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
February 3, 2006
Date of Report (Date of earliest event reported)
QUAKER FABRIC CORPORATION
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(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
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(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))
Item 1.01 Entry into a Material Definitive 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").
Advances to Quaker under the Revolving Credit Facility are limited to a formula
based on Quaker's accounts receivable and inventory minus an "Availability
Reserve" (and such other reserves as the lenders may establish from time to time
in its reasonable credit judgment.) Amortization of the Term Loan is over a
five-year period beginning November 1, 2005, with payments of principal and
interest to be made on a quarterly basis.
The 2005 Credit Agreement includes customary financial covenants (including
fixed charge coverage ratios and minimum consolidated EBITDA requirements),
reporting obligations, and affirmative and negative covenants including, but not
limited to, limitations on certain business activities of the Company and Quaker
and restrictions on the Company's and/or Quaker's ability to declare and pay
dividends, incur additional indebtedness, create certain liens, make capital
expenditures, 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.
Quaker's initial borrowing under the 2005 Credit Agreement was approximately
$46.0 million, of which approximately $42.3 million was used to repay, in full,
all of Quaker's outstanding obligations under the Senior Notes due October 2005
and 2007 that Quaker issued to an insurance company during 1997 and the Series A
Notes due February 2009 that Quaker issued to the same insurance company during
2002, with such repayment including a yield maintenance premium of approximately
$2.0 million. The balance of the initial borrowing was used to cover
approximately $1.0 million of closing costs and to repay, in full, all of
Quaker's outstanding obligations to Fleet National Bank ("Fleet") under the
Second Amended and Restated Credit Agreement dated February 14, 2002 by and
between Fleet and Quaker.
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On July 26, 2005, the Company and the other parties to the 2005 Credit Agreement
entered into Amendment No. 1, effective as of July 1, 2005, to the 2005 Credit
Agreement ("Amendment No. 1") to: (i) increase the Availability Reserve, (ii)
reduce the minimum consolidated EBITDA and fixed charge coverage ratio
requirements in the financial covenants, (iii) reduce the limits on the
Company's annual capital expenditure programs, and (iv) under certain
circumstances, require the Company to retain a consultant.
On October 20, 2005, the Company and the other parties to the 2005 Credit
Agreement entered into Amendment No. 2, effective as of October 20, 2005, to the
2005 Credit Agreement ( "Amendment No. 2") to: (i) reduce the Availability
Reserve, (ii) reduce the minimum consolidated EBITDA requirement for the fourth
quarter of fiscal 2005 in the financial covenants, (iii) eliminate the minimum
consolidated EBITDA requirement in its entirety for all periods after the fourth
quarter of fiscal 2005, (iv) add a new "Two Quarter Fixed Charge Coverage Ratio"
requirement to the financial covenants applicable to the five fiscal quarters
beginning with the first quarter of fiscal 2006 and ending with the first
quarter of fiscal 2007, and (v) reduce the Minimum Fixed Charge Coverage Ratio
in the financial covenants for the first fiscal quarter of 2006.
On February 3, 2006, the Company and the other parties to the 2005 Credit
Agreement entered into Amendment No. 3, effective as of December 30, 2005, to
the 2005 Credit Agreement ( "Amendment No. 3") to (i) make certain amendments to
the definitions of "Consolidated EBITDA" and "Consolidated Interest Expense,"
(ii) add a new provision with respect to the Company's retention of a Financial
Consultant (as defined in Amendment No. 3), (iii) eliminate the minimum
consolidated EBITDA requirement for the fourth quarter of fiscal 2005, (iv) add
a new two (2) consecutive month minimum consolidated EBITDA covenant, (v)
eliminate the Minimum Fixed Charge Coverage Ratio for the first two fiscal
quarters of 2006 and reduce the Minimum Fixed Charge Coverage Ratio for the
third quarter of 2006, and (vi) eliminate the Two Quarter Fixed Charge Coverage
Ratio requirement for the first quarter of 2006. In addition, the Company also
agreed to pay a fee of $175,000 in exchange for a $17.5 million reduction in the
Total Commitment (as defined in the 2005 Credit Agreement,) bringing the Total
Commitment down to $32.5 million, effective February 2, 2006.
As of February 6, 2006, there were $37.8 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 $2.2 million, net of the $7.5 million Availability Reserve
required.
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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. Increases in the Availability Reserve such
as those reflected in Amendment No. 1 to the 2005 Credit Agreement, discussed
above, reduce Availability and thus the Company's ability to borrow. In like
manner, decreases in the Availability Reserve such as those reflected in
Amendment No. 2 to the 2005 Credit Agreement discussed above increase
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. Management believes that the 2005 Credit
Agreement, as amended, together with the Company's operating cash flow are
adequate to meet the Company's foreseeable liquidity needs.
The foregoing descriptions of the 2005 Credit Agreement, as amended, the
Security Agreement and the Guaranty are qualified in their entirety by reference
to the 2005 Credit Agreement, the Security Agreement and the Guaranty previously
filed with the SEC, the Amendment filed as Exhibit 10.27 to the Form 8-K filed
by the Company with the SEC on July 29, 2005, the Amendment filed as Exhibit
10.28 to the Form 8-K filed by the Company with the SEC on October 26, 2005 and
the Amendment filed as Exhibit 10.29 to this Form 8-K, all of which are
incorporated by reference herein.
Cautionary Statement Regarding Forward-Looking Information
Statements contained in this report, as well as oral statements made by
the Company that are prefaced with the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," "designed" and
similar expressions, are intended to identify forward-looking statements
regarding events, conditions and financial trends that may affect the Company's
future plans of operations, business strategy, results of operations and
financial position. These statements are based on the Company's current
expectations and estimates as to prospective events and circumstances about
which the Company can give no firm assurance. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made.
As it is not possible to predict every new factor that may emerge,
forward-looking statements should not be relied upon as a prediction of the
Company's actual future financial condition or results. These forward-looking
statements like any forward-looking statements, involve risks and uncertainties
that could cause actual results to differ materially from those projected or
anticipated. Such risks and uncertainties include product demand and market
acceptance of the Company's products, regulatory uncertainties, the effect of
economic conditions, the impact of competitive products and pricing, including,
but not limited to, imported furniture and furniture coverings sold into the
U.S. domestic market, foreign currency exchange rates, changes in customers'
ordering patterns, and the effect of uncertainties in markets outside the U.S.
(including Mexico and South America) in which the Company operates.
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Item 9.01 Financial Statements and Exhibits
(c) Exhibits
10.29 Amendment No. 3 (dated as of February 3, 2006 and effective as of
December 30, 2005) 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.
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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: February 7, 2006 /s/ Paul J. Kelly
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Paul J. Kelly
Vice President - Finance and Treasurer
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EXHIBIT INDEX
10.29 Amendment No. 3 (dated as of January 3, 2006 and effective as of
December 30, 2005) 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.
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