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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))
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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.
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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.
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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.
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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").
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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: March 22, 2006 /s/ Paul J. Kelly
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Paul J. Kelly
Vice President - Finance and Treasurer
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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").