting for
Stock-Based Compensation," 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 1999, Fiscal 1998 and Fiscal 1997 under the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method set forth in SFAS No. 123, the effect on the
Company's net income and earnings per common share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------
<S> <C> <C> <C>
Net income
As reported ........................... $ 2,073 $ 5,770 $11,113
Pro forma ............................. $ 1,139 $ 5,082 $10,788
Earnings per common share -- basic
As reported ........................... $ 0.13 $ 0.42 $ 0.90
Pro forma ............................. $ 0.07 $ 0.37 $ 0.87
Earnings per common share -- diluted
As reported ........................... $ 0.13 $ 0.40 $ 0.85
Pro forma ............................. $ 0.07 $ 0.35 $ 0.83
</TABLE>
Pro forma compensation expense for options is reflected over the vesting period;
therefore, future pro forma compensation expense may be greater as additional
options are granted.
The fair value on the grant date of each option granted was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Volatility ............................... 61.00% 60.13% 44.83%
Risk-free interest rate .................. 5.38% 4.99% 6.69%
Expected life of options ................. 7.00 YEARS 5.98 years 6.48 years
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions used
can materially affect the fair 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>
STOCK OPTION ACTIVITY A summary of the Company's stock option activity is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------
WEIGHTED Weighted Weighted
NUMBER AVG. EXERCISE Number Avg. Exercise Number Avg. Exercise
OF SHARES PRICE of Shares Price of Shares Price
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year ................. 1,836,430 $ 5.71 1,549,080 $ 4.74 1,092,311 $1.73
Granted ............................. 145,500 $ 5.08 379,000 $10.03 586,500 $9.97
Exercised ........................... -- -- (37,350) $ 4.09 (119,381) $2.83
Forfeited ........................... (6,000) $12.93 (54,300) $ 10.2 (10,350) $5.91
Expired ............................. -- -- -- -- -- --
Options outstanding, end of year .... 1,975,930 $ 5.64 1,836,430 $ 5.71 1,549,080 $4.74
Options exercisable ................. 1,250,430 $ 3.69 1,004,080 $ 2.33 912,705 $1.33
Options available for grant ......... 314,900 -- 124,400 -- 270,300 --
Weighted average fair value
per share of options granted -- $ 3.33 -- $ 5.56 -- $5.50
</TABLE>
The following table summarizes information for options outstanding and
exercisable at January 1, 2000:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Weighted Weighted Weighted
Average. Average Average
Range of Options Exercise Remaining Options Exercise
Prices Outstanding Price Life Exercisable Price
- -----------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 0.80 555,539 $0.80 3.28 555,539 $ 0.80
$ 1.37 151,956 1.37 4.35 151,956 1.37
$ 12.75 166,435 2.75 4.30 166,435 2.75
$ 4.25-5.50 242,300 4.99 8.62 64,600 5.25
$ 7.25-10.25 736,700 9.22 7.75 283,300 9.56
$13.00-17.67 123,000 16.53 8.44 28,600 16.04
-----------------------------------------------------------
1,975,930 $5.64 6.09 1,975,930 $ 3.69
===========================================================
</TABLE>
9 SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information" which
the Company has adopted. Segments are defined as components of an enterprise for
which separate financial information is available and is evaluated regularly by
the chief operating decision-maker in deciding how to allocate resources and in
assessing performance. The Company operates as a single business segment
consisting of sales of two products, upholstery fabric and yarn. Management
evaluates the Company's financial performance in the aggregate and allocates the
Company's resources without distinguishing between yarn and fabric products.
Export sales from the United States to unaffiliated customers by major
geographical area were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
----------------------------------
<S> <C> <C> <C>
North America (excluding USA) ........... $14,600 $ 15,500 $ 11,900
Middle East ............................. 5,500 9,000 11,300
South America ........................... 1,200 2,300 1,800
Europe .................................. 6,600 4,500 2,900
All other areas ......................... 5,400 4,100 4,600
----------------------------------
$33,300 $ 35,400 $ 32,500
==================================
</TABLE>
Gross sales by product category are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
JANUARY 1, January 2, January 3,
2000 1999 1998
----------------------------------
<S> <C> <C> <C>
Fabric ................................ $232,553 $228,704 $190,183
Yarn .................................. 22,430 30,116 32,979
----------------------------------
$254,983 $258,820 $223,162
==================================
</TABLE>
24
<PAGE>
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.
11 RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. This statement requires that changes in
the derivative's fair value be recognized currently in income unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of income and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133, as amended by SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities Deferral of the Effective Date of
FASB Statement No. 133," shall be effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 cannot
be applied retroactively. SFAS No. 133, as amended, must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired or substantively modified after December
31, 1997 (and, at the Company's election, before January 1, 1998). The Company
has not yet quantified the effect of adopting SFAS No. 133 on its consolidated
financial statements and has not determined the timing or method of its adoption
of the statement. However, the Company does not expect the adoption of this
statement to have a material impact on its financial position or results of
operations.
- -------------------------------------------------------------------------------
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 1, 2000 and
January 2, 1999, and the related statements of income, changes in stockholders'
equity and cash flows the years then ended. 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 auditing standards generally accepted
in the United States. 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 1, 2000 and January 2, 1999, and the
results of its operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 2000
25
<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 home furnishings and other products throughout the
United States.
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 implementation of a new management
information system during the third quarter of 1998, 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 at that time was 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 fabric exports, as well as its yarn sales business, which faced heavy
competition from imported apparel products from the Far East during 1998.
The Company's new order rate continued to demonstrate weakness during the early
part of 1999, but strengthened significantly throughout the year, leading to
record revenues during the fourth quarter of 1999 and a fourth quarter order
rate which was up 44% in comparison to the same period of 1998. In addition, the
Company continued to make substantial improvements in its overall service levels
in 1999, and management believes its delivery lead times are now among the best
in the industry. Quaker also further strengthened its balance sheet in 1999,
reducing its long-term debt by nearly $9 million and thereby achieving a debt to
total capitalization ratio of about 33% at year-end.
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 1, 2000, as well as certain data expressed as a percentage of the
Company's total net sales for the periods indicated:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
-------------------------------------------------------------------------------------------
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 ......................... $56,140 $64,463 $61,305 $68,916 $62,730 $64,075 $60,331 $65,422
Gross margin....................... 10,337 13,127 12,332 13,792 13,591 14,594 12,137 12,350
Gross margin percentage............ 18.4% 20.4% 20.1% 20.0% 21.7% 22.8% 20.1% 18.9%
Operating income................... 684 2,463 2,500 2,623 4,193 5,376 2,456 1,964
Operating income percentage........ 1.2% 3.8% 4.1% 3.8% 6.7% 8.4% 4.1% 3.0%
Income before provision for
income taxes..................... $ (587) $ 1,243 $ 1,243 $ 1,290 $ 2,978 $ 3,911 $ 1,066 $ 657
-----------------------------------------------------------------------------------------
Net income......................... $ (382) $ 809 $ 808 $ 838 $ 1,936 $ 2,542 $ 692 $ 600
=========================================================================================
Earnings per common share-basic.... $ (0.02) $ 0.05 $ 0.05 $ 0.05 $ 0.15 $ 0.20 $ 0.04 $ 0.04
=========================================================================================
Earnings per common share-diluted.. $ (0.02) $ 0.05 $ 0.05 $ 0.05 $ 0.15 $ 0.19 $ 0.04 $ 0.04
=========================================================================================
</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>
The Company follows industry practice by closing its operating facilities for a
one-to-two week period during July of each year. In 1999, 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 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, 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 1997:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------
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 ......... $ 44,542 19.2% $ 54,913 24.00% $ 57,395 30.2%
Middle to better-end fabrics .... 188,011 80.8 173,791 76.0 132,788 69.8
-------------------------------------------------------------------
Gross fabric sales ............ $232,553 100% $228,704 100.0% $190,183 100.0%
-------------------------------------------------------------------
Gross fabric sales (yards):
Promotional-end fabrics ......... 12,877 26.8% 15,951 31.7% 16,822 37.4%
Middle to better-end fabrics .... 35,159 73.2 34,446 68.3 28,154 62.6
-------------------------------------------------------------------
Gross fabric sales ............ 48,036 100.0% 50,397 100.0% 44,976 100.0%
-------------------------------------------------------------------
Average gross sales price per yard:
Promotional-end fabrics ......... $ 3.46 $ 3.44 $ 3.41
Middle to better-end fabrics .... 5.35 5.05 4.72
Average per yard--all fabrics.. 4.84 4.54 4.23
</TABLE>
GEOGRAPHIC DISTRIBUTION OF FABRIC 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 following table sets forth certain
information about the changes which have occurred in the geographic distribution
of the Company's gross fabric sales since 1997:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------
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 .................. $193,376 83.2% $187,231 81.9% $150,525 79.1%
Foreign sales(1) ................ 39,177 16.8 41,473 18.1 39,658 20.9
---------------------------------------------------------------
Gross fabric sales ........ $232,553 100.0% $228,704 100.0% $190,183 100.0%
===============================================================
</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 1999 COMPARED TO FISCAL 1998 Net Sales. Net sales for 1999 decreased $1.8
million, or 0.7%, to $250.8 million from $252.6 million in 1998. Gross fabric
sales and gross yarn sales were lower during the period. Gross fabric sales
decreased due to a decline in foreign fabric sales. Gross fabric sales within
the United States increased 3.3%, to $193.4 million in 1999 from $187.2 million
in 1998. Foreign sales decreased 5.5%, to $39.2 million in 1999 from $41.5
million in 1998. This decrease was due to lower sales in Mexico and other
international markets important to the Company. Gross yarn sales decreased
25.5%, to $22.4 million in 1999 from $30.1 million in 1998, due primarily to
weakness in the domestic apparel market caused by an increase in imported yarn
and apparel products.
The gross volume of fabric sold decreased 4.7%, to 48.0 million yards in 1999
from 50.4 million yards in 1998. The average gross sales price per yard
increased 6.6%, to $4.84 in 1999 from $4.54 in 1998. The increase was
principally due to a product shift to more middle to
27
<PAGE>
better-end fabrics. The Company sold 2.1% more yards of middle to better-end
fabrics and 19.3% fewer yards of promotional-end fabrics in 1999 than in 1998.
The average gross sales price per yard of middle to better-end fabrics increased
by 5.9%, to $5.35 in 1999 from $5.05 in 1998. The average gross sales price per
yard of promotional-end fabrics increased by 0.6%, to $3.46 in 1999 from $3.44
in 1998.
Gross Margin. The gross margin percentage for Fiscal 1999 decreased to 19.8% as
compared to 20.9% for Fiscal 1998. The decrease in the gross margin percentage
was primarily due to an increase in the Company's fixed overhead expenses and a
decrease in the Company's unit sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $41.3 million in 1999 from $38.7 million in
1998 due to increases in labor and fringes and sampling expenses associated with
the Company's efforts to increase sales. Selling, general and administrative
expenses as a percentage of net sales were 16.5% in 1999 and 15.4% in 1998.
Interest Expense, Net. Interest expense decreased to $5.1 million in 1999 from
$5.4 million in 1998 primarily due to lower senior debt levels.
Effective Tax Rate. The effective tax rate increased to 35.0% in 1999 from 33.0%
in 1998. See Note 6 of Notes to Consolidated Financial Statements included
elsewhere in this report.
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.
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.
28
<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 (i) the purchase of equipment to
expand production capacity, enhance the softness of the Company's fabrics, and
improve the Company's quality and productivity performance and (ii) 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 $11.1 million, ($11.8) million and $27.7 million in 1997, 1998
and 1999, respectively. The Company has supplemented its operating cash flow
with borrowings. Net borrowings (repayments) were ($10.2) million in 1997, $16.6
million in 1998 and ($9.2) million in 1999. 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.
Capital expenditures in 1998 and 1999 were $41.5 million and $19.0 million,
respectively. Capital expenditures during 1999 were funded by operating cash
flow and borrowings. Management anticipates that capital expenditures will total
approximately $14.5 million in 2000, consisting of approximately $8.0 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 1, 2000, the Company had $14.0 million outstanding under the Credit
Agreement and unused availability of $56.0 million. See Note 5 of Notes to
Consolidated Financial Statements included elsewhere in this report.
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>
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 1, 2000 were $2.3 million.
In 1997 and 1998, Mexico was 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. In Fiscal 1999 and prior to Fiscal 1997, the translation
adjustments were included in the balance sheet as a separate component of
equity. See Note 2(i) of Notes to Consolidated Financial Statements included
elsewhere in this report.
YEAR 2000
Because many existing computer programs use only the last two, rather than all
four, digits to specify a year, there was widespread concern prior to January 1,
2000 that date sensitive programs would only recognize "00" as signifying the
year 1900 and, therefore, not recognize the year 2000. This concern was commonly
referred to as the "Year 2000" or "Y2K" issue.
The Company believes that it has been 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 due to the Y2K problem. In addition, the
Company has developed a contingency plan designed to minimize risks associated
with failure of critical systems after December 31, 1999.
30
<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 1, 2000 and January 2, 1999.
In thousands, except per share data
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES.................................. $56,140 $64,463 $61,305 $68,916
GROSS MARGIN............................... 10,337 13,127 12,332 13,792
OPERATING INCOME........................... 684 2,463 2,500 2,623
NET INCOME (LOSS).......................... $ (382) $ 809 $ 808 $ 838
EARNINGS PER COMMON SHARE-BASIC............ $ (0.02) $ 0.05 $ 0.05 $ 0.05
EARNINGS PER COMMON SHARE-DILUTED.......... $ (0.02) $ 0.05 $ 0.05 $ 0.05
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
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>
-----------------------------------------
The following summarizes common stock prices for the years ended January 1, 2000
and January 2, 1999.
<TABLE>
<CAPTION>
PRICE PER SHARE
1999 HIGH LOW
- --------------------------------------------------------------------------------
<S> <C> <C>
FIRST QUARTER................................................. $ 6.69 $ 3.50
SECOND QUARTER................................................ $ 6.00 $ 4.00
THIRD QUARTER................................................. $ 6.25 $ 4.13
FOURTH QUARTER................................................ $ 5.00 $ 3.00
<CAPTION>
Price per Share
1998 High Low
First Quarter................................................. $17.67 $11.42
Second Quarter................................................ $20.17 $13.00
Third Quarter................................................. $17.00 $ 4.38
Fourth Quarter...................................................$ 7.63 $ 3.91
</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 21, 2000, there were approximately 105 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, $22.0 million was available for the
payment of dividends as of January 1, 2000.
(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>
GENERAL
INFORMATION
DIRECTORS
- --------------------------------------------------------------------------------
SANGWOO AHN, Chairman DR. JERRY I. PORRAS
Partner Lane Professor of Organizational
Morgan Lewis Githens & Ahn Behavior and Change
Stanford University Graduate
LARRY A. LIEBENOW School of Business
President and CEO
Quaker Fabric Corporation ERIBERTO R. SCOCIMARA
President and Chief Executive Officer
Hungarian-American Enterprise Fund
COMMITTEES
- --------------------------------------------------------------------------------
AUDIT COMMITTEE COMPENSATION COMMITTEE
Sangwoo Ahn Sangwoo Ahn
Eriberto R. Scocimara Larry A. Liebenow
Jerry I. Porras
STOCK OPTION COMMITTEE
Sangwoo Ahn
Jerry I. Porras
OFFICERS
- --------------------------------------------------------------------------------
LARRY A. LIEBENOW MARK R. HELLWIG
President and Chief Vice President
Executive Officer Supply Chain Management
MICHAEL E. COSTA PAUL J. KELLY
Controller Vice President -- Finance,
Treasurer and Chief Financial Officer
ANTHONY DEGOMES
Vice President THOMAS H. MUZEKARI
New Business Development Vice President
Sales and Marketing
JAMES A. DULUDE
Vice President BEATRICE SPIRES
Manufacturing Vice President
Styling and Design
CYNTHIA L. GORDAN
Vice President, Secretary J. DUNCAN WHITEHEAD
and General Counsel Vice President
Research and Development
CORPORATE DATA
- --------------------------------------------------------------------------------
CORPORATE OFFICE NASDAQ: QFAB [LOGO]
Quaker Fabric Corporation
941 Grinnell Street INDEPENDENT AUDITORS
Fall River, Massachusetts 02721 Arthur Andersen LLP
(508) 678-1951 225 Franklin Street
http://www.quakerfabric.com Boston, Massachusetts 02110
ANNUAL MEETING LEGAL COUNSEL
11:00 a.m., May 18, 2000 Proskauer Rose LLP
BankBoston N.A. 1585 Broadway
100 Federal Street New York, New York 10036
Boston, Massachusetts 02105
FORM 10-K
TRANSFER AGENT AND REGISTRAR The Company's Form 10-K Report,
BankBoston, N.A. as filed with the Securities and
c/o EquiServe Limited Partnership Exchange Commission, is available
P.O. Box 8040 to stockholders without charge
Boston, MA 02266-8040 upon request to the Corporate Office,
(781) 575-3170 Attn: Corporate Secretary
http://www.equiserve.com
32
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 10, 2000 incorporated by reference 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 24, 2000
<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-BASIC> 0.42
<EPS-DILUTED> 0.40
</TABLE>
