-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WMGyJA2ZrrLTlev+F8d8x/ddj5DHzzCVk20y0aahvmRImQ9BL6hD+sa//LtnCMhH DkHeO+sHkQJScXaQ1NOWSQ== 0001157523-06-002924.txt : 20060323 0001157523-06-002924.hdr.sgml : 20060323 20060323084528 ACCESSION NUMBER: 0001157523-06-002924 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060322 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060323 DATE AS OF CHANGE: 20060323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAKER FABRIC CORP /DE/ CENTRAL INDEX KEY: 0000103341 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221] IRS NUMBER: 041933106 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07023 FILM NUMBER: 06705021 BUSINESS ADDRESS: STREET 1: 941 GRINNELL ST. CITY: FALL RIVER STATE: MA ZIP: 02721 BUSINESS PHONE: 5086781951 MAIL ADDRESS: STREET 1: 941 GRINNELL ST CITY: FALL RIVER STATE: MA ZIP: 02721 FORMER COMPANY: FORMER CONFORMED NAME: VERTIPILE INC DATE OF NAME CHANGE: 19870811 8-K 1 a5108254.txt QUAKER FABRIC CORPORATION 8-K - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 March 22, 2006 Date of Report (Date of earliest event reported) QUAKER FABRIC CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-7023 04-1933106 (State of incorporation) (Commission File Number) (I.R.S. Employer Identification No.) 941 Grinnell Street, Fall River, Massachusetts 02721 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 678-1951 (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) - 2 - Item 1.01 Entry into a Material Definitive Agreement Credit Agreement Amendment; Financial Consulting Agreement Credit Agreement Amendment On May 18, 2005, Quaker Fabric Corporation of Fall River ("Quaker"), a wholly-owned subsidiary of Quaker Fabric Corporation (the "Company"), entered into a five-year, $70.0 million senior secured revolving credit and term loan agreement with Bank of America, N.A. and two other lenders (the "2005 Credit Agreement"). The 2005 Credit Agreement provides for a $20.0 million term loan (the "Term Loan") and a $50.0 million revolving credit and letter of credit facility (the "Revolving Credit Facility"). Quaker's obligations under the 2005 Credit Agreement are guaranteed by the Company and two Quaker subsidiaries (the "Guaranty"). Pursuant to a Security Agreement (also dated as of May 18, 2005) executed by Quaker, the Company, and two subsidiaries of Quaker, all of Quaker's obligations under the 2005 Credit Agreement are secured by first priority liens upon all of Quaker's and the Company's assets and on the assets of the two Quaker subsidiaries acting as guarantors (the "Security Agreement"). On March 22, 2006, the Company and the other parties to the 2005 Credit Agreement entered into Waiver and Amendment No. 4, effective as of March 22, 2006, to the 2005 Credit Agreement ( "Amendment No. 4") to (i) waive certain "Specified Defaults" arising out of the Company's failure to comply with the two (2) consecutive month minimum consolidated EBITDA covenant for the two month period ending at the end of Fiscal February and the Company's anticipated failure to deliver audited financial statements without qualification or expression of concern as to the uncertainty of the Parent to contine as a going concern within ninety (90) days of the end of Fiscal 2005, (ii) add a new provision with respect to the Company's retention of an Additional Financial Consultant (as defined in Amendment No. 4) to perform certain specific services set forth in Amendment No. 4, (iii) increase the Availability Reserve from $7.5 million to $8.5 million during the period commencing on March 22, 2006 and ending on May 1, 2006 (advances under the Revolving Credit Facility are limited to a formula based on Quaker's accounts receivable and inventory minus the Availability Reserve), (iv) eliminate the two (2) consecutive month minimum consolidated EBITDA covenant for the two month period ending at the end of Fiscal March, (v) change the amortization schedule on the Term Loan from quarterly to monthly, effective June 1, 2006, (vi) require that the net proceeds of any asset sales be applied to the remaining scheduled installments of principal under the Term Loan in the inverse order of their maturity, rather than pro rata, (vii) by no later than May 12, 2006, provide the lenders with weekly 13-week cash flow forecasts and a revised 2006 business plan, (viii) require that all cash received by the Company be applied daily to the reduction of the Company's obligations under the Revolving Credit Facility, requiring the Company to re-borrow funds more frequently to meet its liquidity requirements, (ix) end the Company's ability to request, convert or continue any LIBOR Rate Loans, and (x) require the Company to reimburse not only the Administrative Agent but also the other lenders for all out-of-pocket expenses incurred in connection with the preparation of Amendment No. 4 and the on-going adminstration of the Loan Documents. In addition, the Company also agreed to pay an amendment fee of $125,000 in exchange for the amendment and a $2.5 million reduction in the Total Commitment (as defined in the 2005 Credit Agreement,) bringing the Total Commitment down to $30.0 million, effective March, 2006. - 3 - As of March 22, 2006, there were $37.6 million of loans outstanding under the 2005 Credit Agreement, including the remaining $18.0 million term loan component, approximately $4.6 million of letters of credit and unused availability of $0.9 million, net of the $8.5 million Availability Reserve required pursuant to Amendment No. 4. The Company's ability to meet its current obligations is dependent on: (i) its access to trade credit, (ii) its operating cash flow and (iii) its Availability under the 2005 Credit Agreement, which is a function of Eligible Accounts Receivable, Eligible Inventory, and the Availability Reserve as those terms are defined in the 2005 Credit Agreement. The increase in the Availability Reserve discussed above reduces Availability and thus the Company's ability to borrow. The Company manages its inventory levels, accounts receivable, accounts payable and capital expenditures to provide adequate resources to meet its operating needs, maximize its cash flow and reduce the need to borrow under the 2005 Credit Agreement. However, its cash position may be adversely affected by factors it cannot completely control, including but not limited to, a reduction in incoming order rates, production rates, sales, and accounts receivable, as well as delays in receipt of payment of accounts receivable and limitations of trade credit. The Company has implemented a plan to carefully monitor and manage its investment in inventory and is seeking to dispose of certain manufacturing and warehousing facilities no longer needed as a result of the consolidation of some of its facilities. In addition, management adjusts the Company's cost structure on a continuing basis to reflect changes in demand. The foregoing description of Amendment No. 4 to the 2005 Credit Agreement is qualified in its entirety by reference to Amendment No. 4 filed as Exhibit 10.32 to this Form 8-K, which is incorporated by reference herein. Financial Consulting Agreement On March 22, 2006, Quaker entered into a consulting agreement with Alvarez & Marsal, LLC ("A&M"), a financial consulting firm located in New York City (the "A&M Consulting Agreement"). The A&M Consulting Agreement provides for A&M to provide Quaker with consulting services as more fully described in the A&M Consulting Agreement attached as Exhibit 10.33 to this filing. - 4 - The foregoing description of the A&M Consulting Agreement is qualified in its entirety by reference to the A&M Consulting Agreement filed as Exhibit 10.33 to this Form 8-K and incorporated by reference herein. - 5 - Item 9.01 Financial Statements and Exhibits (c) Exhibits 10.32 Waiver and Amendment No. 4 dated as of March 22, 2006 to Revolving Credit and Term Loan Agreement (dated as of May 18, 2005) by and among Quaker Fabric Corporation of Fall River, as Borrower; Bank of America, N.A. and the Other Lending Institutions which are or may become parties thereto; Bank of America, N.A., as Administrative Agent and Issuing Bank; Fleet National Bank, as Cash Management Bank; and Banc of America Securities LLC, as Sole Lead Arranger and Book Manager. 10.33 Engagement Letter dated March 22, 2006 by and between Quaker Fabric Corporation and Alvarez & Marsal (the "A&M Consulting Agreement"). - 6 - SIGNATURES Pursuant to the requirements 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. QUAKER FABRIC CORPORATION (Registrant) Date: March 22, 2006 /s/ Paul J. Kelly -------------------------------------- Paul J. Kelly Vice President - Finance and Treasurer - 7 - EXHIBIT INDEX 10.32 Waiver and Amendment No. 4 dated as of March 22, 2006 to Revolving Credit and Term Loan Agreement (dated as of May 18, 2005) by and among Quaker Fabric Corporation of Fall River, as Borrower; Bank of America, N.A. and the Other Lending Institutions which are or may become parties thereto; Bank of America, N.A., as Administrative Agent and Issuing Bank; Fleet National Bank, as Cash Management Bank; and Banc of America Securities LLC, as Sole Lead Arranger and Book Manager. 10.33 Engagement Letter dated March 22, 2006 by and between Quaker Fabric Corporation and Alvarez & Marsal (the "A&M Consulting Agreement"). EX-10.32 2 a5108254ex1032.txt QUAKER FABRIC CORPORATION EXHIBIT 10.32 - 8 - EXHIBIT 10.32 WAIVER AND AMENDMENT NO. 4 WAIVER AND AMENDMENT NO. 4 dated as of March 22, 2006 (this "Amendment") by and among Quaker Fabric Corporation of Fall River, a Massachusetts corporation (the "Borrower"), Quaker Fabric Corporation, a Delaware corporation (the "Parent" and together with the Borrower and the Guarantors signatory hereto, the "Loan Parties"), Bank of America, N.A. and the other lenders party hereto (collectively, the "Lenders", and individually, a "Lender") and Bank of America, N.A., as Administrative Agent, Issuing Bank and Cash Management Bank. WHEREAS, the Parent, the Borrower, the Lenders party thereto, the Administrative Agent, the Issuing Bank and the Cash Management Bank are parties to that certain Revolving Credit and Term Loan Agreement, dated as of May 18, 2005 (as amended and in effect from time to time, the "Credit Agreement"); WHEREAS, (a) an Event of Default has occurred and is continuing under the Credit Agreement as a result the Borrower's failure to comply with the financial covenant contained in Section 9.1 of the Credit Agreement as of the fiscal month ended March 4, 2006 and (b) the Borrower has advised the Lenders that an Event of Default will occur as a result of the Borrower's failure to deliver audited financial statements without qualification or expression of concern as to uncertainty of the Parent to continue as a going concern within ninety (90) days after the end of the 2005 Fiscal Year (the Events of Default referred to in clauses (a) and (b) above are collectively referred to herein as the "Specified Defaults"). WHEREAS, on March 15, 2006, the Borrower delivered to the Administrative Agent an irrevocable notice (the "Commitment Reduction Notice") of its election to permanently reduce the Total Commitment to $30,000,000 pursuant to the provisions of Section 2.3 of the Credit Agreement; WHEREAS, the Loan Parties have requested that the Administrative Agent and the Lenders waive the Specified Defaults and amend certain of the terms and provisions of the Credit Agreement, as specifically set forth in this Amendment. NOW THEREFORE, in consideration of the premises and 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: Section l. Definitions. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Waiver. Subject to the satisfaction of the conditions specified in Section 4 herein, the Administrative Agent and the Lenders hereby permanently waive the Specified Defaults. - 9 - Section 3. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 herein, the Credit Agreement shall be amended as follows: (a) Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of "Availability Reserve" contained therein and substituting in lieu thereof the following new definition: "Availability Reserve. means, (a) $8,500,000 during the period commencing on March 22, 2006 and ending on May 1, 2006 and (b) $7,500,000 at all times thereafter." (b) Section 2.11.2 of the Credit Agreement is hereby amended by deleting subsection (a) contained therein and substituting in lieu thereof the text "[intentionally omitted]". (c) Section 2.11.2 of the Credit Agreement is hereby amended by deleting the text contained in the first two lines of subsection (b) thereof and substituting in lieu thereof the following: "Prior to the occurrence of an Event of Default of which the account officers of the Administrative Agent active on the Borrower's account have knowledge, all funds transferred to the Concentration Account and for which the Borrower has received credits shall be applied to the Obligations of the Borrowers as follows:" (d) Section 3.2.1(a) of the Credit Agreement is hereby amended by deleting the chart contained therein and substituting in lieu thereof the following new chart: ---------------------------------------------------------- Term Loan Installment Payment Term Loan Installment Date ---------------------------------------------------------- November 1, 2005 $1,000,000 ---------------------------------------------------------- February 1, 2006 $1,000,000 ---------------------------------------------------------- May 1, 2006 $1,000,000 ---------------------------------------------------------- June 1, 2006 $333,333 ---------------------------------------------------------- July 1, 2006 $333,333 ---------------------------------------------------------- August 1, 2006 $333,333 ---------------------------------------------------------- September 1, 2006 $333,333 ---------------------------------------------------------- October 1, 2006 $333,333 ---------------------------------------------------------- - 10 - ---------------------------------------------------------- November 1, 2006 $333,333 ---------------------------------------------------------- December 1, 2006 $333,333 ---------------------------------------------------------- January 1, 2007 $333,333 ---------------------------------------------------------- February 1, 2007 $333,333 ---------------------------------------------------------- March 1, 2007 $333,333 ---------------------------------------------------------- April 1, 2007 $333,333 ---------------------------------------------------------- May 1, 2007 $333,333 ---------------------------------------------------------- June 1, 2007 $333,333 ---------------------------------------------------------- July 1, 2007 $333,333 ---------------------------------------------------------- August 1, 2007 $333,333 ---------------------------------------------------------- September 1, 2007 $333,333 ---------------------------------------------------------- October 1, 2007 $333,333 ---------------------------------------------------------- November 1, 2007 $333,333 ---------------------------------------------------------- December 1, 2007 $333,333 ---------------------------------------------------------- January 1, 2008 $333,333 ---------------------------------------------------------- February 1, 2008 $333,333 ---------------------------------------------------------- March 1, 2008 $333,333 ---------------------------------------------------------- April 1, 2008 $333,333 ---------------------------------------------------------- May 1, 2008 $333,333 ---------------------------------------------------------- June 1, 2008 $375,000 ---------------------------------------------------------- July 1, 2008 $375,000 ---------------------------------------------------------- August 1, 2008 $375,000 ---------------------------------------------------------- September 1, 2008 $375,000 ---------------------------------------------------------- - 11 - ---------------------------------------------------------- October 1, 2008 $375,000 ---------------------------------------------------------- November 1, 2008 $375,000 ---------------------------------------------------------- December 1, 2008 $375,000 ---------------------------------------------------------- January 1, 2009 $375,000 ---------------------------------------------------------- February 1, 2009 $375,000 ---------------------------------------------------------- March 1, 2009 $375,000 ---------------------------------------------------------- April 1, 2009 $375,000 ---------------------------------------------------------- May 1, 2009 $375,000 ---------------------------------------------------------- June 1, 2009 $375,000 ---------------------------------------------------------- July 1, 2009 $375,000 ---------------------------------------------------------- August 1, 2009 $375,000 ---------------------------------------------------------- September 1, 2009 $375,000 ---------------------------------------------------------- October 1, 2009 $375,000 ---------------------------------------------------------- November 1, 2009 $375,000 ---------------------------------------------------------- December 1, 2009 $375,000 ---------------------------------------------------------- January 1, 2010 $375,000 ---------------------------------------------------------- February 1, 2010 $375,000 ---------------------------------------------------------- March 1, 2010 $375,000 ---------------------------------------------------------- April 1, 2010 $375,000 ---------------------------------------------------------- Maturity Date $375,008 or the remaining outstanding amount of the Term Loan ---------------------------------------------------------- (e) Section 3.2.1(d) of the Credit Agreement is hereby amended by deleting the text "to be applied against the remaining scheduled installments of principal of the Term Loan on a pro rata basis" occurring in clauses (i) and (ii) of such Section, and substituting in lieu thereof the following: "to be applied against the remaining scheduled installments of principal of the Term Loan in the inverse order of maturity". - 12 - (f) Section 3.2.2 of the Credit Agreement is hereby amended by deleting the text "shall be applied pro rata to the remaining scheduled installments of principal of the Term Loan on a pro rata basis" occurring therein, and substituting in lieu thereof the following: "shall be applied against the remaining scheduled installments of principal of the Term Loan in the inverse order of maturity". (g) Section 7.4 is hereby further amended by deleting the text "and" contained immediately after subsection (h) thereof, deleting the period contained at the end of subsection (i) thereof and substituting in lieu thereof the text "; and" and by inserting the following new subsections: "(j) simultaneously with the delivery of the financial statements referred to in subsection (c) above, a Compliance Certificate setting forth in reasonable detail computations evidencing compliance with the financial covenant contained in ss.9.1; (k) as soon as available, but in any event not later than May 12, 2006, (A) a revised 2006 business plan for the Parent, prepared by the Parent with the assistance of the Additional Financial Consultant (as defined in Section 7.21) and (B) an initial assessment and action item report, prepared by the Additional Financial Consultant, in form satisfactory to the Administrative Agent, which outlines the Additional Financial Consultant's assessment of the Loan Parties' business prospects and sets forth the Additional Financial Consultant's initial recommendations as to performance and operating efficiency initiatives as well as restructuring plans and strategic alternatives for the Loan Parties; and (l) weekly, commencing not later than May 12, 2006, a 13-week forecast of cash flows, in form satisfactory to the Administrative Agent. Without limiting the generality of the foregoing, such forecast shall detail, on a weekly basis, the projected outstanding amount of Revolving Loans and the Maximum Drawing Amount for all Letters of Credit for the period, such forecast to be in form and substance satisfactory to the Administrative Agent." (h) Section 7.17.1(b) of the Credit Agreement is hereby by amended by deleting the comma contained immediately prior to clause (v) contained therein and substituting in lieu thereof a period, by deleting clauses (v) and (vi) contained therein in their entirety and by inserting the following new sentence of the end thereof: "The Borrower hereby agrees that all amounts received by the Administrative Agent in the Concentration Account will be the sole and exclusive property of the Administrative Agent, for the accounts of the applicable Lenders and the Administrative Agent, to be applied in accordance with ss.2.11 or ss.2.12 as applicable." - 13 - (i) Section 7 of the Credit Agreement is hereby amended by adding the following new section immediately after Section 7.20 contained therein: 7.21. Additional Financial Consultant. Not later than April 3, 2006, the Parent shall engage an experienced financial consultant acceptable to the Administrative Agent (the "Additional Financial Consultant") to work collaboratively with the senior management team of the Parent, the board of directors of the Parent and the Parent's professionals to assist the Parent in evaluating and implementing strategic and tactical options for the restructuring process, including without limitation, to (i) assist the Parent in implementing a rolling 13-week cash receipts and disbursements forecast, together with an actual-to-forecast variance reporting process, to provide on-time information related to the Parent's liquidity consistent with Section 7.4(l), (ii) assist the Parent and its professionals in the ongoing development of overall strategic and business plans including analyzing alternative strategic plans, including without limitation (A) turnaround, restructuring options and alternative transactions, (B) potential modification of the Credit Agreement or refinancing or (C) any combination of the foregoing, (iii) assist the Parent and its professionals with the analysis and, if applicable, negotiation of the divestiture of assets in conjunction with considering other strategic alternatives, (iv) assist management with assessing organizational and operational structure of the Parent and work with the Parent regarding potential changes and efficiencies, (v) meet with the Administrative Agent and the Lenders and potential refinancing lenders and their respective advisors with respect to the Parent's financial and operational matters, and discuss the matters set forth in this ss.7.21 with the Administrative Agent and the Lenders; provided that the Parent shall be given prior notice of any meetings wherein a substantive issue will be discussed, and may participate in such meetings, (vi) assist the Parent in analyzing performance improvement and cash enhancement opportunities, and (vii) assist with such other matters as may be requested by the Administrative Agent that fall within the Additional Financial Consultant's expertise and that are mutually agreeable to the Parent, the Administrative Agent and the Additional Financial Consultant, all upon terms and a timetable reasonably acceptable to the Administrative Agent. The scope and other terms of engagement shall be reasonably acceptable to the Administrative Agent. (j) The Credit Agreement is hereby further amended by deleting Section 9.1 thereof and substituting in lieu thereof the following: "9.1. Minimum Consolidated EBITDA. The Parent and the Borrower shall not permit Consolidated EBITDA, determined as at the end of each month set forth in the table below for the period of the two (2) consecutive prior months then ending, to be less than the amount set forth opposite such month in such table: - 14 - ---------------------------------------------------- Month Minimum Consolidated EBITDA ---------------------------------------------------- April of 2006 $1,475,000 ---------------------------------------------------- May of 2006 $1,975,000 ---------------------------------------------------- (k) Notwithstanding anything to the contrary contained in the Credit Agreement, from and after the date hereof, the Borrower shall not be entitled to borrow, request, convert or continue any LIBOR Rate Loans. Any LIBOR Rate Loans outstanding on the date hereof shall continue as such until the end of the current Interest Period with respect thereto, at which time such LIBOR Rate Loans shall be converted to Base Rate Loans. Section 4. Conditions Precedent. The Administrative Agent, the Lenders, and each of the Loan Parties agree that this Amendment shall become effective as of the date hereof upon the satisfaction of the following conditions precedent, each in form and substance reasonably satisfactory to the Agent: (a) The Loan Parties and the Required Lenders shall have executed and delivered to the Administrative Agent this Amendment; (b) The Administrative Agent shall have received payment from the Borrower for the pro rata account of each Lender executing this Amendment an amendment fee in the amount of $125,000. (c) After giving effect to this Amendment, the representations and warranties of each of the Loan Parties in each of the Loan Documents to which it is a party shall be true and correct on and as of the date hereof, except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date; (d) As of the date hereof, after giving effect to this Amendment, there shall be no Default or Event of Default existing; (e) The Administrative Agent shall have received the Commitment Reduction Notice. (f) The Administrative Agent and the Lenders shall have received payment for all fees and expenses including, without limitation, reasonable legal fees and expenses, for which invoices or reasonable estimates therefor have been provided to the Borrower on or prior to the date hereof. Section 5. Representations and Warranties. Each of the Loan Parties hereby represents and warrants to the Lenders as follows: (a) The execution and delivery by the Borrower and each Guarantor and the performance by each of the Borrower and each Guarantor of each of its obligations and agreements under this Amendment and the Credit Agreement and the other Loan Documents, as amended hereby, are within the organizational authority of each such Person, have been duly authorized by all necessary proceedings on behalf of each such Person, and do not and will not contravene any provision of law, statute, rule or regulation to which any such Person is subject or any of such Person's organizational documents or of any agreement or other instrument binding upon any such Person; - 15 - (b) This Amendment and the Credit Agreement and the other Loan Documents, as amended hereby, constitute legal, valid and binding obligations of each of the Borrower and each Guarantor, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights in general, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (c) No approval or consent of, or filing with, any governmental agency or authority is required to make valid and legally binding the execution, delivery or performance by the Borrower and/or each Guarantor of this Amendment or the Credit Agreement and the other Loan Documents as amended hereby, except for such filings which have been made prior to the date hereof and are in full force and effect; (d) After giving effect to this Amendment, the representations and warranties contained in Section 6 of the Credit Agreement are true and correct at and as of the date made and as of the date hereof, except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date; and (e) Each of the Borrower and each Guarantor has performed and complied in all material respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof, and as of the date hereof, after giving effect to the provisions hereof, there exists no Event of Default or Default. Section 6. Affirmation and Acknowledgment. ---------- ------------------------------- (a) The Borrower hereby ratifies and confirms all of its Obligations to the Administrative Agent and the Lenders and the Borrower hereby affirms its absolute and unconditional promise to pay to the Lenders the Loans and all other amounts due under the Credit Agreement, as amended hereby. The Borrower hereby confirms that the Obligations are and remain secured pursuant to the Security Documents, and pursuant to all other instruments and documents executed and delivered by the Borrower as security for the Obligations. (b) Each Guarantor hereby acknowledges the provisions of this Amendment and hereby confirms and ratifies all of its obligations under the Guaranty and each Loan Document (as amended hereby) to which such Guarantor is a party. Each Guarantor hereby confirms (i) that the Guaranties and each of the other Loan Documents remain in full force and effect and (ii) that its obligations under the Guaranty to which it is a party are and remain secured pursuant to the Security Documents to which it is a party. - 16 - Section 7. No Waiver. Except as otherwise expressly provided for in this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect without modification or waiver. Section 8. Expenses. The Borrower agrees to pay to the Administrative Agent and the Lenders upon written demand therefor an amount equal to any and all reasonable out-of-pocket costs, expenses, and liabilities incurred or sustained by the Administrative Agent and the Lenders in connection with the preparation of this Amendment, and the on-going administration of the Loan Documents after the date hereof. Amounts payable pursuant to this Section 8 shall be subject to the provisions of Section 15 of the Credit Agreement, as fully as if set forth therein. Section 9. Miscellaneous. ---------- -------------- (a) This Amendment shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. (b) This Amendment shall constitute a Loan Document under the Credit Agreement, and all obligations included in this Amendment (including, without limitation, all obligations for the payment of principal, interest, fees, and other amounts and expenses) shall constitute obligations under the Loan Documents and be secured by the collateral security for the Obligations. (c) This Amendment may be executed in any number of counterparts, and all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. QUAKER FABRIC CORPORATION OF FALL RIVER QUAKER FABRIC CORPORATION QUAKER TEXTILE CORPORATION QUAKER FABRIC MEXICO, S.A. de C.V. By:_______________________________ Name: Paul J. Kelly Title: Vice President Finance - 2 - BANK OF AMERICA, N.A. individually and as Administrative Agent, Issuing Bank and Cash Management Bank By:___________________________________ Name: Matthew T. O'Keefe Title: Senior Vice President WELLS FARGO FOOTHILL, LLC By:___________________________________ Name: Title: MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By:___________________________________ Name: Title: 2 EX-10.33 3 a5108254ex1033.txt QUAKER FABRIC CORPORATION EXHIBIT 10.33 - 3 - EXHIBIT 10.33 March 20, 2006 Mr. Larry Liebenow President and Chief Executive Officer Quaker Fabric Corporation 941 Grinnell Street Fall River, MA 02721 Dear Larry: This letter confirms and sets forth the terms and conditions of the engagement between Alvarez & Marsal, LLC ("A&M") and Quaker Fabric Corporation (the "Company"), including the scope of the services to be performed and the basis of compensation for those services. Upon execution of this letter by each of the parties below and receipt of the retainer described below, this letter will constitute an agreement between the Company and A&M. 1. Description of Services ----------------------- (a) A&M shall provide consulting services to the Company in connection with the Company's evaluation and implementation of strategic and tactical alternatives for the restructuring process. It is anticipated that A&M's activities shall include (but not be limited to) the following: (i) assistance in the preparation of a rolling 13-week cash flow receipts and disbursement forecast and actual-to-forecast variance reports; (ii) assistance in preparation and implementation of revised strategic, financial and operating plans, including assistance in: 3 - 4 - - identification and implementation of cost reductions; - identification and implementation of operations improvements; - identification and implementation of improved working capital management; - identification and implementation of the sale or other disposition of assets; and - assessment of organizational and operational structure of the Company and evaluation and implementation of potential changes; (iii) analysis of strategic alternatives, including assistance in evaluating raising of debt and/or equity financing; (iv) assistance in preparation of reports, communication and meeting with, and negotiation with the Company's lenders and other stakeholders and their advisors; and (v) other activities as are approved by you or the Board of Directors and agreed to by A&M. You understand that the services to be rendered by A&M may include the preparation of recommendations, projections and other forward-looking statements, and that numerous factors can affect the actual results of the Company's operations, which may materially and adversely differ from those projections. In addition, A&M will be relying on information provided by the Company in the preparation of those recommendations, projections and other forward-looking statements. Further, A&M assumes no responsibility for the selection, approval, or implementation of any actions which it assists the Company in formulating. In rendering its services to the Company, A&M will report directly to the Chief Executive Officer and the Board of Directors of the Company, and will make recommendations to and consult with such senior officers as they direct. (b) The engagement will be staffed as follows: 4 - 5 - Steven Cohn, a Managing Directors of A&M, will be responsible for the overall engagement. George Varughese, a Managing Directors of A&M, will be responsible for the financing and sale services. Steven and George will be assisted by Daniel Ehrmann, a Senior Director, and by other A&M personnel as required by the engagement. A&M personnel providing services to the Company may also work with other A&M clients in conjunction with unrelated matters. 2. Compensation ------------ (a) A&M will receive fees based on the following hourly rates: Steven Cohn $550 George Varughese $550 Daniel Ehrmann $425 Associate/Analyst $250-300 (b) In addition, A&M will be reimbursed for its reasonable out-of-pocket expenses incurred in connection with this assignment, such as travel, lodging, duplicating, computer research, messenger and telephone charges. In addition, A&M shall be reimbursed for the reasonable fees and expenses of its counsel incurred in connection with the enforcement of this Agreement. All fees and expenses will be billed and payable on a monthly basis or, at A&M's discretion, more frequently. (c) The Company shall promptly remit to A&M a retainer in the amount of $50,000, which shall be credited against any amounts due at the termination of this engagement and returned upon the satisfaction of all obligations hereunder. 3. Term ---- The engagement will commence as of the date hereof and may be terminated by either party without cause by giving 20 days' written notice to the other party. In the event of any such termination, any fees and expenses due to A&M shall be remitted promptly (including fees and expenses that accrued prior to but were invoiced subsequent to such termination) and all A&M work product including, but not limited to reports, analyses, spreadsheets, documents and other such materials prepared by A&M in connection with this engagement shall be turned over to the Company. 5 - 6 - 4. Relationship of the Parties --------------------------- The parties intend that an independent contractor relationship will be created by this engagement letter. Neither A&M nor any of its personnel or subcontractors is to be considered an employee or agent of the Company and the personnel and subcontractors of A&M are not entitled to any of the benefits that the Company provides for the Company employees. The Company acknowledges that A&M's engagement shall not constitute an audit, review or compilation, or any other type of financial statement reporting engagement that is subject to the rules of the AICPA, SEC or other state or national professional or regulatory body. 5. No Third Party Beneficiary -------------------------- The Company acknowledges that all advice (written or oral) given by A&M to the Company in connection with this engagement is intended solely for the benefit and use of the Company (limited to its Board of Directors and management) in considering the matters to which this engagement relates. The Company agrees that no such advice shall be used for any other purpose or reproduced, disseminated, quoted or referred to at any time in any manner or for any purpose other than accomplishing the tasks referred to herein without A&M's prior approval (which shall not be unreasonably withheld), except as required by law. Notwithstanding the foregoing, the parties hereto hereby agree that the advice, analysis, opinions, reports and other work product of A&M will be shared with the Company's senior lenders in accordance with the terms of the Company's senior loan arrangements (including, without limitation, the confidentiality provisions thereof), provided, however that prior to the receipt of such information such senior lenders shall be informed, that their use of such advice, analysis, opinions, reports and other work product of A&M shall be without representation or warranty by A&M. 6. Conflicts --------- 6 - 7 - A&M is not currently aware of any relationship that would create a conflict of interest with the Company or those parties-in-interest of which you have made us aware. Because A&M is a consulting firm that serves clients on a national basis in numerous cases, both in and out of court, it is possible that A&M may have rendered services to or have business associations with other entities or people which had or have or may have relationships with the Company, including creditors of the Company. 7. Confidentiality / Non-Solicitation ---------------------------------- A&M shall keep as confidential all non-public information received from the Company in conjunction with this engagement, except: (i) as requested by the Company or its legal counsel, (ii) as required by legal proceedings, or (iii) as may be provided to the Company's senior lenders in accordance with Paragraph 5 hereof. All obligations as to non-disclosure shall cease as to any part of such information to the extent that such information is or becomes public other than as a result of a breach of this provision. The Company, on behalf of itself and its affiliates and any person which may acquire all or substantially all of its assets agrees that, until one (1) year subsequent to the termination of this engagement, it will not solicit, recruit, hire or otherwise engage any employee of A&M who worked on this engagement while employed by A&M ("Solicited Person"); provided that this restriction shall not apply with respect to any general solicitation for new employees which is not targeted at the Solicited Person. Should the Company or any of its affiliates or any person who acquires all or substantially all of its assets extend an offer of employment to or otherwise engage any Solicited Person and should such offer be accepted, A&M shall be entitled to a fee from the party extending such offer equal to the Solicited Person's hourly client billing rate at the time of the offer multiplied by 2,000 hours. The fee shall be payable at the time of the Solicited Person's acceptance of employment or engagement. 8. Indemnification --------------- The attached indemnification agreement is incorporated herein by reference and shall be executed upon the acceptance of this Agreement. Termination of this engagement shall not affect these indemnification provisions, which shall remain in full force and effect. 7 - 8 - 9. Miscellaneous ------------- This engagement letter (together with the attached indemnity provisions): (a) shall be governed and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof; (b) incorporates the entire understanding of the parties with respect to the subject matter hereof; and (c) may not be amended or modified except in writing executed by both parties hereto. The Company and A&M agree to waive trial by jury in any action, proceeding or counterclaim brought by or on behalf of the parties hereto with respect to any matter relating to or arising out of the engagement or the performance or non-performance of A&M hereunder If the foregoing is acceptable to you, kindly sign the enclosed copy to acknowledge your agreement with its terms. Very truly yours, Alvarez & Marsal, LLC By: ____________________ Steven J. Cohn Title: Managing Director Accepted and agreed: Quaker Fabric Corporation By: _____________________ Larry A. Liebenow President & CEO 8 - 9 - INDEMNIFICATION AGREEMENT ------------------------- This indemnity is made part of an agreement, dated January 26, 2006 (which together with any renewals, modifications or extensions thereof, is herein referred to as the "Agreement") by and between Alvarez & Marsal, LLC ("A&M") and Quaker Fabric Corporation (the "Company"), for services to be rendered to the Company by A&M. A. The Company agrees to indemnify and hold harmless each of A&M, its affiliates and their respective shareholders, members, managers, employees, agents, representatives and subcontractors (each, an "Indemnified Party" and collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities, penalties, obligations and expenses, including the costs for counsel or others (including employees of A&M, based on their then current hourly billing rates) in investigating, preparing or defending any action or claim, whether or not in connection with litigation in which any Indemnified Party is a party, or enforcing the Agreement (including these indemnity provisions), as and when incurred, caused by, relating to, based upon or arising out of (directly or indirectly) the Indemnified Parties' acceptance of or the performance or nonperformance of their obligations under the Agreement; provided, however, such indemnity shall not apply to any such loss, claim, damage, liability or expense to the extent it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from such Indemnified Party's gross negligence, material breach of contract resulting in damages in excess of $300,000 or willful misconduct. The Company also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with the engagement of A&M, except to the extent that any such liability for losses, claims, damages, liabilities or expenses are found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from such Indemnified Party's gross negligence, material breach of contract resulting in damages in excess of $300,000 or willful misconduct. The Company further agrees that it will not, without the prior consent of an Indemnified Party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which such Indemnified Party seeks indemnification hereunder (whether or not such Indemnified Party is an actual party to such claim, action, suit or proceedings) unless such settlement, compromise or consent includes an unconditional release of such Indemnified Party from all liabilities arising out of such claim, action, suit or proceeding. B. These indemnification provisions shall be in addition to any liability which the Company may otherwise have to the Indemnified Parties. In the event that, at any time whether before or after termination of the engagement or the Agreement, as a result of or in connection with the Agreement or A&M's and its personnel's role under the Agreement, A&M or any Indemnified Party is required to produce any of its personnel (including former employees) or for examination, deposition or other written, recorded or oral presentation, or A&M or any of its personnel (including former employees) or any other Indemnified Party is required to produce or otherwise review, compile, submit, duplicate, search for, organize or report on any material within such Indemnified Party's possession or control pursuant to a subpoena or other legal (including administrative) process, the Company will reimburse the Indemnified Party for its out of pocket expenses, including the reasonable fees and expenses of its counsel, and will compensate the Indemnified Party for the time expended by its personnel based on such personnel's then current hourly rate; provided, however, that this Clause B shall not apply to any proceeding or other legal action between A&M and the Company. 9 - 10 - C. If any action, proceeding or investigation is commenced to which any Indemnified Party proposes to demand indemnification hereunder, such Indemnified Party will notify the Company with reasonable promptness; provided, however, that any failure by such Indemnified Party to notify the Company will not relieve the Company from its obligations hereunder, except to the extent that such failure shall have actually prejudiced the defense of such action or increased the cost of defending such action. The Company shall promptly pay expenses reasonably incurred by any Indemnified Party in defending, participating in, or settling any action, proceeding or investigation in which such Indemnified Party is a party or is threatened to be made a party or otherwise is participating in by reason of the engagement under the Agreement and to which it is entitled to indemnification under Clause A, upon submission of invoices therefor, whether in advance of the final disposition of such action, proceeding, or investigation or otherwise; provided, however, that this Clause C shall not apply to any proceeding or other legal action between A&M and the Company. Each Indemnified Party hereby undertakes, and the Company hereby accepts its undertaking, to repay any and all such amounts so advanced if it shall ultimately be determined that such Indemnified Party is not entitled to be indemnified therefor. If any such action, proceeding or investigation in which an Indemnified Party is a party is also against the Company, the Company may, in lieu of advancing the expenses of separate counsel for such Indemnified Party, provide such Indemnified Party with legal representation by the same counsel who represents the Company, provided such counsel is reasonably satisfactory to such Indemnified Party, at no cost to such Indemnified Party; provided, however, that if such counsel or counsel to the Indemnified Party shall determine that due to the existence of actual or potential conflicts of interest between such Indemnified Party and the Company such counsel is unable to represent both the Indemnified Party and the Company, then the Indemnified Party shall be entitled to use separate counsel of its own choice, and the Company shall promptly advance its reasonable expenses of such separate counsel upon submission of invoices therefor. Nothing herein shall prevent an Indemnified Party from using separate counsel of its own choice at its own expense. The Company will be liable for any settlement of any claim against the Indemnified Party for which the Indemnified Party is entitled to indemnification hereunder made with the Company's written consent, which consent will not be unreasonably withheld. 10 - 11 - D. In order to provide for just and equitable contribution if a claim for indemnification pursuant to these indemnification provisions is made but it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) that such indemnification may not be enforced in such case, even though the express provisions hereof provide for indemnification, then the relative fault of the Company, on the one hand, and the Indemnified Parties, on the other hand, in connection with the statements, acts or omissions which resulted in the losses, claims, damages, liabilities and costs giving rise to the indemnification claim and other relevant equitable considerations shall be considered and further provided that in no event will the Indemnified Parties' aggregate contribution for all loses, claims, damages, liabilities and expenses with respect to which contribution is available hereunder exceed $450,000. No person found liable for a fraudulent misrepresentation shall be entitled to contribution hereunder from any person who is not also found liable for such fraudulent misrepresentation. E. The rights provided herein shall not be deemed exclusive of any other rights to which the Indemnified Parties may be entitled under the certificate of incorporation or bylaws of the Company, any other agreements, any vote of stockholders or disinterested directors of the Company, any applicable law or otherwise. QUAKER FABRIC CORPORATION ALVAREZ & MARSAL, LLC By: ____________________ By: ____________________ Larry A. Liebenow Steven J. Cohn President & Chief Executive Managing Director Officer 11 -----END PRIVACY-ENHANCED MESSAGE-----