QUAKER FABRIC CORP /DE/, 424B4, 1997-03-19

QUAKER FABRIC CORP /DE/
424B4, 1997-03-19
BROADWOVEN FABRIC MILLS, MAN MADE FIBER & SILK

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
File No. 333-21957

PROSPECTUS
- --------------------------------------------------------------------------------
3,400,000 Shares

[QUAKER LOGO] QUAKER FABRIC CORPORATION

Common Stock
- --------------------------------------------------------------------------------

Of the 3,400,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby, 300,000 are being sold by Quaker Fabric Corporation
("Quaker" or the "Company") and 3,100,000 are being sold by certain selling
stockholders of the Company (the "Selling Stockholders"). The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
See "Principal and Selling Stockholders."

The Common Stock is included in The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "QFAB." On March 18, 1997, the last
reported sales price for the Common Stock on the Nasdaq National Market was
$13.625 per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" ON PAGES 8 THROUGH 11 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.

- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $13.50 $0.71 $12.79 $12.79
- ------------------------------------------------------------------------------------------------
Total (3).................. $45,900,000 $2,414,000 $3,837,000 $39,649,000
================================================================================================
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting estimated offering expenses of $400,000 payable by the
Company.

(3) One of the Selling Stockholders has granted the several Underwriters a
30-day over-allotment option to purchase up to 510,000 additional shares of
Common Stock on the same terms and conditions as set forth above. If all
such additional shares are purchased by the Underwriters, the total Price to
Public will be $52,785,000, the total Underwriting Discounts and Commissions
will be $2,776,100, the total Proceeds to Company will be $3,837,000 and the
total Proceeds to Selling Stockholders will be $46,171,900. See
"Underwriting."

- --------------------------------------------------------------------------------

The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the offices of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about March 24, 1997.

PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER

March 18, 1997
<PAGE> 2

[PHOTOGRAPHS OF FABRIC SAMPLES AND THE COMPANY'S DESIGN STAFF IN THE COMPANY'S
DESIGN STUDIO AND THE PHRASE "MARKET LEADERSHIP -- COMMITMENT TO EXCELLENCE IN
DESIGN"]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise indicated, the information in
this Prospectus assumes that all outstanding options and the Underwriters'
over-allotment option will not be exercised. References to financial or
statistical data for a particular year refer to the Company's corresponding
fiscal year, which is currently a 52 or 53-week period ending on the Saturday
closest to January 1. (For example, "1995" means the fiscal year ended December
30, 1995 and "1996" means the fiscal year ended January 4, 1997.)

THE COMPANY

Quaker is a leading designer, manufacturer and worldwide marketer of woven
upholstery fabrics for residential furniture and one of the largest producers of
Jacquard upholstery fabrics in the world. The Company is also a leading
developer and manufacturer of specialty yarns and management believes it is the
world's largest producer of chenille yarns, which Quaker both sells and uses in
the production of its fabrics. The Company's vertically integrated operations
provide Quaker with important design, cost and delivery advantages. The
Company's product line is one of the most comprehensive in the industry and
Quaker is well known for its broad range of Jacquard fabrics, including its
soft, velvet-like Jacquard chenilles. The Company's revenues have grown from
$123.4 million in 1992 to $198.9 million in 1996, a compound annual growth rate
("CAGR") of 12.7%.

Quaker has been producing upholstery fabric for over fifty years and is a
full service supplier of Jacquard and plain woven upholstery fabric to the
furniture market. Quaker's current product line consists of over 3,000
traditional, contemporary, transitional and country fabric patterns intended to
meet the styling and design, color, texture, quality and pricing requirements of
promotional through middle to higher-end furniture manufacturers, and the
Company introduces approximately 700 new products to the market annually.
Management believes that Jacquard fabrics, with their detailed designs, provide
furniture manufacturers with more product differentiation opportunities than any
other fabric construction on the market. In addition, technological advances in
the speed and flexibility of the Jacquard loom have reduced the cost of
producing Jacquard fabrics, enabling them to compete more effectively with
prints, velvets, flocks, tufts and other plain woven products.

The Company sells its upholstery fabrics to over 600 domestic furniture
manufacturers, including virtually every significant domestic manufacturer of
upholstered furniture, such as Furniture Brands International (Action by Lane,
Broyhill and Thomasville), Klaussner, La-Z-Boy, Lifestyle Furnishings
International (Berkline, Benchcraft and others), Rowe and Simmons. Quaker also
distributes its fabrics internationally. In 1996, fabric sales outside the
United States of $35.7 million represented approximately 20.2% of gross fabric
sales. Quaker's October 1996 introduction of its Whitaker Collection, 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,
including Baker, Bernhardt, Henredon and Sherrill. Management estimates that
approximately 85% of the Company's fabric sales in recent years have been
manufactured to customer order.

THE INDUSTRY

Total domestic upholstery fabric sales, exclusive of automotive
applications, are estimated to be approximately $2.0 billion annually.
Management estimates the size of the international fabric market to be at least
twice that of the domestic market. Due to the capital intensive nature of the
fabric manufacturing process and the importance of economies of scale in the
industry, the domestic industry is concentrated, with the top 15 upholstery
fabric manufacturers, including Quaker, accounting for over 80% of the total
market. Most of the largest U.S. fabric producers have expanded their export
sales, capitalizing on their size, distribution capabilities, technology
advantages and broad product lines. Management believes that over the last
several years furniture manufacturers have moved toward more highly styled
Jacquard fabrics, at the expense of less distinctive fabrics, such as flocks,
plaids, plains, prints, stripes, tufts and velvets. 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.

3
<PAGE> 4

GROWTH STRATEGY

Quaker's strategy to further its growth and financial performance
objectives includes:

Increasing Sales to the Middle to Better-End Segment. To
capitalize on the consolidation trend in the furniture industry, the
Company has positioned itself as a full service supplier of Jacquard
and plain woven fabrics by increasing the breadth and depth of its
product line. Sales of the Company's middle to better-end fabrics,
which the Company first began emphasizing in the early 1990s, have
increased from $66.3 million, or 56.3% of total fabric sales in 1992,
to $121.7 million, or 69.0% of total fabric sales in 1996, a CAGR of
16.4%.

Expanding International Sales. The Company has made worldwide
distribution of its upholstery fabrics a key component of its growth
strategy. Quaker has built an international sales and distribution
network, dedicated significant corporate resources to the development
of fabrics to meet the specific styling and design needs of its
international customers, and put programs in place to simplify the
purchase of product from Quaker. As a result, the Company's
international sales have increased from $18.3 million in 1992 to $35.7
million in 1996, a CAGR of 18.2%.

Capitalizing on the Growth of the Casual Furniture
Segment. Based upon its leading position in the Jacquard market and
its own internally produced chenille yarns, management believes Quaker
is well positioned to benefit from the growth of the casual furniture
segment, where soft, durable, distinctive fabrics, such as Quaker's
Jacquard and other chenilles, are in increasing demand.

Penetrating Related Fabric Markets. Management believes the
superior styling and performance characteristics of the Company's
fabrics provide opportunities to penetrate markets related to Quaker's
core residential fabric business. The Company has specifically
targeted the contract (office and institutional) and recreational
vehicle markets, where management believes Quaker's Jacquard chenille
fabrics will provide the Company with a clear product advantage. The
Company has also targeted additional sales to the decorative jobber
(distributors to the interior design trade) market, where management
believes the Company's recently introduced Whitaker Collection will
have broad appeal.

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. Sales of the Company's specialty yarns
have increased from $7.8 million in 1992 to $26.8 million in 1996, a
CAGR of 36.2%. In addition to the popularity of the Company's current
line of specialty yarns, including its proprietary, abrasion-resistant
Ankyra chenille yarns, Quaker regularly creates innovative new
specialty yarns for use in the Company's fabrics and sale to the
Company's growing list of yarn customers. Quaker intends to increase
sales by targeting new markets and applications for its specialty
yarns.

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 growth strategy:

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,
contributing to Quaker's strong gross margin performance.

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.

4
<PAGE> 5

Vertical Integration. Using Quaker's own specialty yarns in the
production of its fabrics provides the Company with significant
design, cost and delivery advantages.

State-of-the-Art Manufacturing Equipment. Management believes
the Company has one of the most modern, efficient and technologically
advanced manufacturing bases in the industry.

During the past five years, Quaker has invested more than $51 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 1997, Quaker plans to
spend approximately $14.4 million, plus the estimated $3.4 million net proceeds
to the Company from this offering, on additional manufacturing equipment to
accelerate the growth of its specialty yarn business, respond to anticipated
increases in demand for its fabric products, and achieve its marketing,
productivity, quality, service and financial objectives.

The Company produces all of its yarn and fabric products in its four
manufacturing plants in Fall River, Massachusetts, where Quaker has over one
million square feet of manufacturing space. 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 maintains inventory in
Holland.

Quaker's executive offices are located at 941 Grinnell Street, Fall River,
Massachusetts 02721 and the Company's telephone number is (508) 678-1951.

SELLING STOCKHOLDERS

In September 1989, the Company was acquired (the "1989 Acquisition") by a
European company and Nortex Holdings, Inc. ("Nortex Holdings"), a corporation
owned by three officers of the Company, including Larry A. Liebenow, the
President and Chief Executive Officer of the Company. In early 1993, the Company
reacquired all of the European company's interest in Quaker in a management-led
recapitalization (the "1993 Recapitalization"). To finance the 1993
Recapitalization, the Company issued Common Stock and other securities to MLGA
Fund II, L.P. ("MLGA Fund") and other affiliates of Morgan Lewis Githens & Ahn,
Inc., an investment banking firm. MLGA Fund and Nortex Holdings are the Selling
Stockholders and are selling 3,000,000 and 100,000 shares of Common Stock,
respectively. Upon completion of this offering, MLGA Fund and Nortex Holdings
will beneficially own 8.1% (2.0% if the Underwriters' over-allotment option is
exercised in full) and 23.3% of the outstanding Common Stock, respectively. See
"Management" and "Principal and Selling Stockholders."

5
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company........................... 300,000 shares

Common Stock Offered by the Selling Stockholders.............. 3,100,000 shares

Common Stock to be Outstanding after the Offering(1).......... 8,321,097 shares

Use of Proceeds by the Company................................ To acquire production equipment
to expand chenille yarn
manufacturing capacity.
See "Use of Proceeds."

Nasdaq National Market Symbol................................. QFAB
</TABLE>

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(1) Does not include (i) 918,354 shares of Common Stock which may be issued
pursuant to the Company's stock option plans, of which options to purchase
682,848 shares of Common Stock were outstanding on March 18, 1997 (including
330,000 shares which have been granted subject to stockholder approval),
(ii) 5,000 shares of Common Stock which may be issued upon exercise of an
option granted to a director and (iii) 370,359 shares of Common Stock which
may be issued upon exercise of an option issued to Nortex Holdings (the
"Nortex Option"). See "Management -- Benefit Plans."

Ankyra(TM), Quaker(TM) and Whitaker(TM) are trademarks of the Company.

6
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4,
1993(1) 1994 1994 1995 1997(1)
----------- ----------- ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $ 123,414 $ 147,867 $180,842 $173,487 $ 198,856
Cost of products sold........................... 92,855 110,753 133,168 137,083 152,787
-------- -------- -------- -------- --------
Gross margin.................................... 30,559 37,114 47,674 36,404 46,069
Selling, general and administrative expenses.... 18,862 22,292 27,560 26,176 29,121
-------- -------- -------- -------- --------
Operating income................................ 11,697 14,822 20,114 10,228 16,948
Interest expense, net........................... 4,148 4,936 3,863 3,898 4,092
Other expenses, net............................. 479 299 34 98 77
-------- -------- -------- -------- --------
Income before provision for income taxes........ 7,070 9,587 16,217 6,232 12,779
Provision for income taxes...................... 2,925 4,218 6,691 712 4,217
-------- -------- -------- -------- --------
Income before extraordinary item................ 4,145 5,369 9,526 5,520 8,562
Extraordinary item: loss on extinguishment of
debt.......................................... -- (2,550) -- -- --
Net income...................................... 4,145 2,819 9,526 5,520 8,562
Preferred stock dividends....................... 420 70 -- -- --
-------- -------- -------- -------- --------
Net income applicable to common stock........... $ 3,725 $ 2,749 $ 9,526 $ 5,520 $ 8,562
======== ======== ======== ======== ========
Earnings per common share before extraordinary
item(2)....................................... $ 0.55 $ 0.75 $ 1.15 $ 0.67 $ 1.03
======== ======== ======== ======== ========
Weighted average shares outstanding(2).......... 8,536 8,536 8,301 8,293 8,332
======== ======== ======== ======== ========

SELECTED OPERATING DATA:
EBITDA(3)....................................... $ 15,597 $ 19,710 $ 25,920 $ 16,821 $ 24,569
Depreciation and amortization................... 4,379 5,019 5,603 6,462 7,437
Net capital expenditures(4)..................... 5,186 10,558 18,727 13,165 11,979
Unit volume (in yards).......................... 32,228 36,289 41,641 40,761 43,552
Average gross sales price per yard.............. $ 3.66 $ 3.87 $ 4.06 $ 3.88 $ 4.05
</TABLE>

<TABLE>
<CAPTION>
JANUARY 4, 1997
-------------------------
ACTUAL AS ADJUSTED(5)
--------- --------------
BALANCE SHEET DATA: (IN THOUSANDS)
- -------------------
<S> <C> <C>
Working capital...................................................................... $ 32,620 $ 32,620
Total assets......................................................................... 148,832 152,269
Long-term debt and capital leases.................................................... 42,235 42,235
Stockholders' equity................................................................. 66,572 70,009
</TABLE>

- ------------------
(1) The fiscal years ended January 2, 1993 and January 4, 1997 were 53-week
periods.

(2) Earnings per share for 1994, 1995 and 1996 is computed using the weighted
average number of common shares and common share equivalents outstanding
during the year. Earnings per share for 1992 and 1993 gives effect to the
1993 Recapitalization and the use of proceeds from the Company's initial
public offering of Common Stock in 1993 (the "1993 Offering") as if both
events had occurred at the beginning of 1992.

(3) Represents income from continuing operations before extraordinary items plus
interest, taxes, depreciation, amortization and other non-cash expenses.
Although the Company has measured EBITDA consistently between the periods
presented, EBITDA as a measure of liquidity is not governed by generally
accepted accounting principles ("GAAP"), and, as such, may not be comparable
to other similarly titled measures of other companies. The Company believes
that EBITDA, while providing useful information, should not be considered in
isolation or as an alternative to either (i) operating income determined in
accordance with GAAP as an indicator of operating performance or (ii) cash
flows from operating activities determined in accordance with GAAP as a
measure of liquidity.

(4) Net capital expenditures reflect assets acquired by purchase and capital
lease.

(5) Adjusted to give effect to the sale of 300,000 shares of Common Stock
offered hereby by the Company after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company and the
application of the net proceeds to the Company therefrom to purchase
production equipment. See "Use of Proceeds" and "Capitalization."

7
<PAGE> 8

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to other information contained in this Prospectus, in
connection with an investment in the Common Stock offered hereby.

This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the 1934 Act. Those statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations; (ii) the Company's financing plans; (iii) the Company's
business and growth strategies; (iv) the use of the proceeds to the Company of
this offering; and (v) the declaration and payment of dividends. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors. The accompanying information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," identifies
important factors that could cause such differences.

GENERAL ECONOMIC CONDITIONS. Domestic demand for the Company's upholstery
fabrics is principally a function of consumer demand for, and production levels
of, upholstered furniture which, in turn, fluctuate with U.S. economic
conditions and consumer sentiment. For most individuals, a decision to buy
upholstered furniture represents both a discretionary purchase and a relatively
large expenditure. Accordingly, demand is, in general, higher during periods of
economic strength and lower during periods of economic weakness or uncertainty.
Key economic conditions influencing demand for Quaker's products are housing
starts, sales of existing homes, consumer confidence and spending levels,
population demographics, trends in disposable income, prevailing interest rates
for home mortgages and the availability of consumer credit. Adverse economic
conditions could have a material adverse effect on the Company.

FOREIGN SALES. The Company anticipates that an increasing portion of its
revenues will be derived from foreign and export sales (together "foreign
sales"). In 1996, foreign sales totalled $35.7 million, or 20.2% of the
Company's gross fabric sales. A reduction in the volume of international trade,
fluctuations in currency exchange rates, political instability in any of the
export markets important to the Company, any material restrictions on
international trade, or a downturn in the international economy or the domestic
economy of any of the export markets important to the Company, could have a
material adverse effect on the Company. In addition, the Company's 1996 gross
fabric sales to customers in four foreign countries, including Mexico, were
$27.2 million in the aggregate, representing 76.2% of the Company's total
foreign sales and 15.4% of the Company's gross fabric sales. Beginning in
December 1994, Mexico experienced an economic crisis characterized by exchange
rate instability and currency devaluation, high domestic interest and inflation
rates, negative economic growth, reduced consumer purchasing and high
unemployment. As a result, the Company's sales in Mexico (including sales from
its distribution center in Mexico) were adversely affected in 1995. There can be
no assurance that economic, political or other events in Mexico or any other
foreign market will not have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Growth Strategy."

PRICING AND AVAILABILITY OF RAW MATERIALS. The Company is dependent upon
outside suppliers for all of its raw material needs, including dyeing services,
and is subject to price increases and delays in receiving these materials and
services. The raw materials are predominantly petrochemical products and their
prices fluctuate with changes in the underlying petrochemical market in general.
Historically, the Company has been able to pass through a substantial portion of
any increases in its raw material costs; however, the Company experienced
significant increases in certain raw material prices in 1995 which it was not
able to pass through fully to its customers during 1995 and which contributed to
a reduction in the Company's 1995 gross margin. Similar conditions in the future
could have a material adverse effect on the Company. Although other sources of
supply are available, the Company currently procures approximately one-half of
its raw materials from two major industry suppliers, one of which is the sole
supplier of a filament yarn used in the Company's chenille manufacturing
operations. A shortage or interruption in the supply of any critical component
could have a

8
<PAGE> 9

material adverse effect on the Company. See "Business -- Sources and
Availability of Raw Materials" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

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. The Company's
products are predominantly Jacquard and plain woven fabrics. The Company's
products compete with other upholstery fabrics and furniture coverings,
including prints, flocks, tufts, velvets and leather. Several of the companies
with which the Company competes have greater financial resources than the
Company. Although the Company has experienced no significant competition in the
United States from imports to date, changes in foreign exchange rates or other
factors could make imported fabrics more competitive with the Company's products
in the future. See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent upon the efforts and abilities of Larry A. Liebenow, its
President and Chief Executive Officer, and other members of senior management.
The loss of the services of one or more of these key employees could have a
material adverse effect on the Company. The Company does not have "key man" life
insurance on the life of any member of its senior management. See "Management."

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 historical 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 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. 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 maintain appropriately the asbestos that
remains present at its facilities. At the Company's former facility in
Claremont, New Hampshire, it has been determined that there is oil-contaminated
soil, as well as groundwater contamination, resulting from a leak during the
mid-1970s from an underground fuel storage tank. The Company has agreed to
indemnify the purchaser for clean-up costs subject to certain limitations. The
Company also has 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. 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. See "Business -- Environmental
Matters."

SIGNIFICANT STOCKHOLDER. Upon the completion of this offering, Nortex
Holdings, a corporation owned by three officers of the Company, including Larry
A. Liebenow, its President and Chief Executive Officer, will beneficially own
23.3% of the outstanding Common Stock. Accordingly, Nortex Holdings will be in a
position to not only influence the election of the Company's directors but also
influence or determine the outcome of

9
<PAGE> 10

corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying or preventing a change of control of
the Company.

ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's certificate
of incorporation and bylaws may make it more difficult for a third party to
acquire, or may discourage acquisition bids for, the Company and could limit the
price that certain investors might be willing to pay in the future for shares of
Common Stock. These provisions, among other things, (a) require the affirmative
vote of the holders of at least 66 2/3% of the votes which all the stockholders
would be entitled to cast at any annual election of directors or class of
directors to approve any merger or consolidation of the Company with any other
corporation or a sale, lease, transfer or exchange of all or substantially all
the assets of the Company or the adoption of any plan for the liquidation or
dissolution of the Company; (b) require the affirmative vote of 80% of the
voting power of all the shares of the Company entitled to vote in the election
of directors to remove a director; and (c) require the affirmative vote of 80%
of the voting power of all the shares of the Company to amend or repeal certain
provisions of the certificate of incorporation and the bylaws. Moreover, the
Board of Directors (the "Board") has the authority to issue, at any time,
without further stockholder approval, up to 50,000 shares of preferred stock,
and to determine the price, rights, privileges and preferences of those shares,
which may be senior to the rights of holders of the Common Stock. Such issuance
could adversely affect the holders of Common Stock, and could have the effect of
dissuading a potential acquiror from acquiring outstanding shares of the Common
Stock at a price that represents a premium to the then current trading price.
See "Description of Securities -- Preferred Stock." Under certain conditions,
Section 203 of the General Corporation Law of the State of Delaware (the "DGCL")
would prohibit an "interested stockholder" (in general, a stockholder owning 15%
or more of the Company's outstanding voting stock) from engaging in a "business
combination" with the Company for a period of three years. The Board has adopted
a stockholder rights plan (the "Rights Plan"), the purpose of which is to
protect stockholders against unsolicited attempts to acquire control of the
Company that do not offer a fair price to all stockholders. The Rights Plan may
have the effect of dissuading a potential acquiror from acquiring outstanding
shares of Common Stock at a price that represents a premium to the then current
trading price. The Rights Plan will not apply to certain acquisitions by MLGA
Fund, Nortex Holdings and certain of their transferees. See "Description of
Securities -- Stockholder Rights Plan."

VOLATILITY OF STOCK PRICE. The market price of the Common Stock could be
subject to significant fluctuations in response to the Company's operating
results and other factors, and there can be no assurance that the market price
of the Common Stock will not decline below the public offering price herein.
Developments in the upholstery and home furnishings industries or changes in
general economic conditions could adversely affect the market price of the
Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume volatility. These fluctuations may be unrelated to the
operating performance of particular companies whose shares are traded and may
adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have 8,321,097 shares of Common Stock outstanding. Of these shares,
a total of 5,776,498 shares (6,286,498 shares if the Underwriters'
over-allotment option is exercised in full), including the shares offered
hereby, will be freely tradable without restrictions or further registration
under the Securities Act. The remaining 2,544,599 shares of Common Stock are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act. In general, under Rule 144 as currently in effect, an
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with Rule 144) who has beneficially owned such restricted
securities for at least two years (reduced to one year effective April 29, 1997)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the outstanding shares of Common Stock
(approximately 83,211 shares based upon the number of shares outstanding after
this offering) or the reported average weekly trading volume in the
over-the-counter market for the four weeks preceding the sale. Sales under Rule
144 are also subjected to certain manner of sale restrictions and notice
requirements and to the availability of current public information concerning
the Company. Persons who have not been affiliates of the Company for at least
three months and who have held these shares for more than three years (reduced
to two years effective April 29, 1997) are entitled to sell such restricted
securities without regard to the volume, manner of sale, notice and public
information requirements of Rule 144. All of

10
<PAGE> 11

these restricted securities are currently eligible for sale in the public market
pursuant to Rule 144. Additional shares of Common Stock, including shares
issuable upon exercise of options, will also become eligible for sale in the
public market pursuant to Rule 144 from time to time. The Company has registered
306,348 shares of Common Stock issuable upon the exercise of stock options which
will be available for sale in the open market upon exercise. As of March 18,
1997, an aggregate of 381,247 shares were subject to presently exercisable stock
options and, upon consummation of this offering, options to purchase an
additional 327,083 shares will become exercisable. The Company, its directors
and executive officers and each of the Selling Stockholders, who upon completion
of this offering will beneficially own in the aggregate 3,152,553 shares
(2,642,553 shares if the Underwriters' over-allotment option is exercised in
full), each have agreed (except as to an aggregate of 100,000 shares previously
pledged) that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock or any security convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company, for a period of 180 days, in the case of the Company, the
Selling Stockholders and certain of their affiliates, and 90 days, in the case
of other directors and executive officers, after the date of this Prospectus,
without the prior written consent of Prudential Securities Incorporated on
behalf of the Underwriters except for bona fide gifts or transfers effected by
such stockholder other than on any securities exchange or in the
over-the-counter market to donees or transferees that agree to be bound by
similar agreements and except for issuances by the Company and sales by Nortex
Holdings pursuant to the exercise of certain stock options outstanding upon
completion of this offering. Prudential Securities Incorporated may, in its sole
discretion, at any time and without prior notice, release all or any portion of
the shares of Common Stock subject to such agreements. The Company is unable to
predict the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the market
price for the Common Stock and could impair the Company's future ability to
obtain capital through offerings of equity securities. See "Principal and
Selling Stockholders," "Shares Eligible for Future Sale" and "Underwriting."

USE OF PROCEEDS

The net proceeds to the Company from the sale of 300,000 shares of Common
Stock offered hereby by the Company are estimated to be approximately $3.4
million after deducting underwriting discounts and commissions and estimated
expenses payable by the Company. The Company intends to apply its net proceeds
to acquire production equipment to expand the Company's chenille yarn
manufacturing capacity. Pending such application, the Company intends to
temporarily repay a portion of the amount outstanding under the Company's
revolving credit facility with a commercial bank (the "Credit Agreement") or to
invest in short-term, investment grade securities, certificates of deposit or
direct or guaranteed obligations of the U.S. government, or a combination
thereof. Indebtedness under the Credit Agreement has been used for working
capital and capital expenditure purposes, is due December 31, 2000 and bears
interest at an effective annual rate of 7.0%. The Company will not receive any
of the proceeds from the sale of shares of Common Stock being offered by the
Selling Stockholders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Principal and Selling Stockholders."

11
<PAGE> 12

PRICE RANGE OF COMMON STOCK

The Common Stock is included in the Nasdaq National Market under the symbol
"QFAB." The following table sets forth the range of the high and low sales
prices of the Common Stock as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 30, 1995
First Quarter.......................................... $12 3/4 $10 1/4
Second Quarter......................................... 11 7 1/2
Third Quarter.......................................... 11 7 3/4
Fourth Quarter......................................... 9 3/4 8 1/4

FISCAL YEAR ENDED JANUARY 4, 1997
First Quarter.......................................... 9 1/2 5 11/16
Second Quarter......................................... 9 3/4 7 1/4
Third Quarter.......................................... 10 5/8 7
Fourth Quarter......................................... 14 1/2 9 1/4

FISCAL YEAR ENDING JANUARY 3, 1998
First Quarter (through March 18, 1997)................. $19 1/4 $13 1/8
</TABLE>

On March 18, 1997, the last reported sales price of the Common Stock on the
Nasdaq National Market was $13.625 per share. As of February 14, 1997, there
were 49 record owners of the Common Stock.

DIVIDEND POLICY

The Company has not declared or paid dividends on the Common Stock since
prior to the 1993 Offering, does not intend to declare or pay any cash dividends
for the foreseeable future and intends to retain earnings, if any, for the
future operation and expansion of the Company's business. Future cash dividends,
if any, will be at the discretion of the Board and will depend upon, among other
things, the Company's future earnings, operations, capital requirements and
surplus, availability of cash, general financial condition, contractual
restrictions, and such other factors as the Board may deem relevant. Currently,
the Company is restricted in its ability to pay dividends under the terms of the
Credit Agreement and the Series A Notes (as hereinafter defined). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 5 of Notes to
Consolidated Financial Statements.

12
<PAGE> 13

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company as of January 4, 1997, and as adjusted to give effect to the sale of
the 300,000 shares of Common Stock offered by the Company and the application of
the estimated net proceeds therefrom to purchase production equipment as
described under "Use of Proceeds." This table should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JANUARY 4, 1997
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt................................ $ 951 $ 951
Current portion of capitalized leases(1)......................... 1,532 1,532
-------- --------
Total current portion of long-term debt and capitalized
leases................................................. $ 2,483 $ 2,483
======== ========
Long-term debt:
Credit Agreement................................................. $ 4,000 $ 4,000
Capitalized leases(1)............................................ 6,504 6,504
6.81% Series A Notes............................................. 30,000 30,000
Other............................................................ 1,731 1,731
-------- --------
Total long-term debt..................................... 42,235 42,235

Stockholders' equity:
Common Stock, par value $.01 per share, 20,000,000 shares
authorized; 8,021,097 shares issued and outstanding; and
8,321,097 shares as adjusted.................................. 80 83
Additional paid-in capital....................................... 41,948 45,382
Retained earnings................................................ 25,959 25,959
Cumulative translation adjustment(2)............................. (1,415) (1,415)
-------- --------
Total stockholders' equity............................... 66,572 70,009
-------- --------
Total capitalization..................................... $108,807 $ 112,244
======== ========
</TABLE>

- ---------------

(1) For information concerning capital lease commitments, see Note 7(b) of Notes
to Consolidated Financial Statements.
(2) For information concerning this item, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 2(i) of
Notes to Consolidated Financial Statements.

13
<PAGE> 14

SELECTED CONSOLIDATED FINANCIAL AND OPERATING 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 2, JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4,
1993(1) 1994 1994 1995 1997(1)
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $123,414 $147,867 $180,842 $173,487 $198,856
Cost of products sold..................... 92,855 110,753 133,168 137,083 152,787
-------- -------- -------- -------- --------
Gross margin.............................. 30,559 37,114 47,674 36,404 46,069
Selling, general and administrative
expenses................................ 18,862 22,292 27,560 26,176 29,121
-------- -------- -------- -------- --------
Operating income.......................... 11,697 14,822 20,114 10,228 16,948
Interest expense, net..................... 4,148 4,936 3,863 3,898 4,092
Other expenses, net....................... 479 299 34 98 77
-------- -------- -------- -------- --------
Income before provision for income taxes
and extraordinary item.................. 7,070 9,587 16,217 6,232 12,779
Provision for income taxes................ 2,925 4,218 6,691 712 4,217
-------- -------- -------- -------- --------
Income before extraordinary item.......... 4,145 5,369 9,526 5,520 8,562
Extraordinary item: loss on extinguishment
of debt................................. -- (2,550) -- -- --
Net income................................ 4,145 2,819 9,526 5,520 8,562
Preferred stock dividends................. 420 70 -- -- --
-------- -------- -------- -------- --------
Net income applicable to common stock..... $ 3,725 $ 2,749 $ 9,526 $ 5,520 $ 8,562
======== ======== ======== ======== ========
Earnings per common share before
extraordinary item(2)................... $ 0.55 $ 0.75 $ 1.15 $ 0.67 $ 1.03
Extraordinary item........................ -- (0.30) -- -- --
-------- -------- -------- -------- --------
Earnings per common share(2).............. $ 0.55 $ 0.45 $ 1.15 $ 0.67 $ 1.03
======== ======== ======== ======== ========
Weighted average shares outstanding(2).... 8,536 8,536 8,301 8,293 8,332
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
EBITDA(3)................................. $ 15,597 $ 19,710 $ 25,920 $ 16,821 $ 24,569
Depreciation and amortization............. 4,379 5,019 5,603 6,462 7,437
Net capital expenditures(4)............... 5,186 10,558 18,727 13,165 11,979
Unit volume (in yards).................... 32,228 36,289 41,641 40,761 43,552
Average gross sales price per yard........ $ 3.66 $ 3.87 $ 4.06 $ 3.88 $ 4.05

BALANCE SHEET DATA:
Working capital........................... $ 14,477 $ 25,915 $ 30,994 $ 30,780 $ 32,620
Total assets.............................. 94,556 109,908 130,476 138,117 148,832
Long-term debt and capital leases......... 46,747 35,172 43,845 45,118 42,235
Stockholders' equity...................... 18,431 43,574 52,589 57,850 66,572
</TABLE>

- ---------------

(1) The fiscal years ended January 2, 1993 and January 4, 1997 were 53-week
periods.

(2) Earnings per share for 1994, 1995 and 1996 is computed using the weighted
average number of common shares and common share equivalents outstanding
during the year. Earnings per share for 1992 and 1993 gives effect to the
1993 Recapitalization and the use of proceeds from the 1993 Offering as if
both events had occurred at the beginning of 1992.

(3) Represents income from continuing operations before extraordinary items plus
interest, taxes, depreciation, amortization and other non-cash expenses.
Although the Company has measured EBITDA consistently between the periods
presented, EBITDA as a measure of liquidity is not governed by GAAP, and, as
such, may not be comparable to other similarly titled measures of other
companies. The Company believes that EBITDA, while providing useful
information, should not be considered in isolation or as an alternative to
either (i) operating income determined in accordance with GAAP as an
indicator of operating performance or (ii) cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.

(4) Net capital expenditures reflect assets acquired by purchase and capital
lease.

14
<PAGE> 15

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, including the Notes thereto, contained elsewhere in this
Prospectus.

GENERAL

OVERVIEW

Quaker has been producing upholstery fabrics for the home furnishings
market for more than 50 years. Today, Quaker is a leading designer, manufacturer
and worldwide marketer of woven upholstery fabrics for residential furniture
markets and one of the largest producers of Jacquard upholstery fabrics in the
world. Over the last five years, Quaker has achieved sales and net income
(excluding extraordinary items) growth in every year except 1995. Net sales and
net income have grown from $123.4 million and $3.7 million, respectively, in
1992 to $198.9 million and $8.6 million, respectively, in 1996.

During 1995, the Company reported a decrease in net sales and lower gross,
operating and net margins as a result of a convergence of economic, industry and
Company-specific factors. These factors caused the Company's net sales to
decline $7.3 million, to $173.5 million from $180.8 million in 1994. The Company
encountered poor market conditions in Mexico, Canada and the Middle East, each
of which is an important export market for the Company. As a result, 1995
foreign sales decreased by $10.7 million, or 31.6% below 1994 foreign sales
levels. This decline was partially offset by a $2.9 million increase in net yarn
sales, with domestic fabric sales essentially flat.

Significant price increases were also announced by several of the Company's
most important raw material suppliers in early 1995. Such price increases
adversely affected the Company's gross margin, particularly during the latter
part of the year, as the Company was unable to fully pass along these cost
increases to customers during 1995.

The Company generally produces goods to customer order and seeks to operate
its production areas on a five to five and one-half day week, three shift
schedule. During 1995, however, the Company experienced a number of sharp
changes in its order rates which required several significant adjustments in the
Company's production rates. These adjustments adversely affected equipment
utilization rates, quality performance and overtime costs, particularly during
the fourth quarter, contributing to the deterioration in the Company's 1995
gross margin.

In response to the challenges encountered during 1995, management developed
a comprehensive performance improvement plan designed to increase margins and
earnings by growing sales, reducing raw material costs and realizing
manufacturing efficiencies.

(i) To increase sales, the Company strengthened its marketing,
merchandising, design, distribution and new business development functions,
expanded its network of international sales agents, introduced a branded line of
better-end fabrics under its Whitaker label, developed products to meet the
specific styling and design needs of its international and jobber customers,
continued to broaden its product line, focused on opportunities to reduce
delivery lead times and improve customer service, identified new markets and
applications for its specialty yarn products and prepared to enter the contract
(office and institutional) market.

(ii) To reduce raw material costs, the Company identified alternate
suppliers for several of its key raw materials, employed more cost effective raw
materials in certain of its products and implemented a Company-wide program to
reduce waste.

(iii) To improve manufacturing efficiencies, the Company continued to
pursue ISO 9001 certification, invested more than $10.8 million in new
manufacturing equipment in 1996 to eliminate bottlenecks and meet its quality
objectives, changed its new product development process to enhance coordination
between the Company's design and manufacturing areas, reduced set-up times,
provided additional training to the

15
<PAGE> 16

Company's managers and production area employees and implemented a number of
process improvements throughout the Company's manufacturing areas.

Following management's implementation of the Company's 1996 performance
improvement plan, the Company's sales and profitability improved in comparison
to prior periods in each of the last three quarters of 1996.

QUARTERLY OPERATING RESULTS

The following table sets forth certain condensed unaudited consolidated
statements of income data for the eight fiscal quarters ended January 4, 1997,
as well as certain data expressed as a percentage of the Company's total net
sales for the periods indicated:

<TABLE>
<CAPTION>
FISCAL 1995(1) FISCAL 1996(1)
----------------------------------------- -----------------------------------------
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................................. $ 46,250 $ 41,068 $ 37,984 $ 48,185 $ 43,254 $ 51,025 $ 46,436 $ 58,141
Gross margin.............................. 12,104 8,720 7,344 8,236 9,297 11,312 10,751 14,709
Gross margin percentage................... 26.2% 21.2% 19.3% 17.1% 21.5% 22.2% 23.2% 25.3%
Operating income.......................... 4,969 2,708 1,630 921 2,673 4,014 4,053 6,208
Operating income percentage............... 10.7% 6.6% 4.3% 1.9% 6.2% 7.9% 8.7% 10.7%
Income before provision for income
taxes................................... $ 4,002 $ 1,715 $ 749 $ (234) $ 1,696 $ 2,972 $ 2,984 $ 5,127
-------- -------- -------- -------- -------- -------- -------- --------
Net income................................ $ 2,495 $ 1,307 $ 498 $ 1,220 $ 1,136 $ 1,992 $ 1,999 $ 3,435
======= ======= ======= ======= ======= ======= ======= =======
Earnings per common share................. $ 0.30 $ 0.16 $ 0.06 $ 0.15 $ 0.14 $ 0.24 $ 0.24 $ 0.41
======= ======= ======= ======= ======= ======= ======= =======
</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 fair
presentation of such information when read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto contained elsewhere
in this Prospectus.

While the Company's sales have historically not been subject to significant
seasonality, Quaker's net sales and gross margins are typically slightly
stronger in the second and fourth quarters. In 1995, however, management
believes that relatively poor conditions in both the domestic market and several
of the export markets important to the Company, as well as the Company-specific
factors discussed above, had a more pronounced effect on sales and profitability
than any seasonal variations.

As a result of the sale of shares by MLGA Fund in this offering, vesting of
certain outstanding stock options will be accelerated. This acceleration will
result in the recognition by the Company of additional general and
administrative expenses equal to the unamortized portion of deferred
compensation expense associated with such options, resulting in a non-cash
compensation charge of approximately $500,000 in the fiscal quarter in which
this offering is consummated. This charge would otherwise be recognized as
compensation expense through March 2001. See "Management -- Benefit Plans."

The Company follows industry practice by closing its operating facilities
for a one-to-two week period during July of each year. In 1995 and 1996, this
shut down period, and the resulting effect on sales, occurred in the third
fiscal quarter. In 1997, the first week of the annual shut down period will
occur in the second fiscal quarter.

16
<PAGE> 17

PRODUCT MIX

Over the past several years, Quaker has taken steps to expand both the
breadth and depth of the Company's product line by increasing the number of
higher margin, middle to better-end fabrics in its line and by expanding the
number of fabrics it offers at each price point and in each styling category. As
a result, the Company has added new manufacturers of higher-end furniture to its
customer base and positioned itself as a full service supplier of Jacquard and
plain woven fabrics to all of its customers. The following table sets forth
certain information relating to the changes that have occurred in the Company's
product mix and the average gross sales price of its fabrics since 1994:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER YARD DATA)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales (dollars):
Promotional-end fabrics................. $ 59,763 35.3% $ 57,023 36.0% $ 54,716 31.0%
Middle to better-end fabrics............ 109,427 64.7 101,201 64.0 121,702 69.0
-------- -------- -------- -------- -------- --------
Gross fabric sales.................... $169,190 100.0% $158,224 100.0% $176,418 100.0%
======== ======== ======== ======== ======== ========
Gross fabric sales (yards):
Promotional-end fabrics................. 17,597 42.3% 17,042 41.8% 16,074 36.9%
Middle to better-end fabrics............ 24,044 57.7 23,719 58.2 27,478 63.1
-------- -------- -------- -------- -------- --------
Gross fabric sales.................... 41,641 100.0% 40,761 100.0% 43,552 100.0%
======== ======== ======== ======== ======== ========
Average gross sales price per yard:
Promotional-end fabrics................. $ 3.40 $ 3.35 $ 3.40
Middle to better-end fabrics............ 4.55 4.27 4.43
Average per yard -- all fabrics......... 4.06 3.88 4.05
</TABLE>

GEOGRAPHIC DISTRIBUTION OF SALES

To develop markets for upholstery fabric outside the United States, the
Company has placed substantial emphasis on building both direct exports from the
United States as well as sales from its Mexico City, Mexico distribution center
and from the inventory it maintains in Roosendaal, Holland. The Company's 1996
foreign sales were up by $12.5 million, or 54.0% above 1995. 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 1994:

- ---------------
(1) Foreign sales consists of both direct exports from the United States as well
as sales from the Company's Mexico City distribution center and from the
inventory it maintains in Holland.

17
<PAGE> 18

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentages
of the Company's net sales represented by certain income and expense items in
the Company's consolidated statements of income:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of products sold......................................... 73.6 79.0 76.8
------- ------- -------
Gross margin.................................................. 26.4 21.0 23.2
Selling, general and administrative expenses.................. 15.3 15.1 14.7
------- ------- -------
Operating income.............................................. 11.1 5.9 8.5
Interest expense, net......................................... 2.1 2.2 2.1
Other expenses, net........................................... -- 0.1 --
------- ------- -------
Income before provisions for income taxes..................... 9.0 3.6 6.4
Provisions for income taxes................................... 3.7 0.4 2.1
------- ------- -------
Net income.................................................... 5.3% 3.2% 4.3%
====== ====== ======
</TABLE>

FISCAL 1996 COMPARED TO FISCAL 1995

Net Sales. Net sales for 1996 increased $25.4 million, or 14.6%, to $198.9
million from $173.5 million in 1995. Both gross fabric sales and gross yarn
sales were higher during the period. Gross fabric sales increased due to
increases in both domestic and foreign fabric sales. Gross fabric sales within
the United States increased 4.2%, to $140.7 million in 1996 from $135.0 million
in 1995. Foreign sales increased 54.0%, to $35.7 million in 1996 from $23.2
million in 1995. This increase was due to improved sales in Mexico, Canada and
the Middle East as well as increased penetration of other international markets.
Gross yarn sales increased 42.0%, to $26.8 million in 1996 from $18.8 million in
1995.

The gross volume of fabric sold increased 6.8%, to 43.6 million yards in
1996 from 40.8 million yards in 1995. The average gross sales price per yard
increased 4.4%, to $4.05 in 1996 from $3.88 in 1995. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 15.8% more yards of middle to better-end fabrics and 5.7% fewer
yards of promotional-end fabrics in 1996 than in 1995. The average gross sales
price per yard of middle to better-end fabrics increased by 3.7%, to $4.43 in
1996 from $4.27 in 1995. The average gross sales price per yard of
promotional-end fabrics increased by 1.5%, to $3.40 in 1996 from $3.35 in 1995.

Gross Margin. The gross margin percentage for 1996 increased to 23.2% from
21.0% for 1995. This percentage growth was primarily attributable to the
Company's performance improvement plan which resulted in increased domestic and
international sales of higher-margin, middle to better-end fabrics, improved
manufacturing efficiencies related to the acquisition of newer, more efficient
manufacturing equipment and more efficient use of the Company's existing
equipment, improved quality performance, decreased raw material costs, and the
effect of spreading overhead over a higher sales base.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $29.1 million in 1996 from $26.2 million in
1995 due to increases in sales commissions, labor and fringes, 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 decreased to
14.7% in 1996 from 15.1% in 1995 due to a significant increase in net sales
without a corresponding increase in overhead.

Interest Expense, Net. Interest expense increased to $4.1 million in 1996
from $3.9 million in 1995. Lower debt levels were offset by higher commitment
fees associated with increased borrowing availability and other financing
charges.

18
<PAGE> 19

Effective Tax Rate. The effective tax rate increased to 33.0% in 1996 from
11.4% in 1995. The reduced tax rate for 1995 reflects an adjustment recorded
during the fourth quarter as a result of tax law changes in Massachusetts
enacted in November 1995 which reduced the Company's future deferred tax
liability. See Note 6 of Notes to Consolidated Financial Statements included
elsewhere in this Prospectus.

Net Income. Net income for 1996 increased to $8.6 million, or $1.03 per
share, from $5.5 million, or $0.67 per share, for 1995. For a discussion of
Earnings Per Share, see Note 2(h) of Notes to Consolidated Financial Statements
included elsewhere in this Prospectus.

FISCAL 1995 COMPARED TO FISCAL 1994

Net Sales. Net sales for 1995 decreased $7.3 million or 4.1%, to $173.5
million from $180.8 million in 1994. Gross fabric sales declined during the
period, while gross yarn sales increased. The decline in gross fabric sales was
due primarily to a decrease in foreign sales and essentially flat domestic
fabric sales. Foreign sales decreased 31.6%, to $23.2 million in 1995 from $33.9
million in 1994. This decrease was due to (i) a decline in sales into the
Mexican market resulting from the devaluation of the Mexican peso in December
1994 and the ensuing recession in Mexico and (ii) a reduction in the amount of
business the Company was able to do in Canada and the Middle East due to general
economic conditions in those markets. Gross fabric sales within the United
States remained approximately the same at $135.0 million. Gross yarn sales
increased 15.0%, to $18.8 million in 1995 from $16.4 million in 1994.

The gross volume of fabric sold decreased 2.1%, to 40.8 million yards for
1995 from 41.6 million yards for 1994. The average gross sales price per yard
declined 4.4%, to $3.88 for 1995 from $4.06 for 1994. This decrease was
principally due to a decrease in foreign sales, which have higher than average
selling prices and an increase in the volume of seconds sold in the off-quality
market. The Company sold 1.4% fewer yards of middle to better-end fabrics and
3.1% fewer yards of promotional-end fabrics in 1995 as in 1994. The average
gross sales price per yard of middle to better-end fabrics decreased by 6.2%, to
$4.27 in 1995 from $4.55 in 1994. The average gross sales price per yard of
promotional-end fabric decreased by 1.5%, to $3.35 in 1995 from $3.40 in 1994.

Gross Margin. The gross margin percentage for 1995 decreased to 21.0% from
26.4% for 1994. The decrease in gross profit margin was primarily due to (i)
lower absorption of fixed overhead costs because of lower sales and production
volume, (ii) a reduction in the Company's manufacturing efficiencies and quality
performance, (iii) increased raw material prices which were not fully passed on
to customers during 1995, and (iv) a reduction in volume of foreign sales which
carry higher than average gross margins. During 1995, the Company experienced
sharp changes in order demand. Since finished goods generally are manufactured
to a specific customer order, these changes required significant decreases and
increases in the Company's production rates. These changes in production rates
adversely affected the Company's gross margin as manufacturing efficiencies and
quality performance suffered. Additionally, the Company incurred significant
costs (principally overtime) associated with increasing production rates during
the fourth quarter of 1995 to meet increased order demand.

Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased to $26.2 million for 1995 from $27.6 million
for 1994. Selling, general and administrative expenses as a percentage of net
sales decreased to 15.1% in 1995 from 15.3% in 1994. The decrease in selling,
general and administrative expenses was primarily due to reductions in sales
commissions, freight and other variable costs related to the Company's lower
sales volume. The decrease as a percentage of net sales was due to a reduction
in fixed costs, such as expenses associated with the Company's Mexico City
distribution center.

Interest Expense, Net. Interest expense remained approximately the same,
at $3.8 million each year, as interest rates in 1995 were slightly lower but
borrowing levels were slightly higher.

Effective Tax Rate. The effective tax rate decreased to 11.4% for 1995
from 41.3% for 1994. This decrease was partially attributable to tax benefits
related to the foreign sales corporation established by the Company during the
second quarter of 1994 and to lower state income taxes due to investment tax
credits associated with the Company's capital expenditure program. Additionally,
the reduced tax rate for 1995

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reflects an adjustment recorded during the fourth quarter as a result of tax law
changes in Massachusetts enacted in November 1995 which reduced the Company's
future deferred tax liability. See Note 6 of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.

Net Income. Net income for 1995 decreased to $5.5 million, or $0.67 per
share, from $9.5 million, or $1.15 per share, for 1994. For a discussion of
"Earnings Per Share," see Note 2(h) of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.

LIQUIDITY AND CAPITAL RESOURCES

The Company historically has financed its operations and capital
requirements through a combination of internally generated funds, borrowings,
and equipment leasing. The Company's capital requirements have arisen
principally in connection with the purchase of equipment to expand production
capacity and improve the Company's quality and productivity performance and with
an increase in the Company's working capital needs related to its sales growth.

The primary source of the Company's liquidity and capital resources has
been operating cash flow. The Company's net cash provided by operating
activities was $11.1 million, $12.0 million and $14.8 million in 1994, 1995 and
1996, respectively. The Company has supplemented its operating cash flow with
borrowings and equipment leases. Net borrowings (repayments) and equipment
leases were $5.5 million in 1994, $1.3 million in 1995 and $(2.5) million in
1996.

Over the last five years, the Company has placed in service new
manufacturing equipment with an aggregate cost of $51.0 million. Capital
expenditures in 1995 and 1996 were $13.2 million and $12.0 million,
respectively. Capital expenditures during 1996 were funded by operating cash
flow. Management anticipates that capital expenditures will total approximately
$21.3 million in 1997, consisting of $14.4 million, plus the estimated $3.4
million net proceeds to the Company from this offering, primarily for new
production equipment to expand chenille yarn capacity, increase weaving
capacity, and support the Company's marketing, productivity, quality, service
and financial performance objectives and $3.5 million to upgrade the Company's
management information systems. Management believes that the net proceeds to the
Company from this offering, together with operating income and borrowings under
the Company's 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 $30.0 million of 6.81% Series A Senior Notes due December 15,
2002 (the "Series A Notes") during 1995. Proceeds from the Series A Notes were
used to reduce borrowings under the Credit Agreement. The Series A Notes bear
interest at a fixed rate of 6.81% during the entire term, with no principal
payments due until December 15, 1998.

Additionally, the Company amended the Credit Agreement during 1995 to (i)
increase the revolving credit facility to $50.0 million, (ii) extend the
maturity date to December 31, 2000, and (iii) reduce the interest rate. As of
January 4, 1997, the Company had $4.0 million outstanding under the Credit
Agreement and unused availability of $45.5 million, net of outstanding letters
of credit.

The Company is required to comply with a number of affirmative and negative
covenants under the Credit Agreement and the Series A 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, make capital
expenditures in excess of certain specified amounts, 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 Series A Notes and management believes the Company's continued
compliance will not prevent the Company from operating in the normal course of
business.

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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.

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 4, 1997 were $1.7 million.

Mexico has been designated as a "highly inflationary country" for purposes
of applying Statement of Financial Standards No. 52, Foreign Currency
Translation. Accordingly, in 1997 the Company will record translation gains and
losses in the income statement rather than as a separate component of equity.
See Note 2(i) of Notes to Consolidated Financial Statements included elsewhere
in this Prospectus.

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BUSINESS

GENERAL

THE INDUSTRY

Total domestic upholstery fabric sales, exclusive of automotive
applications, are 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, leveraging their
size, distribution capabilities, technology advantages and broad product lines.

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 $7.4 billion in 1995. 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, with industry shipments decreasing in only two years since
1975.

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.

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Management believes the long-term outlook for its upholstery fabric sales
will be influenced by certain trends:

(i) As "baby boomers" mature to the 35-64 year age group over the next decade,
they will be reaching their highest earnings power. This age group
includes the largest consumers of residential furniture.

(ii) Over the last several years, furniture manufacturers have moved toward
more highly styled Jacquards, at the expense of less distinctive fabrics,
such as flocks, plaids, plains, prints, stripes, tufts and velvets.

(iii) Consolidation in the furniture industry is resulting in fewer, but larger,
customers for upholstery fabric manufacturers. These larger customers
typically prefer to purchase their fabric requirements from a small number
of vendors able to provide a broad range of product choices, handle their
volume requirements and offer focused, customized service.

(iv) Homes are decorated more casually today than they were a decade ago,
resulting in a trend toward more comfortable furniture, as well as "motion
furniture." Historically, motion furniture was typically covered with less
expensive flock, plain, tufted or velvet fabrics. The development of
softer, more durable and highly styled Jacquards has allowed motion
furniture manufacturers to improve their profit margins by differentiating
their products.

(v) 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.

(vi) 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.

(vii) 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.

GROWTH STRATEGY

The Company'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. The Company has
expanded its fabric line by increasing both the number of products it offers at
each price point and in each styling category, as well as the number of middle
to better-end fabrics in its line. This has enabled the Company to sell more
product to its existing customers, add new higher-end furniture manufacturers to
its customer base, and provide all of its customers with a greater selection. In
1996, to generate additional business from manufacturers of higher-end
upholstered furniture, Quaker began offering a select group of its middle to
better-end products exclusively to those customers under its Whitaker label.
Sales of the Company's middle to better-end fabrics, which Quaker first began
emphasizing in the early 1990s, have increased from $66.3 million, or 56.3% of
total fabric sales in 1992, to $121.7 million, or 69.0% of total fabric sales in
1996, a CAGR of 16.4%.

Expanding International Sales. The Company has made worldwide distribution
of its upholstery fabrics a key component of its growth strategy. Quaker has
built an international sales and distribution network, dedicated significant
corporate resources to the development of fabrics to meet the specific styling
and design needs of its international customers, and put programs in place to
simplify the purchase of product from Quaker. As a result, the Company's
international sales have increased from $18.3 million in 1992 to $35.7 million
in 1996, a CAGR of 18.2%.

Capitalizing on the Growth of the Casual Furniture Segment. Based upon its
leading position in the Jacquard market and its own internally produced chenille
yarns, management believes Quaker is well

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positioned to benefit from the growth of the casual furniture segment, where
soft, durable, distinctive fabrics, such as Quaker's Jacquard and other
chenilles, are in increasing demand. The Company believes its soft, highly
styled Jacquard chenille fabrics, including its Ankyra-based fabrics, are
particularly well suited to meet the needs of this market segment. The styling
advantages of the Company's more durable Jacquard chenille fabrics allow the
Company to compete effectively with flocks, velvets and tufted fabrics which
have traditionally enjoyed strong positions in this market segment.

Penetrating Related Fabric Markets. Management believes the superior
styling and performance characteristics of the Company's fabrics provide
opportunities to penetrate markets related to Quaker's core residential fabric
business. The Company has specifically targeted the contract (office and
institutional) and recreational vehicle markets, where management believes
Quaker's Jacquard chenille fabrics will provide the Company with a clear product
advantage. The Company has also targeted additional sales to the decorative
jobber (distributors to the interior design trade) market where management
believes the Company's recently introduced Whitaker Collection will have broad
appeal.

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. Sales of the Company's specialty yarns have increased from $7.8 million
in 1992 to $26.8 million in 1996, a CAGR of 36.2%. In addition to the popularity
of the Company's current line of specialty yarns, including its proprietary,
abrasion-resistant Ankyra chenille yarns, Quaker regularly creates innovative
new specialty yarns for use in the Company's fabrics and sale to the Company's
growing list of yarn customers. Quaker intends to increase sales by targeting
new markets and applications for its specialty yarns.

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 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. Each year the
Company adds approximately 700 new products to its line to meet the styling and
design, color, texture, quality and pricing requirements of furniture
manufacturers selling into both the promotional and middle to better-end
segments of the retail furniture market. Substantially all of the Company's
products are developed by the Company's in-house design staff using CAD
equipment to shorten the new product development cycle.

Focus on Jacquard Fabrics. Quaker is one of the largest producers of
Jacquard fabrics in the world. Management believes the detailed, copyrighted
designs of its Jacquard fabrics have enabled it to compete primarily based on
superior styling and design, contributing to Quaker's strong gross margin
performance.

Broad Product Offering. Over the past several years, the Company has taken
steps to expand both the breadth and depth of the Company's product line to
enable the Company to be a full service provider of Jacquard and plain woven
fabrics to its customers. The Company currently offers a product line consisting
of over 3,000 fabric patterns. As a result, the Company's customer base includes
virtually every significant domestic manufacturer of upholstered furniture.

Vertical Integration. Quaker is vertically integrated, beginning with the
production of specialty yarns. Quaker's ability to both design and manufacture
approximately 70% of its filling yarn requirements provides the Company with
significant design, cost and delivery advantages. The Company intends to
continue to increase these advantages through additional investments in
specialty yarn manufacturing equipment.

State-of-the-Art Manufacturing Equipment. Over the past five years, Quaker
has invested in excess of $51 million in new manufacturing equipment. Management
believes the Company now has one of the most modern, efficient and
technologically advanced manufacturing bases in the industry. Quaker intends to
spend approximately $14.4 million, plus the estimated $3.4 million net proceeds
to the Company of this offering, on additional manufacturing equipment during
1997, primarily to expand chenille manufacturing capacity,

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increase capacity in its weaving and fabric finishing areas and support its
marketing, productivity, quality, service and financial objectives.

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 $18.00 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 1996 the Company's promotional-end fabric
line and its middle to better-end fabric line had average gross sales prices of
$3.40 per yard and $4.43 per yard, respectively, compared to $3.35 and $4.27,
respectively, in 1995. The average gross sales price per yard of the Company's
fabrics was $4.05 in 1996, compared to $3.88 in 1995.

Quaker's product line consists of low to medium pick (from 6 through 14
picks per inch) woven fabrics, purchased primarily by manufacturers of
promotional-end furniture; and medium to high pick (from 15 through 60 picks per
inch) woven fabrics, purchased primarily by manufacturers of middle to
higher-end furniture. In the textile industry, "picks per inch" refers to the
number of times the filling, or weft, yarn in a fabric crosses the warp yarn in
that fabric. Lower pick fabrics generally require the use of bulkier filling
yarns in order to effectively "fill" each inch of space to be "covered" and,
therefore, most lower pick fabrics have less well-defined designs and a
considerable amount of "texture" to them. Conversely, the higher pick content of
the Company's middle to better-end fabrics makes it possible for these fabrics
to have more well-defined design features and to present a smoother, finer, more
sophisticated appearance than its promotional-end fabrics.

Quaker's product line is focused on fabrics with complex designs referred
to in the industry as "Jacquards," because of the special Jacquard equipment, or
heads, required to produce them, and also includes a broad assortment of
striped, plaid, and plain fabrics. All of Quaker's looms are equipped with
Jacquard heads. The use of these heads makes it possible to vary the pattern,
color, and texture of both the filling and warp yarns in a fabric. Fabrics
manufactured on looms without Jacquard heads have a much more limited range of
possible designs.

Quaker's product offerings are noted for their wide use of chenille yarns,
which have a soft, velvet-like feel. To take advantage of casual furniture
trends, and to capitalize on the rapid growth of the motion furniture market,
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 Monsanto Company, a number of the
Company's Ankyra-based chenille fabrics, as well as certain other fabrics in its
line, have been "Wear-Dated" by Monsanto.

The Company has taken steps to expand both the breadth and depth of the
Company's product portfolio by increasing the number of fabrics designed to meet
the needs of manufacturers of middle to higher-end upholstered furniture
products, and expanding the number of fabrics and styles offered at each price
point and in each styling category to provide all of the Company's customers
with more product choices. Quaker's broad product line is very important from a
competitive standpoint. It enhances the ability of the Company's customers to
meet most of their fabric needs through one full-service supplier while, at the
same time, allowing them to purchase fabrics in a wide enough range of designs
to enable them to differentiate their own new lines of upholstered furniture
from those of their competitors. In 1996, to generate additional business from
manufacturers of higher-end upholstered furniture, the Company began offering a
select group of its middle to better-end products exclusively to those customers
under its Whitaker label. Sales of the Company's middle to better-end fabrics
have increased from $66.3 million, or 56.3% of total fabric sales in 1992, to
$121.7 million, or 69.0% of total fabric sales in 1996.

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

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emerging fashion needs and to develop new products responsive to those needs.
Management believes Quaker's design staff has an established reputation for
design excellence and product leadership.

The Company's design department has overall responsibility for the
development of new upholstery fabric patterns for sale by the Company. Although
the Company purchases artwork from independent artists, the Company's staff of
professional designers and designer technicians creates the majority of the
designs on which the Company's fabric patterns are based and also determines the
construction of those patterns. The design department uses state-of-the-art CAD
equipment to reduce the new product development cycle.

The development of each new fabric line requires four to five months. The
first step in the new product development process is the preparation of a
merchandising plan for the line. The Company's merchandising plans are based on
extensive input from Quaker's sales representatives, senior managers, and major
customers and provide both a broad outline of the number of new products to be
included within each major styling category (e.g., contemporary, traditional,
transitional, and country), as well as the number of new products to be created
for sale at each of the major price points within those styling categories.

In addition, because of the design, cost, and delivery advantages of
Quaker's vertically integrated manufacturing operations, substantial emphasis is
placed on making maximum use of the Company's internally produced yarns during
the fabric development process. After each new fabric merchandising plan is
developed, members of the Company's fabric design and yarn development staffs
meet to identify the design staff's yarn requirements for the Company's next
fabric line and many of Quaker's proprietary yarns trace their origins to this
design-driven process. Quaker's engineering and manufacturing staffs also play a
key role in the new product development process by reviewing each proposed new
product to evaluate its impact on the Company's raw material costs, equipment
utilization rates and quality performance. Although some plain, striped and
plaid fabrics remain in the Company's product line for 10 years or more, a
successful product typically has a life of two to three years.

Quaker's design staff also regularly creates custom patterns for customers
seeking to differentiate their products for distribution purposes, hit a certain
price point at the retail level, or meet a particular styling need in the market
they serve. These patterns, which are not part of Quaker's "open line," are
known in the industry as "Specials."

SALES AND MARKETING

UPHOLSTERY FABRICS

Net fabric sales during 1996 were $171.9 million, or approximately 86.4% of
the Company's net sales. The Company sells its upholstery fabrics to over 600
furniture manufacturers worldwide, including substantially all of the largest
domestic manufacturers of upholstered furniture. Fabric sales to the Company's
top 25 customers accounted for approximately 40.8% of 1996 net sales. None of
the Company's customers accounted for more than 5% of net sales during 1996.

The Company uses a direct marketing force of 19 sales representatives, two
of whom are based in Quaker's Mexico City distribution center, to market its
fabrics in the United States and Mexico. All such sales representatives are paid
on a commission basis and represent the Company exclusively. Quaker's fabrics
are distributed internationally through a network of 27 independent commissioned
agents appointed to represent the Company in Europe, the Far East, Australia,
New Zealand, the Middle East, and Central and South America. All agents located
outside the United States are supervised by the Company's staff of four
full-time export sales managers with offices at the Company's headquarters.

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

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upholstered furniture products that they will exhibit at the April and October
High Point Furniture Markets. The Company also introduces two less extensive
lines in April and October of each year to respond to competitive opportunities
identified at the January and July Showtime trade shows.

Quaker also markets its fabrics at a number of trade shows regularly
attended by its export customers, including shows in Belgium, Dubai, Germany,
Italy, and Mexico, as well as certain trade shows in the United States aimed at
the international market. Foreign sales of fabric accounted for approximately
20.2% of Quaker's gross fabric sales during 1996.

In addition to distribution from the Company's facilities in Fall River,
Massachusetts, Quaker maintains four distribution centers from which its
customers may purchase the Company's products directly. These facilities are
located in Los Angeles, California; Mexico City, Mexico; High Point, North
Carolina; and Verona, Mississippi. The Company also maintains inventory in
Roosendaal, Holland.

SPECIALTY YARNS

Net yarn sales during 1996 were $25.7 million, or approximately 12.9% of
the Company's net sales. The Company designs, manufactures and markets several
types of specialty yarns, including fancy spun, fancy twisted, taslan, and
chenille. Quaker is a leading developer and manufacturer of specialty yarns and
management believes it is the world's largest producer of chenille yarn, a soft
pile yarn which produces a velvet-like fabric. Chenille yarns, and fabrics made
out of chenille yarns, have become increasingly popular over the past several
years, in part, as a result of the recent trend toward softer, more casual home
furnishings and apparel. The Company's specialty yarns are sold under the name
of Nortex Yarns to manufacturers of home furnishings products, principally
weavers of upholstery fabric, throws, 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 Company was recently notified that the
United States Patent and Trademark Office had approved its application for
patent protection of 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. Management believes that this will prove to be a
source of further growth in the Company's yarn sales. In addition, the Company
believes that a number of the other specialty yarns developed by Quaker's yarn
development technicians have significant revenue potential and that important
market opportunities exist for all of its specialty yarns outside the United
States.

MANUFACTURING

All of Quaker's fabrics and yarns are manufactured at the Company's four
Fall River, Massachusetts manufacturing facilities 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.

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 the
application of a latex backing, to enhance the durability and

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performance characteristics of the end product, as well as a stain-resistant
finish upon customer request, and a final product quality inspection prior to
shipment to the Company's customers.

Quaker has added approximately 200 new looms to its manufacturing base
since the 1989 Acquisition and the addition of these newer looms has increased
both production capacity and efficiency, without a proportionate increase in
labor costs. 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.

From the 1989 Acquisition through 1996, the Company placed in service
manufacturing equipment with an aggregate cost of approximately $62 million to
increase capacity, improve manufacturing efficiencies, and support the Company's
marketing, quality and delivery objectives. The Company plans to purchase during
1997 an additional $14.4 million, plus the estimated $3.4 million net proceeds
to the Company from this offering, of manufacturing equipment. Management
believes that during each of the next several years additional capital equipment
will be needed to meet anticipated demand for the Company's products.

QUALITY ASSURANCE

Management believes that product quality is a significant competitive
factor in both the domestic and international fabric markets and has established
aggressive performance objectives for the Company in this area. Quaker's quality
initiatives include:

- The introduction of a revised group incentive program in certain of its
production departments to factor quality into the overall compensation
programs in these areas.

- Inspection of all 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 additional 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.

- The use of statistical process control reports to provide continuous
monitoring of the Company's performance against industry standards and
its own internal quality standards.

- Progress toward ISO 9001 certification.

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 have also played an important role in the Company's efforts
to provide defect-free products to its customers.

Primarily as a result of the Company-wide quality improvement program
implemented in early 1996, the Company's quality-related return rate, as a
percentage of total yards shipped, improved from 0.8% in 1995 to 0.6% in 1996,
and the Company's sales of second-quality fabric decreased by 45.3%, from $3.9
million in 1995 to $2.2 million in 1996.

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 MRP II system to provide computer support to
the

28
<PAGE> 29

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.

During 1996, the Company completed a comprehensive re-evaluation of its
data processing systems and developed a long-range information systems plan
intended to meet the Company's future management information needs and to
provide new and innovative technology solutions to the Company's customers. As a
result of this study, Quaker is in the process of upgrading its MRP II system to
an Enterprise Resource Planning ("ERP") system, with a full conversion to ERP
expected during 1998. Management believes that the installation of the Company's
new ERP system will enhance Quaker's ability to meet its quality and service
objectives by: (i) providing Quaker's customers with direct access to the system
to check the status of their orders; (ii) reducing delivery lead times by
improving the Company's ability to accurately forecast its raw material
requirements, provide better and more timely information to its vendors and
schedule its production operations more efficiently; and (iii) providing
computerized support to the Company's quality control system and ISO 9001
certification efforts.

The Company's CAD equipment is used not only to develop new fabric designs
but also 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; however, the use of computer disks substantially reduces the amount of
equipment downtime required for style changes, resulting in improved
manufacturing efficiencies. See "Business -- New Product Development and
Design."

The Company first introduced bar-coding technology in certain of its
operations in 1993. In 1997, Quaker plans to introduce bar-coding technology in
the balance of its manufacturing areas so that material movement can be traced
electronically from receiving to shipping.

Much of the new equipment Quaker has added to its manufacturing base since
the 1989 Acquisition is equipped with microprocessors and other electronic
controls. In particular, all the Jacquard heads purchased by the Company since
1993 are electronic, substantially reducing the amount of time it takes to
change from the production of one fabric pattern to the next, and contributing
to improved productivity in Quaker's manufacturing areas.

SOURCES AND AVAILABILITY OF RAW MATERIALS

Quaker's raw materials consist principally of polypropylene, polyester,
acrylic, cotton and rayon fibers and yarns for use in its yarn manufacturing and
fabric weaving operations, and latex to backcoat its finished fabrics. In
addition, Quaker purchases commission dyeing services from various dyehouses
which dye, to the Company's specifications, certain of the yarns the Company
produces internally and purchases from other manufacturers. Substantially all of
the raw materials used by the Company are purchased from primary producers with
manufacturing operations in the United States. The Company is dependent upon
outside suppliers for its raw material needs, including dyeing services, and is
subject to price increases and delays in receiving these materials and services.
The Company's raw materials are predominantly petrochemical products and their
prices fluctuate with changes in the underlying market for petrochemicals in
general. Historically, the Company has been able to pass through a substantial
portion of any increases in its raw material costs; however, the Company
experienced significant increases in certain raw material prices in 1995 which
it was not able to pass through fully to its customers during 1995 and which
contributed to a reduction in the Company's 1995 gross margin.

Future price levels of raw materials will depend upon supply and demand
conditions, the general inflation rate, and overall economic conditions.
Although other sources are available, the Company currently procures
approximately one-half of its raw material components from two major industry
suppliers, one of which is the sole supplier of a filament yarn used in the
Company's chenille manufacturing operations. Generally, Quaker has not
experienced any significant difficulty in meeting its raw material needs,
expects that it will be able to

29
<PAGE> 30

obtain adequate amounts to meet future requirements, and seeks to identify
alternate sources for all critical raw material components.

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 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 imports to date, changes in
foreign exchange rates or other factors could make imported fabrics more
competitive with the Company's products in the future.

The Company's principal competitors include: Burlington House Upholstery
Division of Burlington Industries Inc., Culp, Inc., Joan Fabrics Corporation,
the Mastercraft Division of Collins & Aikman Corporation 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 4, 1997, the Company had orders pending for approximately
$29.1 million of fabric and yarn compared to $24.5 million as of December 30,
1995. 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. The Company has recently been notified that the United States
Patent and Trademark Office has approved its application for patent protection
of the proprietary manufacturing process developed by Quaker to produce these
yarns. Quaker has also filed an application with the United States Patent and
Trademark Office for registration of its Whitaker mark.

INSURANCE

The Company maintains general liability and property insurance. The costs
of insurance coverage vary generally and the availability of certain coverages
has fluctuated in recent years. While the Company believes that its present
insurance coverage is adequate for its current operations, there can be no
assurance that the coverage is sufficient for all future claims or will continue
to be available in adequate amounts or at reasonable rates.

EMPLOYEES

The Company is the largest manufacturer, and the second largest private
sector employer, in Fall River, Massachusetts. As of January 5, 1997, Quaker
employed 1,647 persons, including 1,339 production employees, 111 technical and
clerical employees, and 197 exempt employees and commissioned sales
representatives. The Company's employees are not represented by a labor union.
In October 1994, the Teamsters Local 251, headquartered in East Providence,
Rhode Island, filed an election petition. In November 1994, the union withdrew
its election petition. Management believes that employee relations are good.

PROPERTIES

Quaker is headquartered in Fall River, Massachusetts where it currently has
four facilities, three used primarily for manufacturing purposes, including
warehouse space. The fourth facility houses the Company's

30
<PAGE> 31

executive, administrative and design areas as well as certain manufacturing
operations. 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>
APPROXIMATE
ENCLOSED AREA
LOCATION PRIMARY USE (SQUARE FEET) OWNERSHIP
- --------------------------------------------------- --------------------- -------------- ---------
<S> <C> <C> <C>
Grinnell Street, Fall River........................ Manufacturing 728,000 Owned
Quequechan Street, Fall River...................... Manufacturing 244,000 Owned
Davol Street, Fall River........................... Offices/Manufacturing 245,000 Owned
Ferry Street, Fall River........................... Manufacturing 193,000 Owned
Verona, Mississippi................................ Distribution Center 20,000 Owned
City of Industry, California....................... Distribution Center 17,286 Leased(1)
Mexico City, Mexico................................ Distribution Center 9,000 Leased(2)
High Point, North Carolina......................... Distribution Center 8,500 Leased(3)
</TABLE>

- ---------------
(1) Lease expires October 1, 2001.
(2) Lease expired February 5, 1997. The Company is in the process of negotiating
a renewal.
(3) Lease expires July 31, 2001.

The Company also maintains inventory at a public warehouse in Roosendaal,
Holland. Quaker has sales offices in Fall River, Massachusetts; Mexico City,
Mexico; Hickory and High Point, North Carolina; Chicago, Illinois; Tupelo,
Mississippi; and Los Angeles, California. All of the Company's sales offices,
except the one in Fall River, Massachusetts, are leased.

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 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. At Quaker's former facility in Claremont, New
Hampshire, it has been determined that there is oil-contaminated soil, as well
as groundwater contamination, resulting from a leak during the mid-1970s from an
underground fuel storage tank. The Company has agreed to indemnify the purchaser
for 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.

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<PAGE> 32

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.

LEGAL PROCEEDINGS

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.

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<PAGE> 33

MANAGEMENT

The following table sets forth certain information regarding the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ---- -------------------------------------------------
<S> <C> <C>
Larry A. Liebenow(1)(2)................... 53 President, Chief Executive Officer, and Director
Anthony Degomes(2)........................ 56 Vice President--New Business Development
James A. Dulude........................... 41 Vice President--Manufacturing
Thomas J. Finneran........................ 57 Vice President--Sales
Cynthia L. Gordan......................... 49 Vice President, Secretary, and General Counsel
Paul J. Kelly............................. 52 Vice President--Finance and Treasurer
Thomas H. Muzekari........................ 56 Vice President--Marketing
M. Beatrice Spires........................ 35 Vice President--Styling and Design
J. Duncan Whitehead(2).................... 54 Vice President--Technology and Development, and
Yarn Sales
Sangwoo Ahn(1)(3)......................... 58 Chairman of the Board
Perry J. Lewis(1)(3)...................... 59 Director
Eriberto R. Scocimara(4).................. 61 Director
Ira Starr(3)(4)........................... 37 Director
</TABLE>

- -------------------

(1) Member of Compensation Committee.
(2) Affiliated with Nortex Holdings.
(3) Affiliated with Morgan Lewis Githens & Ahn, Inc.
(4) Member of Audit Committee.

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There are no family relationships among any
of the Company's directors or executive officers.

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., a manufacturer and distributor of specialty yarns
which was merged into the Company in the 1989 Acquisition ("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. Mr. Liebenow is also a trustee of Eastern
Utilities Associates; a Director of the U.S. Chamber of Commerce, Chairman of
its Western Hemisphere Task Force and a member of its International Policy
Committee; and a Director of the American Textile Manufacturers Institute.

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.

Thomas J. Finneran. Mr. Finneran has been employed by the Company since
January 1982, and has served as Vice President -- Sales since March 1996. Mr.
Finneran served as Vice President -- Marketing

33
<PAGE> 34

from July 1988 to March 1996 and Vice President -- Sales from January 1982 to
July 1988. From 1973 to January 1982, Mr. Finneran was responsible for sales and
marketing of velvets, Jacquard and dobbie product lines at Joan Fabrics
Corporation.

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.

Paul J. Kelly. Mr. Kelly has served as Vice President -- Finance,
Treasurer and Chief Financial Officer of the Company since December 1989, and
since November 1993 has also had responsibility for working with industry and
institutional equity research 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 Muzekari. Mr. Muzekari has served as Vice President -- Marketing
since March 1996. From September 1989 until February 1996, Mr. Muzekari was the
Vice President -- Marketing for the Velvet Division of Collins & Aikman Group,
Inc. ("C&A").

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 the Velvet Division of C&A.

J. Duncan Whitehead. Mr. Whitehead has served as Vice
President -- Technology and Development, and Yarn Sales since December 1996. Mr.
Whitehead served as Vice President -- Research and Technology, and Yarn Sales
from August 1995 to December 1996. 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.

Sangwoo Ahn. Mr. Ahn has served as a director of the Company since March
12, 1993 and Chairman of the Board since May 19, 1993. Mr. Ahn has served as a
general partner of MLGAL Partners ("MLGAL"), the general partner of MLGA Fund
since 1987 and as a managing director of its affiliate, Morgan Lewis Githens &
Ahn, Inc., an investment banking firm, since 1982. Mr. Ahn also serves as a
director of Gradall Industries, Inc., Kaneb Services, Inc., Kaneb Pipe Line
Partners, L.P., ITI Technologies Inc., PAR Technology Corp., and Stuart
Entertainment, Inc.

Perry J. Lewis. Mr. Lewis has served as a director of the Company since
March 12, 1993. Since 1987, Mr. Lewis has served as a general partner of MLGAL
and as a managing director of its affiliate, Morgan Lewis Githens & Ahn, Inc.,
since 1982. Mr. Lewis also serves as a director of Aon Corporation, Evergreen
Media Corporation, Stuart Entertainment, Inc., ITI Technologies, Inc., and
Gradall Industries, Inc.

Eriberto R. Scocimara. Mr. Scocimara has served as a director of the
Company since December 14, 1993. Since April 1, 1994, Mr. Scocimara has been the
President and Chief Executive Officer of the Hungarian-American Enterprise Fund,
a private tax-exempt Delaware corporation established pursuant to Federal law
for the purpose of promoting private enterprise in Hungary. Mr. Scocimara has
been the President and Chief Executive Officer of Scocimara & Company, Inc., a
financial consulting firm, and a general partner of Rockwood Holdings
International, a partnership organized for the purpose of acquiring and
operating small companies, since 1984. Since 1990, he has also been a partner of
The Contrarian Group, an investment and

34
<PAGE> 35

management company. Mr. Scocimara also serves as a director of Carlisle
Corporation, Harrow Corporation, Roper Industries, Inc., and several privately
owned companies.

Ira Starr. Mr. Starr has served as a director of the Company since March
12, 1993. Mr. Starr served as a Vice President of Morgan Lewis Githens & Ahn,
Inc. from May 1988 to December 1993 and has been a managing director since
January 1994. Mr. Starr also serves as a director of Haynes International, Inc.
and Stuart Entertainment, Inc.

In connection with the 1993 Recapitalization, the stockholders of the
Company entered into a stockholders agreement (the "Stockholders Agreement")
pursuant to which Nortex Holdings granted MLGA Fund, for so long as MLGA Fund
beneficially owns at least 20% of the outstanding Common Stock, a proxy with
respect to such number of shares of Common Stock owned by Nortex Holdings as
would enable MLGA Fund to vote a majority of the outstanding shares of Common
Stock. The Stockholders Agreement also provides that, for so long as the proxy
is outstanding, MLGA Fund will vote its shares of Common Stock, and the shares
of Common Stock subject to the proxy, to cause Mr. Liebenow to continue to serve
as a director of the Company. The Stockholders Agreement will terminate upon
consummation of this offering. There are no other arrangements or understandings
between any director and any other person as to his election as Director.

All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
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.

Pursuant to Section 145 of the DGCL, Article NINTH of the Company's
certificate of incorporation provides that the Company shall indemnify its
directors and officers against liability for certain of their acts. Article
EIGHTH of the Company's certificate of incorporation provides that, except to
the extent prohibited by the DGCL, no director of the Company shall be liable to
the Company for monetary damages for breach of his fiduciary duty as a director.
In addition, the Company has entered into indemnification agreements with
certain of its directors indemnifying such persons against judgments and other
expenses incurred in connection with pending or threatened litigation resulting
from that director's position with the Company. The Company also provides its
directors and officers with coverage under a director's and officer's liability
insurance policy.

COMMITTEES

The Board has established an Audit Committee consisting of two directors
and a Compensation Committee consisting of three directors. The Audit Committee,
currently composed of Messrs. Scocimara and Starr, meets periodically with
management and the Company's independent accountants to determine the adequacy
of internal controls and other financial reporting matters. The Compensation
Committee, currently composed of Messrs. Ahn, Lewis and Liebenow, reviews
general policy matters relating to compensation and benefits of employees
generally and has responsibility for reviewing and approving compensation and
benefits for all officers of the Company. The Compensation Committee also
administers the Company's stock option plans.

DIRECTORS' REMUNERATION

With the exception of Mr. Scocimara, directors of the Company do not
receive a fee for serving as directors. For his services as a director of the
Company, Mr. Scocimara is paid a $15,000 annual retainer and is entitled to
receive a $1,000 fee for each Board and Committee meeting attended. It is
anticipated that following the consummation of this offering, Messrs. Ahn, Lewis
and Starr will be paid for their services as directors. All directors are
reimbursed for all out-of-pocket expenses incurred by them in connection with
their attendance at Board meetings.

Effective July 28, 1995, the Company granted to Mr. Scocimara an option
(the "Director's Option"), exercisable at any time prior to April 18, 2005, to
purchase 5,000 shares of Common Stock at an exercise price of $11.00 per share.
The Director's Option provides that it will vest in equal annual installments
over a three-year period. For a period of three months following the termination
of directorship for any reason except for

35
<PAGE> 36

cause (as defined in the Director's Option), the optionholder may exercise that
portion of the option which was otherwise exercisable on the date of
termination. Upon termination of the directorship for cause, all unexercised
options would be forfeited.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consists of Messrs. Liebenow, Ahn and Lewis. Mr.
Liebenow, who is President, Chief Executive Officer and a director of the
Company, participates in all discussions and decisions regarding salaries,
benefits and incentive compensation for all employees of the Company, except
discussions and decisions relating to his own salary, benefits and incentive
compensation.

EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid or accrued by
the Company for services rendered during 1994, 1995 and 1996 to the Chief
Executive Officer of the Company and to each of the four other most highly
compensated executive officers of the Company whose total cash compensation for
1996 exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
- ------------------------------------------------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Larry A. Liebenow.................................................. 1996 575,000 60,000(2) 44,982(3)
President and Chief 1995 574,519 -- 43,857(4)
Executive Officer 1994 550,000 75,000(5) 41,501(6)

Thomas J. Finneran................................................. 1996 272,885 25,000(7) 16,150(3)
Vice President -- Sales 1995 260,000 -- 15,550(4)
1994 252,885 38,500(8) 15,000(6)

Anthony Degomes.................................................... 1996 205,000 25,000(7) 24,594(3)
Vice President -- New Business Development 1995 202,500 -- 23,572(4)
1994 187,500 38,500(8) 21,662(6)

Cynthia L. Gordan.................................................. 1996 170,000 25,000(7) 10,600(3)
Vice President, Secretary and 1995 163,654 -- 10,150(4)
General Counsel 1994 147,308 38,500(8) 9,000(6)

J. Duncan Whitehead ............................................... 1996 170,000 25,000(7) 23,867(3)
Vice President -- Technology and 1995 155,961 -- 22,370(4)
Development, and Yarn Sales 1994 140,000 38,500(8) 21,389(6)
</TABLE>

- ---------------
(1) The aggregate amount of other annual compensation paid to each of the named
executive officers during 1994, 1995 and 1996 was less than $50,000 and also
less than 10% of the total annual salary and bonus paid to each.
(2) Consists of a bonus paid in 1997 attributable to 1996 operations pursuant to
the terms of the Employment Agreement (as hereinafter defined).
(3) Includes the Company's payment of $34,500, $15,750, $12,300, $10,200 and
$9,300 to cover insurance premiums on the split dollar insurance policies
being used to informally fund the Company's obligations to Messrs. Liebenow,
Finneran and Degomes, Ms. Gordan and Mr. Whitehead, respectively, under the
Company's Retirement Plan (as hereinafter defined); the Company's
contribution of $400 to each of Messrs. Liebenow's and Finneran's, Ms.
Gordan's and Mr. Whitehead's accounts under the Company's 401(k) plan; and
the Company's payment of $10,082, $12,294 and $14,167 in insurance premiums
due with respect to certain personal life and disability insurance policies
owned by Messrs. Liebenow, Degomes and Whitehead, respectively.
(4) Includes the Company's payment of $33,375, $15,150, $11,850, $9,750 and
$8,550 to cover insurance premiums on the split dollar insurance policies
used to informally fund the Company's obligations to Messrs. Liebenow,
Finneran and Degomes, Ms. Gordan and Mr. Whitehead, respectively, under the
Company's Retirement Plan; the Company's contribution of $400 to each of
Messrs. Liebenow's, Finneran's and Whitehead's and Ms. Gordan's accounts
under the Company's 401(k) plan; and the

36
<PAGE> 37

Company's payment of $10,082, $11,722 and $13,420 in insurance premiums due
with respect to certain personal life and disability insurance policies
owned by Messrs. Liebenow, Degomes and Whitehead, respectively.
(5) Consists of a bonus paid in 1995 attributable to 1994 operations pursuant to
the terms of the Employment Agreement.
(6) Includes the Company's payment of $31,500, $15,000, $10,350, $8,700 and
$8,130 to cover insurance premiums on the split dollar insurance policies
being used to informally fund the Company's obligations to Messrs. Liebenow,
Finneran and Degomes, Ms. Gordan and Mr. Whitehead, respectively, under the
Company's Retirement Plan; the Company's contribution of $300 to each of
Messrs. Liebenow's and Whitehead's and Ms. Gordan's accounts under the
Company's 401(k) plan; and the Company's payment of $9,701, $11,312 and
$12,959 in insurance premiums due with respect to certain personal life and
disability insurance policies owned by Messrs. Liebenow, Degomes and
Whitehead, respectively.
(7) Consists of a bonus paid in 1997 attributable to 1996 operations.
(8) Consists of payments made in 1995 to such officer pursuant to the Company's
1994 EIC Plan (as hereinafter defined).

OPTION/SAR EXERCISES AND HOLDINGS

The following table sets forth certain information concerning the fiscal
year-end value of unexercised options held by the executives named in the
Summary Compensation Table. No options were exercised by these executives in
1996.

FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF THE VALUE OF THE
SECURITIES SECURITIES UNEXERCISED IN- UNEXERCISED IN-
UNDERLYING UNDERLYING THE-MONEY THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END(#) FY-END($)(1) FY-END($)(1)
----------------- ----------------- ----------------- -----------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Larry A. Liebenow......................... 148,751(2) 99,167(2) $ 1,885,419 $ 1,256,946
Thomas J. Finneran........................ 31,852(3) 21,235(3) $ 310,716 $ 250,892
7,489(4) -- 46,469 --
------- ------ ----------- -----------
39,341 21,235 $ 357,185 $ 250,892
======= ====== =========== ===========
Anthony Degomes........................... 30,466(2) 20,310(2) $ 386,157 $ 257,429
Cynthia L. Gordan......................... 31,852(3) 21,235(3) $ 310,716 $ 250,892
7,489(4) -- 46,469 --
------- ------ ----------- -----------
39,341 21,235 $ 357,185 $ 250,892
======= ====== =========== ===========
J. Duncan Whitehead....................... 42,999(2) 28,666(2) $ 545,008 $ 363,329
------- ------ ----------- -----------
</TABLE>

- ---------------
(1) Based on a closing sales price of $13.875 per share as quoted on the Nasdaq
National Market on January 3, 1997, the last trading date in fiscal 1996.

(2) Represents the indicated person's proportionate interest (based upon
ownership of Nortex Holdings shares) in the Nortex Option. The exercise
price of the shares covered by each option is $1.20 per share and the Nortex
Option covers a total of 370,359 shares of Common Stock. The unvested
portion of the Nortex Option will vest upon the consummation of this
offering.
(3) Represents options granted by the Company to certain executive officers of
the Company (the "1993 Stock Option Plan"). The exercise price of the shares
covered by each option is $4.12 per share as to 60% of the shares
purchasable upon exercise of the option and $2.06 per share as to 40% of the
shares purchasable upon exercise of the option. Pursuant to the 1993 Stock
Option Plan, all unvested options granted thereunder will vest upon the
consummation of this offering.
(4) Represents options with an exercise price of $7.67 per share granted by
Nortex Holdings to certain executive officers of the Company (the "Holdings
Options").

37
<PAGE> 38

EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS

The Company is a party to an Employment Agreement, amended as of February
24, 1997 (the "Employment Agreement"), with Larry A. Liebenow pursuant to which
Mr. Liebenow serves as President and Chief Executive Officer of the Company on a
full-time basis for the period ending March 12, 2002, subject to an automatic
three-year extension unless terminated by the Company upon one year's prior
notice. Mr. Liebenow may terminate the Employment Agreement at any time upon
three months' prior notice. The Employment Agreement provides for a base salary
of $600,000 (effective January 1, 1997), subject to annual increases as may be
determined by the Board, as well as certain benefits and reimbursement of
expenses. The Employment Agreement provides for annual bonuses in such amounts
as the Board shall determine. Pursuant to the Employment Agreement, the Company
has the right to terminate Mr. Liebenow's employment only for cause (as defined
in the Employment Agreement). Upon voluntary termination of employment by Mr.
Liebenow, termination of his employment for cause (other than conviction of a
crime involving moral turpitude) or termination of his employment for any other
reason (other than conviction of a crime involving moral turpitude), Mr.
Liebenow will receive a lump sum payment equal to three times his prior year's
base salary plus any bonus paid or payable with respect to the prior year. If
the Employment Agreement had terminated as of February 24, 1997, Mr. Liebenow
would have been entitled to receive $1,905,000. The Employment Agreement also
provides for the continuation of his salary through March 12, 2002 in the event
Mr. Liebenow dies or becomes disabled or incapacitated. In addition, the
Employment Agreement prohibits Mr. Liebenow from disclosing or using any
confidential information of the Company or competing with the Company during the
period of his employment and for one year thereafter.

The Company has entered into severance agreements with three of its
executive officers, including Mr. Finneran and Ms. Gordan. Pursuant to these
agreements, in the event Mr. Finneran's employment is terminated without cause,
Mr. Finneran will be entitled to receive an amount equal to one year's base
salary (based on his highest annual base salary) payable monthly in arrears and,
for the one year period following his termination date, will be further entitled
to continue to participate in each of the fringe benefit programs offered by the
Company to its employees generally. In the event Ms. Gordan or the other Company
officer with a similar agreement, is terminated without cause, Ms. Gordan and
such other officer will be entitled to receive an amount equal to six months'
base salary (based on their respective highest annual base salaries) payable
monthly in arrears and, for the six month period following his or her
termination date, will be further entitled to continue to participate in each of
the fringe benefit programs offered by the Company to its employees generally.
If the employment relationship of each executive officer with a severance
agreement had terminated on January 4, 1997, Mr. Finneran and Ms. Gordan would
have been entitled to receive $270,000, and $85,000 respectively, and the three
executive officers as a group would have been entitled to receive $440,000.

BENEFIT PLANS

1993 STOCK OPTION PLAN

Effective April 13, 1993, the Company established the 1993 Stock Option
Plan in which officers and other key employees of the Company may participate.
Options granted under the 1993 Stock Option Plan are nonqualified options. The
1993 Stock Option Plan provides for the issuance of options to purchase up to
318,354 shares of Common Stock, subject to adjustment under certain
circumstances. The 1993 Stock Option Plan is intended to provide participating
employees with a more direct stake in the success of the Company and to support
the Company's efforts to attract and retain qualified employees.

The 1993 Stock Option Plan is administered by the Compensation Committee of
the Board of the Company. A subcommittee of the Compensation Committee,
consisting solely of non-employee directors, determines, subject to the
provisions of the Plan and such limitations as the Board may from time to time
impose, the persons to whom, and the time or times at which, grants shall be
made, the number of shares of Common Stock subject to an option, and other terms
and provisions of the options.

The exercise price of the shares of Common Stock covered by each option is
$4.12 per share as to 60% of the shares purchasable upon exercise of the option
and $2.06 per share as to 40% of the shares purchasable

38
<PAGE> 39

upon exercise of the option. The 1993 Stock Option Plan provides that each
option will vest in equal annual installments over a five-year period, with that
portion of the option with the higher exercise price vesting first. For a period
of the lesser of three months or the remaining term of the option following the
termination of employment for any reason other than voluntary termination or
termination for cause (as defined in the 1993 Stock Option Plan), an
optionholder may exercise any unexercised options to the extent such options are
then exercisable. Upon termination of employment for cause, all unexercised
options are forfeited. Options may not be exercised after the tenth anniversary
of the date of grant. Upon the occurrence of a change in control of the Company
(as defined in the 1993 Stock Option Plan) all options granted will become
immediately exercisable in full.

As of January 4, 1997, there were outstanding options under the 1993 Stock
Option Plan to purchase an aggregate of 306,348 shares of Common Stock at a
weighted average exercise price of $3.29 per share, including options to
purchase 53,087 shares held by each of Mr. Finneran and Ms. Gordan each at a
weighted average exercise price of $3.29.

Pursuant to the change in control provisions of the 1993 Stock Option Plan,
all unvested options granted thereunder will vest upon the consummation of this
offering.

1996 STOCK OPTION PLAN

Effective April 26, 1996, the Company established the 1996 Stock Option
Plan in which key middle management employees of the Company may participate.
Options granted under the 1996 Stock Option Plan are nonqualified options. The
1996 Stock Option Plan provides for the issuance of options to purchase up to
100,000 shares of Common Stock, subject to adjustment under certain
circumstances. The 1996 Stock Option Plan is intended to provide participating
employees with a more direct stake in the success of the Company and to support
the Company's efforts to attract and retain qualified employees.

The 1996 Stock Option Plan is administered by the Compensation Committee of
the Board of the Company. The Compensation Committee determines, subject to the
provisions of the Plan and such limitations as the Board may from time to time
impose, the persons to whom, and the time or times at which, grants shall be
made, the number of shares of Common Stock subject to an option, and other terms
and provisions of the options.

The exercise price of the shares of Common Stock covered by each option is
not less than the fair market value of the Common Stock at the date of grant.
The 1996 Stock Option Plan provides that each option will vest in equal annual
installments over a five-year period. For a period of the lesser of three months
or the remaining term of an option following the termination of employment
because of an optionholder's death, disability (as defined in the 1996 Stock
Option Plan) or retirement (as defied in the 1996 Stock Option Plan), an
optionholder may exercise any unexercised options to the extent such options are
then exercisable. Upon termination of employment for reasons other than death,
disability or retirement, all unexercised options are forfeited. Options may not
be exercised after the tenth anniversary of the date of grant. Upon the
occurrence of certain business combinations all options granted will become
immediately exercisable in full.

As of January 4, 1997 under the 1996 Stock Option Plan, there were
outstanding options to purchase an aggregate of 46,500 shares of Common Stock at
a weighted average exercise price of $8.25 per share.

No portion of the options granted under the 1996 Stock Option Plan will
vest as a result of this offering.

1997 STOCK OPTION PLAN

Effective February 24, 1997, the Company established the 1997 Stock Option
Plan (subject to stockholder approval) in which officers and other key employees
of the Company may participate. Options granted under the 1997 Stock Option Plan
are nonqualified options. The 1997 Stock Option Plan provides for the issuance
of options to purchase up to 500,000 shares of Common Stock, subject to
adjustment under certain circumstances. The 1997 Stock Option Plan is intended
to provide participating employees with a more direct stake in the success of
the Company and to support the Company's efforts to attract and retain qualified
employees.

39
<PAGE> 40

The 1997 Stock Option Plan is administered by the Compensation Committee of
the Board of the Company. A sub-committee of the Compensation Committee,
consisting solely of non-employee directors, determines, subject to the
provisions of the Plan and such limitations as the Board may from time to time
impose, the persons to whom, and the time or times at which, grants shall be
made, the number of shares of Common Stock subject to an option, and other terms
and provisions of the options.

The exercise price of the shares of Common Stock covered by each option
will be not less than the fair market value of the Common Stock at the date of
grant, except as described below. The 1997 Stock Option Plan provides that each
option will vest in equal annual installments over a five-year period. For a
period of the lesser of three months (one year in the case of death) or the
remaining term of an option, following the termination of employment for any
reason other than voluntary termination or termination for cause (as defined in
the 1997 Stock Option Plan), an optionholder may exercise any unexercised
options to the extent such option is then exercisable. Upon termination of
employment for cause, all unexercised options are forfeited. Options may not be
exercised after the tenth anniversary of the date of grant. Upon the occurrence
of a change in control of the Company (as defined in the 1997 Stock Option Plan)
all options granted will become immediately exercisable in full, except as
otherwise provided in an option agreement.

As of March 18, 1997, there were granted, subject to stockholder approval,
options under the 1997 Stock Option Plan to purchase an aggregate of 330,000
shares of Common Stock. Of these options, 90,000 have been granted to Mr.
Liebenow, 30,000 to Mr. Finneran, 30,000 to Mr. Degomes, 30,000 to Ms. Gordan,
and 30,000 to Mr. Whitehead. The exercise price of all of these options will be
the fair market value of the Common Stock on the date of stockholder approval.
The Company intends to seek stockholder approval for the 1997 Stock Option Plan
at its annual meeting to be held in May 1997.

No portion of the options granted under the 1997 Stock Option Plan will
vest as a result of this offering.

NORTEX OPTION

Effective as of April 13, 1993, the Company granted to Nortex Holdings the
Nortex Option, exercisable at any time prior to April 13, 2003, to purchase
370,359 shares of Common Stock, subject to adjustment under certain
circumstances. The Nortex Option provides that it will vest over a five-year
period. Upon the occurrence of a change in control of the Company (as defined in
the Nortex Option), the Nortex Option will become immediately exercisable in
full. The exercise price of the shares of Common Stock covered by the Nortex
Option is $1.20 per share and may be paid in cash or by delivery of a seven-year
promissory note (non-recourse to the stockholders of Nortex Holdings) which will
bear interest at the federal Mid-Term Rate (as promulgated by the United States
Secretary of the Treasury) for the month of issuance of the note and be secured
by a pledge of the Common Stock purchased pursuant thereby. Messrs. Liebenow,
Whitehead and Degomes own 66.94%, 19.35% and 13.71%, respectively, of the
outstanding Nortex Holdings common stock.

The unvested portion of the Nortex Option will vest upon the consummation
of this offering.

HOLDINGS OPTIONS

Effective as of April 13, 1993, Nortex Holdings granted the Holdings
Options to certain executive officers of the Company, exercisable at any time
prior to April 13, 2003, to purchase 29,956 shares of Common Stock held by
Nortex Holdings, subject to adjustment under certain circumstances. The Holdings
Options are fully vested. The exercise price of the shares of Common Stock
covered by the Holdings Options is $7.67 per share.

For a period of three months following the termination of employment for
any reason other than voluntary termination or termination for cause (as defined
in the Holdings Options), an optionholder may exercise any unexercised options
to the extent such options are then exercisable. Upon termination of employment
for cause, all unexercised options will be forfeited. Pursuant to the Holdings
Options, Mr. Finneran and Ms. Gordan each received options to purchase 7,489
shares of Common Stock.

40
<PAGE> 41

MEDICAL EXPENSE REIMBURSEMENT PLAN

Since April 1, 1990, the Company has maintained a Medical Expense
Reimbursement Plan (the "Medical Plan") for the benefit of its executive
officers. Pursuant to the Medical Plan, executive officers of the Company
receive reimbursement for all medical expenses up to the plan limit, incurred by
them or their dependents, to the extent such expenses are not covered under the
group medical plan available generally to all Company employees. The
reimbursement limitation under the Medical Plan for each plan participant is
$10,000 per year.

INCENTIVE COMPENSATION PLAN

The Company's annual executive incentive compensation plans (the "EIC
Plans"), in which all the Company's Vice Presidents participate, are designed to
encourage the executives to work effectively together as a team and to establish
a clear relationship between the Company's financial performance and overall
executive compensation levels. The Compensation Committee bases the formula for
the EIC Plan bonus pools on a percentage (which, in the last three years has
ranged from 3 to 7%) of the amount by which the Company's Adjusted Pre-tax
Income during the applicable EIC Plan year exceeds the preceding year's Adjusted
Pre-tax Income, subject to a maximum bonus paid equal to 25% of the aggregate
base salaries paid to all EIC Plan participants during the applicable EIC Plan
year. Each EIC Plan participant's actual allocable share of the bonus pool is
determined by Quaker's President and reviewed by the Compensation Committee. The
formulas resulted in no bonus pools for EIC Plan years 1995 and 1996, and a
bonus pool of approximately $260,000 for 1994. No payments are permitted under
the EIC Plan to participants who resigned or were terminated for cause during
the applicable EIC Plan year. Pro rata distributions would have been made with
respect to any participant who died, became disabled, retired, or whose
employment was terminated without cause during the applicable EIC Plan year.

It is anticipated that the Company will continue, annually, to establish
executive incentive compensation plans similar to those described above.

DEFERRED COMPENSATION PLAN

On July 16, 1992, the Company established a Deferred Compensation Plan (the
"Retirement Plan"), for the benefit of all of the Company's executive officers.
Pursuant to the provisions of the Retirement Plan, the Company has agreed to
provide certain benefits to each plan participant based on the value of
accumulated contributions made under the Retirement Plan on their behalf and
split-dollar variable life insurance contracts insuring the lives of each plan
participant have been purchased to informally fund its obligations under the
Retirement Plan. Among the benefits provided to each plan participant are a
pre-retirement death benefit, a monthly retirement benefit payable over a
15-year period beginning at age 65 for a participant who terminates employment
after attaining age 55 and completing at least five years of plan participation,
and certain other amounts payable pursuant to the provisions of the Retirement
Plan in the event a plan participant's employment with the Company is terminated
prior to attaining age 55 and completing five years of plan participation. The
Company has established an irrevocable "grantor" trust for the purpose of
accumulating the amounts needed to pay benefits under the Retirement Plan and to
hold the variable life insurance contracts. The Company has agreed to make
annual contributions to the trust in an amount equal to 6% of the base salaries
of all plan participants (or such higher amount as the Board of Directors may
determine). The assets of the trust will be considered to be assets of the
Company for purposes of satisfying the claims of the Company's general
creditors.

41
<PAGE> 42

PRINCIPAL AND SELLING STOCKHOLDERS

In September 1989, the Company was acquired by a European company and
Nortex Holdings, a corporation owned by three officers of the Company, including
Larry A. Liebenow, the President and Chief Executive Officer of the Company. In
early 1993, the Company reacquired all of the European company's interest in
Quaker in the 1993 Recapitalization. To finance the 1993 Recapitalization, the
Company issued Common Stock and other securities to MLGA Fund and other
affiliates of Morgan Lewis Githens & Ahn, an investment banking firm. See
"Management."

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of February 1, 1997 and as adjusted to reflect the
completion of this offering, by (i) each of the Company's directors and
executive officers, (ii) all directors and executive officers of the Company as
a group, (iii) each person who is known by the Company to own beneficially more
than five percent of the outstanding shares of the Common Stock and (iv) each of
the Selling Stockholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------- SHARES ---------------------
NAME NUMBER PERCENT OFFERED(1) NUMBER PERCENT
- ------------------------------------ --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
MLGA Fund II, L.P.(2) .............. 3,674,798 45.8% 3,000,000 674,798 8.1%
Nortex Holdings, Inc.(3)............ 2,123,552 25.3 100,000 2,023,552 23.3
Larry A. Liebenow(4)(5)............. 2,123,552 25.3 100,000 2,023,552 23.3
Anthony Degomes(5)(6)............... 2,123,552 25.3 100,000 2,023,552 23.3
J. Duncan Whitehead(5)(7)........... 2,123,952 25.3 100,000 2,023,952 23.3
Sangwoo Ahn(8)(9)................... 3,735,652 46.6 3,000,000 735,652 8.8
Perry J. Lewis(8)(10)............... 3,705,652 46.2 3,000,000 705,652 8.5
Eriberto R. Scocimara(11)........... 5,000 * 0 5,000 *
Ira Starr(12)....................... 13,235 * 0 13,235 *
James A. Dulude(5)(13).............. 60,776 * 0 60,776 *
Thomas J. Finneran(5)(14)........... 60,576 * 0 60,576 *
Cynthia L. Gordan(5)(14)............ 60,576 * 0 60,576 *
Paul J. Kelly(5)(15)................ 67,932 * 0 67,932 *
Thomas H. Muzekari(5)(16)........... 47,000 * 0 47,000 *
M. Beatrice Spires(5)(16)........... 47,000 * 0 47,000 *
All executive officers and directors
as a group (13 persons)........... 6,252,553 71.6 3,100,000 3,152,553 34.9
</TABLE>

- ---------------

* Less than 1%

(1) Assuming the several Underwriters exercise the over-allotment option in
full, MLGA Fund will sell an additional 510,000 shares of Common Stock,
reducing its beneficial ownership to 164,798 shares of Common Stock or 2.0%
of the outstanding shares.

(2) Consists of shares of Common Stock owned directly by MLGA Fund. Does not
include shares owned by Nortex Holdings as to which MLGA Fund has been
granted a proxy. See "Management." The address of MLGA Fund is Two
Greenwich Plaza, Greenwich, Connecticut 06830. The general partners of
MLGAL, including Sangwoo Ahn and Perry J. Lewis, who are directors of the
Company, may be deemed to beneficially own the shares of Common Stock owned
directly by MLGA Fund. Messrs. Ahn and Lewis disclaim beneficial ownership
of such shares.

(3) Consists of (i) 1,753,193 shares of Common Stock owned directly by Nortex
Holdings and (ii) 370,359 shares which Nortex Holdings has the right to
acquire upon exercise of the Nortex Option (see "Management--Benefit
Plans--Nortex Option"). Nortex Holdings has granted a proxy to MLGA Fund
which will entitle MLGA Fund to vote certain of its shares, which proxy
will terminate upon consummation of this offering, and has granted options
to purchase 29,956 shares of Common Stock to

42
<PAGE> 43

(footnotes from previous page)

certain executive officers of the Company. See "Management--Benefit
Plans--Holdings Option." The address of Nortex Holdings is 941 Grinnell
Street, Fall River, Massachusetts 02721.

(4) Consists of shares of Common Stock beneficially owned by Nortex Holdings.
See footnote (3). Mr. Liebenow is the President, a director and the
majority stockholder of Nortex Holdings and, as such, may be deemed to
beneficially own the shares owned by Nortex Holdings. Mr. Liebenow has a
non-binding understanding with the Underwriters pursuant to which he is to
reinvest in Common Stock the after-tax net proceeds of this offering
attributable to his proportionate interest in Nortex Holdings (either
directly or indirectly through repurchase of Nortex Holdings securities
held by other Nortex Holdings stockholders).

(5) The address for the named individual is c/o Quaker Fabric Corporation, 941
Grinnell Street, Fall River, Massachusetts 02721.

(6) Consists of shares of Common Stock beneficially owned by Nortex Holdings.
See footnote (3). Mr. Degomes is an officer, director and stockholder of
Nortex Holdings and, as such, may be deemed to beneficially own the shares
owned by Nortex Holdings.

(7) Consists of (i) the shares of Common Stock beneficially owned by Nortex
Holdings and (ii) 400 shares of Common Stock held by Mr. Whitehead's
children. See footnote (3). Mr. Whitehead is an officer, director and
stockholder of Nortex Holdings and, as such, may be deemed to beneficially
own the shares owned by Nortex Holdings.

(8) Includes 3,674,798 shares owned directly by MLGA Fund. The general partner
of MLGA Fund is MLGAL. Messrs. Lewis and Ahn are general partners of MLGAL
and may be deemed to beneficially own these shares. Messrs. Lewis and Ahn
disclaim any beneficial interest in all shares beneficially owned by MLGA
Fund. The address for Messrs. Ahn and Lewis is c/o Morgan Lewis Githens &
Ahn, Inc., Two Greenwich Plaza, Greenwich, Connecticut 06830.

(9) Includes 50,854 shares of Common Stock owned directly by Mr. Ahn and 10,000
shares of Common Stock held by his children.

(10) Includes 30,854 shares of Common Stock owned directly by Mr. Lewis.

(11) Consists of shares of Common Stock which Mr. Scocimara has the right to
acquire upon the exercise of the Director's Option. See
"Management -- Directors' Remuneration." Mr. Scocimara's address is c/o
Hungarian-American Enterprise Fund, 666 Steamboat Road, Greenwich,
Connecticut 06830.

(12) Consists of 13,235 shares of Common Stock owned directly by Mr. Starr. The
address for Mr. Starr is c/o Morgan Lewis Githens Ahn, Inc., Two Greenwich
Plaza, Greenwich, Connecticut 06830.

(13) Consists of 60,576 shares of Common Stock which Mr. Dulude has the right to
acquire upon the exercise of options granted under the 1993 Stock Option
Plan and the Holdings Options and 200 shares of Common Stock held by his
children.

(14) Consists solely of shares of Common Stock which the individual has the
right to acquire upon the exercise of options granted under the 1993 Stock
Option Plan and the Holdings Options.

(15) Consists of 7,356 shares of Common Stock held by Mr. Kelly and 60,576
shares of Common Stock which Mr. Kelly has the right to acquire upon the
exercise of options granted under the 1993 Stock Option Plan and the
Holdings Options.

(16) Consists solely of shares of Common Stock which the individual has the
right to acquire upon the exercise of options granted under the 1993 Stock
Option Plan.

Except as noted in the footnotes, the Company believes the beneficial
holders listed in the table above have sole voting and investment power
regarding the shares shown as being beneficially owned by them. Except as noted
in the footnotes, none of such shares is known by the Company to be shares with
respect to which the beneficial owner has the right to acquire such shares.

43
<PAGE> 44

DESCRIPTION OF SECURITIES

GENERAL

The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, of which 8,021,097 were outstanding
on January 4, 1997, and 50,000 shares of preferred stock, par value $.01 per
share, none of which is outstanding. As of February 14, 1997, there were 49
holders of record of the Common Stock.

COMMON STOCK

Each holder of shares of Common Stock is entitled to one vote for each
outstanding share of Common Stock owned by him on each matter property submitted
to the stockholders for their vote. Nortex Holdings has granted a proxy with
respect to certain of its shares, which proxy will terminate upon consummation
of this offering. See "Management."

Except as may be limited by the terms and provisions of any class of
preferred stock which may be authorized by the Board in the future and the terms
of the Credit Agreement and the Series A Notes, holders of Common Stock are
entitled to any dividend declared by the Board out of funds legally available
for such purpose. See "Dividend Policy." Subject to the liquidation preference
of any class of preferred stock which may be authorized by the Board in the
future, holders of Common Stock are entitled to receive on a pro rata basis all
remaining assets of the Company available for distribution to the holders of
Common Stock in the event of the liquidation, dissolution, or winding up of the
Company.

Holders of Common Stock have no preemptive or other subscription rights,
and there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of Common Stock are, and
the shares of Common Stock to be sold in this offering will be, upon issuance
and payment therefor, fully paid and nonassessable.

PREFERRED STOCK

The certificate of incorporation of the Company authorizes the issuance of
50,000 shares of preferred stock. The Board, within the limitations and
restrictions contained in the certificate of incorporation and without further
action by the Company's stockholders, has the authority to issue shares of
preferred stock from time to time in one or more series and to fix the number of
shares and the relative rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preferences and any other preferences, special
rights, and qualifications of any such series. If shares of preferred stock with
voting rights are issued, such issuance could affect the voting rights of the
holders of the Common Stock by increasing the number of outstanding shares
entitled to vote and by the creation of class or series voting rights. In
addition, any further issuance of preferred stock, could, under certain
circumstances, have the effect of delaying or preventing a change of control of
the Company and may adversely affect the rights of holders of Common Stock.
There are no shares of preferred stock currently issued and outstanding and the
Company has no present plans to issue any shares of preferred stock or to
establish or designate any series of preferred stock.

STOCKHOLDER RIGHTS PLAN

The Board has adopted the Rights Plan to give it increased power to
negotiate in the best interests of the Company with certain potential acquirors
and to discourage appropriation of control of the Company at a price that is
unfair to its stockholders. It is not intended to prevent fair offers for
acquisition of control determined by the Board to be in the best interests of
the Company and its stockholders, nor is it intended to prevent a person or
group from obtaining representation on or control of the Board through a proxy
contest, or to relieve the Board of its fiduciary duty to consider any proposal
for acquisition of the Company in good faith.

The Rights Plan provides for the distribution of one "Right" as a dividend
on each outstanding share of the Common Stock. The distribution will be made to
all holders of record on a date prior to consummation of this offering. Rights
will generally be issued with respect to each share of Common Stock issued after
such record date, including the shares to be issued in this offering. Each Right
shall entitle the holder to purchase one-tenth of a share of Common Stock. The
Rights generally become exercisable upon certain triggering events involving the
acquisition of 15% or more of the outstanding Common Stock or ten days after the

44
<PAGE> 45

initiation of a tender or exchange offer, and the exercise price is based on the
estimated long-term value of the Common Stock. The exercise of these rights
becomes economically attractive upon the triggering of certain "Flip-In" or
"Flip-Over" provisions. The Flip-In provisions will permit their holders to
purchase shares of Common Stock at a discounted rate, resulting in substantial
dilution of an acquiror's voting and economic interests in the Company. The
Flip-Over element of the Rights Plan involves certain mergers or significant
asset purchases, which trigger certain rights to purchase shares of the
acquiring or surviving company at a discount. The Rights Plan contains a
"Permitted Offer" exception to allow offers determined by the Board to be in the
best interests of the Company and its stockholders to take place free of the
dilutive effects of the Rights Plan's mechanisms.

The Board retains the right (at all times prior to acquisition of 15% of
the Common Stock by an acquiror) to discontinue the Rights Plan through
redemption of all Rights or to amend the Rights Plan in any respect.

The Rights Plan will not apply to certain acquisitions by MLGA Fund, Nortex
Holdings and certain of their transferees.

CERTAIN PROVISIONS

Provisions of the Company's certificate of incorporation and bylaws and of
Delaware law may make it more difficult for a third party to acquire, or may
discourage acquisition bids for, the Company and could limit the price that
certain investors may be willing to pay in the future for shares of Common
Stock.

Restrictions on Certain Business Combinations. The Company's certificate
of incorporation requires the affirmative vote of the holders of at least
66 2/3% of the votes which all the stockholders would be entitled to cast at any
annual election of directors or class of directors to approve any merger or
consolidation of the Company with any other corporation or a sale, lease,
transfer or exchange of all or substantially all the assets of the Company or
the adoption of any plan for the liquidation or dissolution of the Company.

Removal of Directors. The Company's bylaws require the affirmative vote of
80% of the voting power of all the shares of the Company entitled to vote in the
election of directors to remove a director. Following the offering, Nortex
Holdings, which is owned by three officers of the Company including Mr.
Liebenow, will hold 23.3% of the outstanding Common Stock.

Vote Required to Amend or Repeal Certain Provisions of the Company's
Certificate of Incorporation and Bylaws. The Company's certificate of
incorporation requires the affirmative vote of 80% of the voting power of all
the shares of the Company, to amend or repeal certain provisions of the
certificate of incorporation and bylaws. Following the offering, Nortex
Holdings, which is owned by three officers of the Company including Mr.
Liebenow, will hold 23.3% of the outstanding Common Stock.

Requirements for Advance Notification of Stockholder Nomination and
Proposals. The Company's bylaws establish advance notice procedures with regard
to stockholder proposals and the nomination, other than by or at the direction
of the Board or a committee thereof, of candidates for election as directors.

Director's Liability. The Company's certificate of incorporation provides
that to the fullest extent permitted by the DGCL, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under current Delaware law, liability of
a director may not be limited: (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases, and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision of the Company's
certificate of incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek non-monetary relief such as an injunction or recision
in the event of a breach of a director's duty of care. In addition, the
Company's certificate of incorporation provides that the Company shall indemnify
its directors and executive officers to the fullest extent permitted by Delaware
law.

45
<PAGE> 46

Section 203 of the DGCL. The Company as a Delaware corporation, is subject
to Section 203 of the DGCL. In general, Section 203 prevents an "interested
stockholder" (defined as a person who is the owner of 15% or more of a
corporation's voting stock, or who, as an affiliate or associate of a
corporation, was the owner of 15% or more of that corporation's voting stock
within the prior three years) from engaging in a "business combination" (as
defined under the DGCL) with a Delaware corporation for three years following
the date such person became an interested stockholder unless: (i) before such
person became an interested stockholder the board of directors of the
corporation approved the transaction or the business combination in which the
interested stockholder became an interested stockholder, (ii) upon consummation
of the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation and shares held by certain employee stock ownership plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer), or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock of the corporation not owned by the "interested stockholder." A "business
combination" generally includes mergers, stock or asset sales and other
transactions resulting in a financial benefit to the "interested stockholders."

TRANSFER AGENT

The transfer agent for the Common Stock is The First National Bank of
Boston.

46
<PAGE> 47

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 8,321,097 shares of
Common Stock outstanding. Of these shares, a total of 5,776,498 shares
(6,286,498 shares if the Underwriters' over-allotment option is exercised in
full), including all of the shares of Common Stock sold in this offering, will
be freely tradable without restriction or limitation under the Securities Act.
The remaining 2,544,599 shares are "restricted securities" within the meaning of
Rule 144 adopted under the Securities Act (the "Restricted Securities"). The
Restricted Securities were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and may not be sold except in compliance with the registration requirements
of the Securities Act or pursuant to an exemption from registration, such as the
exemption provided by Rule 144 under the Securities Act.

All of the Restricted Securities are currently eligible for sale in the
public market pursuant to Rule 144. In general, under Rule 144 as currently in
effect, any affiliate of the Company or any person (or persons whose shares are
aggregated in accordance with Rule 144) who has beneficially owned such
Restricted Securities for at least two years (reduced to one year effective
April 29, 1997) would be entitled to sell a number of shares that does not
exceed the greater of 1.0% of the outstanding shares of Common Stock
(approximately 83,211 shares based upon the number of shares outstanding after
this offering) or the reported average weekly trading volume in the over-
the-counter market for the four weeks preceding the sale. Sales under Rule 144
are also subject to certain manner of sale restrictions and notice requirements
and to the availability of current public information concerning the Company.
Persons who have not been affiliates of the Company and who have held their
shares for more than three years (reduced to two years effective April 29, 1997)
are entitled to sell Restricted Securities without regard to the volume, manner
of sale, notice and public information requirements of Rule 144.

As of March 18, 1997, outstanding options to purchase 1,028,951 shares of
Common Stock were held by certain officers, directors and employees of the
Company and Nortex Holdings pursuant to the Nortex Option, the Director's Option
and the Company's stock option plans and an aggregate of 235,506 shares were
available for the grant of future options under the Company's stock option
plans. The Company has registered 306,348 shares of Common Stock issuable upon
the exercise of stock options which will be available for sale in the open
market on exercise. As of March 18, 1997, an aggregate of 381,247 shares were
subject to presently exercisable stock options and, upon consummation of this
offering, options to purchase an additional 327,083 shares will become
exercisable.

The Company, its executive officers and directors and each of the Selling
Stockholders (who, upon completion of this offering, will beneficially own in
the aggregate 3,152,553 shares of Common Stock, or 2,642,553 shares if the
Underwriters' over-allotment option is exercised in full) each have agreed
(except as to an aggregate of 100,000 shares previously pledged) that they will
not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant or any option to
purchase or other sale or disposition) of any shares of Common Stock or other
capital stock of the Company or any securities convertible into, or exercisable
or exchangeable for, any shares of Common Stock or other capital stock of the
Company, or any right to purchase or acquire Common Stock or other capital stock
of the Company, for a period of 180 days, in the case of the Company, the
Selling Stockholders and certain of their affiliates, and 90 days, in the case
of other directors and officers, after the date of this Prospectus, without the
prior consent of Prudential Securities Incorporated, on behalf of the
Underwriters, except for bona fide gifts or transfers effected by such
stockholders other than on any securities exchange or in the over-the-counter
market to donees or transferees that agree to be bound by similar agreements and
except for issuances by the Company and sales by Nortex Holdings pursuant to the
exercise of certain stock options outstanding upon completion of this offering.
Prudential Securities Incorporated may, in its sole discretion, at any time and
without prior notice, release all or any portion of the shares of Common Stock
subject to such agreements.

The Company is unable to predict the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price for the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the market price for the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities.

47
<PAGE> 48

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, The Robinson-Humphrey Company, Inc. and Wheat, First
Securities, Inc. are acting as representatives of the Underwriters (the
"Representatives"), severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth below
opposite their respective names:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
---------------------------------------------------------------------- ---------
<S> <C>
Prudential Securities Incorporated.................................... 660,000
The Robinson-Humphrey Company, Inc. .................................. 660,000
Wheat, First Securities, Inc. ........................................ 660,000
Bear, Stearns & Co. Inc. ............................................. 80,000
Alex. Brown & Sons Incorporated....................................... 80,000
Credit Suisse First Boston Corporation................................ 80,000
Dillon, Read & Co. Inc. .............................................. 80,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 80,000
A.G. Edwards & Sons, Inc.............................................. 80,000
Goldman, Sachs & Co. ................................................. 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.................... 80,000
J. P. Morgan Securities Inc........................................... 80,000
Morgan Stanley & Co. Incorporated..................................... 80,000
Oppenheimer & Co., Inc. .............................................. 80,000
PaineWebber Incorporated.............................................. 80,000
Salomon Brothers Inc.................................................. 80,000
Smith Barney Inc. .................................................... 80,000
Advest, Inc. ......................................................... 40,000
Principal Financial Securities, Inc. ................................. 40,000
Raymond James & Associates, Inc. ..................................... 40,000
Sutro & Co. Incorporated.............................................. 40,000
Tucker Anthony Incorporated........................................... 40,000
Chatsworth Securities LLC............................................. 20,000
Doft & Co., Inc. ..................................................... 20,000
Interstate/Johnson Lane Corporation................................... 20,000
Pennsylvania Merchant Group Ltd. ..................................... 20,000
Van Kasper & Company.................................................. 20,000
---------
Total....................................................... 3,400,000
=========
</TABLE>

The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.

The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$0.41 per share; and that such dealers may reallow a concession of $0.10 per
share to certain other dealers. After the public offering, the offering price
and the concession may be changed by the Representatives.

MLGA Fund, as a Selling Stockholder, has granted the Underwriters an
over-allotment option, exercisable for 30 days from the date of this Prospectus,
to purchase up to 510,000 additional shares of Common Stock at the public
offering price, less underwriting discounts, as set forth on the cover page of
this Prospectus. The Underwriters may exercise such option solely for the
purpose of covering over-allotments

48
<PAGE> 49

incurred in the sale of the shares of Common Stock offered hereby. To the extent
such option to purchase is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such Underwriter's name
in the preceding table bears to 3,400,000.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.

The Company, its directors and executive officers and each of the Selling
Stockholders who, upon completion of this offering, will beneficially own in the
aggregate 3,152,553 shares (2,642,553 shares if the Underwriters' over-allotment
option is exercised in full), have agreed (except as to 100,000 shares
previously pledged) not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company, or any right to purchase or acquire Common Stock or other
capital stock of the Company for a period of 180 days, in the case of the
Company, the Selling Stockholders and certain of their affiliates, and 90 days
in the case of other directors and executives officers, after the date of this
Prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except for bona fide gifts or
transfers effected by such stockholders other than on any securities exchange or
in the over-the-counter market to donees or transferees that agree to be bound
by similar agreements and except for issuances by the Company and sales by
Nortex Holdings pursuant to the exercise of certain stock options outstanding
upon completion of this offering. Prudential Securities Incorporated may, in its
sole discretion, at any time and without prior notice, release all or any
portion of the shares of Common Stock subject to such agreements.

In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
have engaged in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended, during the business day prior to
the pricing of the offering before the commencement of offers of sales of the
Common Stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid for
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.

In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering then
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
510,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.

49
<PAGE> 50

The Prudential Life Insurance Company of America ("The Prudential"), an
affiliate of Prudential Securities Incorporated, is a limited partner of the
MLGA Fund and holds an approximately 16.9% interest in MLGA Fund's holdings of
Common Stock. MLGA Fund is selling 3,000,000 shares of Common Stock in this
offering (3,510,000 shares if the Underwriters' over-allotment option is
exercised in full). As a result, an affiliate of Prudential Securities
Incorporated will receive more than 10% of the proceeds of this offering. In
addition, The Prudential and one or more of its affiliates hold the entire $30.0
million in principal amount of the Company's Series A Notes.

Under the Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"), due to the ownership interest in the Company of The Prudential,
the Company may be deemed to be an affiliate of Prudential Securities
Incorporated. Accordingly, the public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with the requirement, Wheat, First Securities, Inc. has served in
such role and has recommended a price in compliance with the requirements of the
Conduct Rules. Wheat, First Securities, Inc., in its role as qualified
independent underwriter, has performed a due diligence investigation and has
reviewed and participated in the preparation of this Prospectus and the
registration statement of which this Prospectus forms a part. In accordance with
the NASD Conduct Rules, no NASD member participating in the distribution is
permitted to confirm sales to accounts over which it exercises discretionary
authority without prior specific written consent.

Wheat, First Securities, Inc., one of the several Underwriters of this
offering, acted as placement agent for the Company's sale of the Series A Notes
and received a customary commission in connection therewith.

LEGAL MATTERS

Certain matters with respect to the legality of the shares of Common Stock
offered hereby will be passed upon for the Company by Proskauer Rose Goetz &
Mendelsohn LLP, New York, New York. Certain legal matters relating to this
offering will be passed upon for the Underwriters by Fulbright & Jaworski
L.L.P., New York, New York. Certain members of Proskauer Rose Goetz & Mendelsohn
LLP have acted as counsel to Nortex Holdings and its affiliates in certain
matters, including acting as counsel to Nortex Holdings and Mr. Liebenow in the
1993 Recapitalization.

EXPERTS

The consolidated financial statements and financial statement schedules
appearing elsewhere in this Prospectus and Registration Statement, to the extent
and for the periods indicated in their reports, have been audited by Arthur
Andersen LLP as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

ADDITIONAL INFORMATION

The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a World Wide Web site, containing such
reports, proxy statements and other information regarding the Company, at
"http://www.sec.gov." In addition, such reports, proxy statements and other
information concerning the Company may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006-1506.

50
<PAGE> 51

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets -- December 30, 1995 and January 4, 1997.................. F-3
Consolidated Statements of Income -- For the years ended December 31, 1994, December
30, 1995 and January 4, 1997........................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity -- For the years ended
December 31, 1994, December 30, 1995 and January 4, 1997............................ F-5
Consolidated Statements of Cash Flows -- For the years ended December 31, 1994,
December 30, 1995 and January 4, 1997............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 52

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 4,
1997 and December 30, 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years ended
January 4, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Quaker
Fabric Corporation and subsidiaries as of January 4, 1997 and December 30, 1995,
and the results of their operations and their cash flows for each of the three
years ended January 4, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 11, 1997

F-2
<PAGE> 53

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 200 $ 385
Accounts receivable, less allowances of $1,985 and $2,052 at
December 30, 1995 and January 4, 1997, respectively, for
doubtful accounts and sales returns and allowances........... 24,211 26,261
Inventories................................................... 23,156 27,737
Prepaid and refundable income taxes........................... 1,702 694
Prepaid expenses and other current assets..................... 2,371 2,837
-------- ---------
Total current assets..................................... 51,640 57,914

Property, plant and equipment, net of depreciation and
amortization..................................................... 79,156 84,045
Other assets:
Goodwill, net of amortization................................. 6,589 6,397
Deferred financing costs...................................... 461 322
Other assets.................................................. 271 154
-------- ---------
Total assets............................................. $138,117 $ 148,832
======== =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt....................................... $ 878 $ 951
Current portion of capital lease obligations.................. 1,249 1,532
Accounts payable.............................................. 14,127 14,384
Accrued expenses and taxes.................................... 4,606 8,427
-------- ---------
Total current liabilities................................ 20,860 25,294

Long-term debt, less current portion............................... 37,082 35,731
Capital lease obligations, less current portion.................... 8,036 6,504
Deferred income taxes.............................................. 10,523 11,649
Other long-term liabilities........................................ 3,766 3,082
Commitments and contingencies
Redeemable preferred stock:
Series A convertible, $.01 par value per share, liquidation
preference $1,000 per share, 50,000 shares authorized, none
issued....................................................... -- --
Stockholders' equity:
Common stock, $.01 par value per share, 20,000,000 shares
authorized; 8,021,097 shares issued and outstanding at
January 4, 1997 and December 30, 1995........................ 80 80
Additional paid-in capital.................................... 41,687 41,948
Retained earnings............................................. 17,397 25,959
Cumulative translation adjustment............................. (1,314) (1,415)
-------- ---------
Total stockholders' equity............................... 57,850 66,572
-------- ---------
Total liabilities and stockholders' equity............... $138,117 $ 148,832
======== =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 54

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net sales............................................ $180,842 $173,487 $ 198,856
Cost of products sold................................ 133,168 137,083 152,787
-------- -------- --------
Gross margin......................................... 47,674 36,404 46,069
Selling, general and administrative expenses......... 27,560 26,176 29,121
-------- -------- --------
Operating income..................................... 20,114 10,228 16,948
Other expenses:
Interest expense, net.............................. 3,863 3,898 4,092
Other, net......................................... 34 98 77
-------- -------- --------
Income before provision for income taxes............. 16,217 6,232 12,779
Provision for income taxes........................... 6,691 712 4,217
-------- -------- --------
Net income........................................... $ 9,526 $ 5,520 $ 8,562
======== ======== ========
Earnings per common share............................ $ 1.15 $ 0.67 $ 1.03
======== ======== ========
Weighted average shares outstanding.................. 8,301 8,293 8,332
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 55

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994............ $80 $41,143 $ 2,351 $ -- $43,574
Stock option compensation
expense........................ -- 237 -- -- 237
Net income........................ -- -- 9,526 -- 9,526
Foreign currency translation
adjustment..................... -- -- -- (748) (748)
--- ------- ------- ------- -------
Balance, December 31, 1994.......... $80 $41,380 $11,877 $ (748) $52,589
Stock option compensation
expense........................ -- 229 -- -- 229
Net income........................ -- -- 5,520 -- 5,520
Issuance of 10,618 shares of
common stock under stock option
plan........................... -- 78 -- -- 78
Foreign currency translation
adjustment..................... -- -- -- (566) (566)
--- ------- ------- ------- -------
Balance, December 30, 1995.......... $80 $41,687 $17,397 $(1,314) $57,850
Stock option compensation
expense........................ -- 261 -- -- 261
Net income........................ -- -- 8,562 -- 8,562
Foreign currency translation
adjustment..................... -- -- -- (101) (101)
--- ------- ------- ------- -------
Balance, January 4, 1997............ $80 $41,948 $25,959 $(1,415) $66,572
=== ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 56

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 9,526 $ 5,520 $ 8,562
Adjustments to reconcile net income to net cash provided
by operating activities -- Depreciation and
amortization......................................... 5,603 6,462 7,437
Stock option compensation expense.................... 237 229 261
Deferred income taxes................................ 1,546 (253) 1,126
Changes in operating assets and liabilities --
Accounts receivable.................................. (3,394) 1,398 (2,050)
Inventories.......................................... (4,970) (871) (4,581)
Prepaid expenses and other current assets............ 231 (1,374) 657
Accounts payable and accrued expenses................ 1,321 1,158 4,078
Other long-term liabilities.......................... 999 (245) (684)
-------- -------- --------
Net cash provided by operating activities............ 11,099 12,024 14,806
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment.............. (18,727) (13,165) (11,979)
Sale of equipment....................................... 2,795 212 --
-------- -------- --------
Net cash used for investing activities............... (15,932) (12,953) (11,979)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of short-term and long-term
debt................................................. 33,900 34,500 --
Repayments of debt...................................... (27,128) (31,912) (1,278)
Repayments of capital leases............................ (962) (1,171) (1,249)
Capitalization of financing costs....................... (345) (135) (14)
Issuance of common stock under stock option plan........ -- 78 --
-------- -------- --------
Net cash provided (used) by financing activities..... 5,465 1,360 (2,541)
-------- -------- --------

Effect of exchange rates on cash.......................... (748) (566) (101)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... (116) (135) 185
Cash and cash equivalents, beginning of period............ 451 335 200
-------- -------- --------
Cash and cash equivalents, end of period.................. $ 335 $ 200 $ 385
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for --
Interest............................................. $ 3,787 $ 4,043 $ 3,916
Income taxes......................................... $ 3,367 $ 1,881 $ 829
Supplemental schedule of non-cash investing and financing
activities:
Capital lease obligations incurred for new
equipment.......................................... $ 2,795 $ -- $ --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 57

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 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 December 31, 1994 and December 30, 1995 contained
52 weeks while the fiscal year ended January 4, 1997 contained 53 weeks.

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 December 30, 1995 and
January 4, 1997:

<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ----------
<S> <C> <C>
Raw materials.......................................... $ 10,028 $ 11,127
Work-in-process........................................ 8,087 8,421
Finished goods......................................... 5,591 8,280
------- -------
Inventory at FIFO.................................... 23,706 27,828
LIFO reserve........................................... 550 91
------- -------
Inventory at LIFO.................................... $ 23,156 $ 27,737
======= =======
</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................................ 5-20 years
Furniture and fixtures................................. 10 years
Motor vehicles......................................... 4-5 years
</TABLE>

Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated life of the assets or the remaining lease term.

F-7
<PAGE> 58

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(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 $1,121 and $1,314 at December 30,
1995 and January 4, 1997, 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 $159 and $313 as of December 30, 1995 and
January 4, 1997, respectively.

(h) Earnings Per Common Share

Earnings per common share for the years ended December 31, 1994, December
30 1995 and January 4, 1997 are computed using the weighted average number of
common shares and common share equivalents outstanding during the year.

(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 1994, 1995 and 1996, the
resulting translation adjustments are included in the consolidated balance sheet
as a separate component of equity, "Cumulative Translation Adjustment," and
foreign currency transaction gains and losses are included in the consolidated
statements of income. In 1997 Mexico has been designated a "highly inflationary
country" and accordingly, in the future the Company will record translation
gains and losses in the income statement rather than as a separate component of
equity.

(j) Impairment of Long-Lived Assets

The Company periodically assesses the realizability of its long-lived
assets in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Based on its review, the Company does not believe that any
material impairment of its long-lived assets has occurred.

(k) Use of Estimates in the Preparation of Financial Statements

The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the

F-8
<PAGE> 59

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

reported amounts of income and expenses during the reporting periods. Operating
results in the future could vary from the amounts derived from management's
estimates and assumptions.

(l) Fair Value of Financial Instruments

The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, current maturities of long-term debt, accounts
payable and long-term debt. The carrying amount of these financial instruments
as of January 4, 1997, approximate fair value due to the short term nature of
these instruments and the recent nature of the amendments made to the Credit
Agreement.

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ -----------
<S> <C> <C>
Land................................................ $ 236 $ 236
Buildings and improvements.......................... 17,046 17,559
Leasehold improvements.............................. 283 309
Machinery and equipment............................. 85,191 94,541
Furniture and fixtures.............................. 1,193 1,292
Motor vehicles...................................... 289 330
Construction in progress............................ 470 1,899
-------- ---------
104,708 116,166
Less -- Accumulated depreciation and amortization... 25,552 32,121
-------- ---------
$ 79,156 $ 84,045
======== =========
</TABLE>

Included in machinery and equipment is equipment under capital lease of
$12,644 as of December 30, 1995 and January 4, 1997. The Company is depreciating
this equipment over its 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>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ------------
<S> <C> <C>
Accrued workers' compensation.................... $ 1,230 $ 1,500
Accrued medical insurance........................ 450 1,766
Accrued other, including taxes................... 2,926 5,161
-------- --------
$ 4,606 $ 8,427
======== ========
</TABLE>

F-9
<PAGE> 60

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

5. DEBT

Debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ------------
<S> <C> <C>
6.81% Series A Notes due December 15, 2002....... $ 30,000 $ 30,000
Unsecured credit facility payable to several
banks.......................................... 4,400 4,000
9.73% Note payable in monthly principal and
interest installments of $81 through August
1999, secured by certain equipment............. 3,003 2,287
Notes payable in monthly principal installments
of $13 plus interest until July 1998 and $6
plus interest from August 1998 to July 2000,
interest at prime plus 1% (9.75% at December
30, 1995 and 9.25% at January 4, 1997), secured
by certain equipment........................... 557 395
---------- ----------
37,960 36,682
Less -- Current portion.......................... 878 951
---------- ----------
$ 37,082 $ 35,731
========== ==========
</TABLE>

The Series A Notes are unsecured and bear interest at a fixed rate of 6.81%
payable semiannually. The Series A 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 Series A Notes are as
follows:

<TABLE>
<S> <C>
December 15, 1998.......................................... $ 2,500
December 15, 1999.......................................... 8,500
December 15, 2000.......................................... 8,500
December 15, 2001.......................................... 8,000
December 15, 2002.......................................... 2,500
-------
$30,000
=======
</TABLE>

Under the terms of the Credit Agreement, the Company may borrow up to
$50,000 through December 31, 2000. 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 0.625% to 1.5%.
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 4, 1997,
the commitment fee is 0.375% of the unused portion of the Credit Agreement which
was $45,528, net of outstanding letters of credit. As of January 4, 1997, the
Company had $4,000 outstanding under the Credit Agreement at an effective
interest rate of 7.0%. As of December 30, 1995, the Company had $4,400
outstanding under the Credit Agreement at an effective interest rate of 6.9%.

The Company is required to comply with a number of affirmative and negative
covenants under the Credit Agreement and the Series A Notes. Among other things,
the Credit Agreement and the Series A 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 Series A 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, make capital expenditures, and
purchase,

F-10
<PAGE> 61

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

merge or consolidate with or into any other corporation. As of January 4, 1997,
the Company is in full compliance with all debt covenants.

As of January 4, 1997, total debt principal payments for each of the next
five fiscal years and thereafter are as follows:

<TABLE>
<S> <C>
1997....................................................... $ 951
1998....................................................... 3,495
1999....................................................... 9,200
2000....................................................... 12,536
2001....................................................... 8,000
Thereafter................................................. 2,500
-------
$36,682
=======
</TABLE>

6. INCOME TAXES

Income before provision for income taxes consists of:

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Domestic...................................... $ 15,788 $ 6,184 $ 12,200
Foreign....................................... 429 48 579
------ ------- -------
$ 16,217 $ 6,232 $ 12,779
====== ======= =======
</TABLE>

The following is a summary of the provision (benefit) for income taxes:

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Federal
Current..................................... $ 4,470 $ 725 $ 2,510
Deferred.................................... 678 1,703 1,300
------ ------- -------
$ 5,148 $ 2,428 $ 3,810
------ ------- -------
State
Current..................................... $ 675 $ 187 $ 573
Deferred.................................... 840 (1,903) (166)
------ ------- -------
$ 1,515 $ (1,716) $ 407
------ ------- -------
Foreign
Current..................................... $ -- $ -- $ --
Deferred.................................... 28 -- --
------ ------- -------
$ 28 $ -- $ --
------ ------- -------
$ 6,691 $ 712 $ 4,217
====== ======= =======
</TABLE>

F-11
<PAGE> 62

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

A reconciliation between the provision for income taxes before
extraordinary item computed at U.S. federal statutory rates and the amount
reflected in the accompanying consolidated statements of income is as follows:

<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Computed expected tax provision............... $ 5,676 $ 2,119 $ 4,345
Increase in taxes resulting from:
Amortization of goodwill................. 67 67 67
State income taxes, net of federal
benefit................................ 1,354 385 583
Decrease in taxes resulting from:
State investment tax credits, net of
federal provision...................... (369) (452) (319)
Reversal of state deferred taxes due to
change in tax law, net of federal
provision.............................. -- (1,050) --
Foreign sales corporation benefit........ (150) (270) (245)
Other.................................... 113 (87) (214)
------ ------- -------
$ 6,691 $ 712 $ 4,217
====== ======= =======
</TABLE>

At January 4, 1997, the Company had net operating loss carryforwards of
approximately $2,451 for federal income tax purposes available to offset future
taxable income. These carryforwards expire from 2001 to 2005. Additionally, the
Company has available for use $1,142 of tax credit carryforwards, of which
approximately $696 expire from 1999 to 2005. The remaining tax credit
carryforwards have no expiration dates. The timing and use of the net operating
loss carryforwards and the tax credit carryforwards are limited under federal
income tax legislation.

In November 1995, the Massachusetts legislature amended the apportionment
formula for corporate income tax purposes and adopted a single sales factor
formula. The effect of this new apportionment formula will be phased in over a
five year period beginning in 1996. In accordance with SFAS 109, the Company has
recorded the effect of this tax law change on deferred taxes as a reduction of
state deferred tax liability of $1,050, net of federal taxes, as of December 30,
1995.

F-12
<PAGE> 63

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

The significant items comprising the domestic deferred tax asset/liability
are as follows:

<TABLE>
<CAPTION>
DECEMBER 30, 1995 JANUARY 4, 1997
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- -------- ------- --------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards.............. $ 259 $ 889 $ 259 $ 599
Tax credit carryforwards...................... 773 1,660 191 951
Receivable reserves........................... 714 -- 718 --
Other......................................... 379 1,065 1,311 1,123
------- -------- ------- --------
Total assets............................... $ 2,125 $ 3,614 $ 2,479 $ 2,673
------- -------- ------- --------

Liabilities:
Property basis differences.................... $ -- $(14,332) $ -- $(14,832)
Inventory basis differences................... (1,427) -- (1,292) --
------- -------- ------- --------
Total liabilities.......................... $(1,427) $(14,332) $(1,292) $(14,832)
------- -------- ------- --------
Net assets (liabilities)................... $ 698 $(10,718) $ 1,187 $(12,159)
======= ======== ======= ========
</TABLE>

The significant items comprising the foreign deferred tax asset/liability
are as follows:

<TABLE>
<CAPTION>
DECEMBER 30, 1995 JANUARY 4, 1997
--------------------- ---------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards................. $ -- $ 195 $ -- $ 510

Liabilities:
Inventory........................................ $(195) $ -- $(506) $ --
----- ---- ----- ----
Net assets (liabilities)...................... $(195) $ 195 $(506) $ 510
===== ==== ===== ====
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

(a) Litigation and Environmental Cleanup Matters

The Company is engaged in various claims and legal proceedings including
certain routine environmental cleanup matters. In the opinion of management, the
final resolution of these claims and proceedings is not expected to materially
affect the accompanying consolidated financial statements.

F-13
<PAGE> 64

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

(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 2002. As of January 4, 1997, the aggregate minimum
future commitments under leases are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
LEASES LEASES LEASES
--------- --------- ---------
<S> <C> <C> <C>
1997................................................. $ 2,145 $ 656 $ 2,801
1998................................................. 1,651 426 2,077
1999................................................. 2,240 330 2,570
2000................................................. 1,094 209 1,303
2001................................................. 2,080 104 2,184
Thereafter........................................... 725 -- 725
------ ------ -------
$ 9,935 $ 1,725 $11,660
====== =======
Less -- Amount representing interest................. 1,899
------
$ 8,036
Less -- Current portion.............................. 1,532
------
$ 6,504
======
</TABLE>

Rent expense for the years ended December 31, 1994, December 30, 1995, and
January 4, 1997, was $1,503, $1,561, and $1,276, respectively.

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 December 30,
1995 and January 4, 1997, the Company has issued or agreed to issue letters of
credit totaling $639, and $472 respectively.

(d) Employment Contract

The Company has an employment agreement, dated as of March 12, 1993 (the
Employment Agreement), with Larry A. Liebenow pursuant to which Mr. Liebenow
will continue to serve as President and Chief Executive Officer of the Company
on a full-time basis for the five-year period ending March 12, 1998, subject to
an automatic three-year extension, unless terminated by the Company upon one
year's prior notice. The Employment Agreement provides for an initial base
salary of $550, 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 4, 1997, Mr. Liebenow
would have been entitled to receive $572 (in the event of a voluntary
termination or termination for cause) or $1,725 (in the event of a termination
for any other reason, and assuming the Company elected to make a lump-sum
payment).

(e) Trade Acceptance

The Company is contingently liable to a bank for a trade acceptance of
$1,440 as of January 4, 1997.

F-14
<PAGE> 65

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

8. STOCK OPTIONS

In 1993, options to purchase a total of 635,795 shares of common stock were
granted to certain officers. The options vest over five years and are
exercisable for ten years. The difference of $1,186 between fair market value at
the grant date and the exercise price for these options is being charged to
compensation expense over five years. During 1995, options to purchase 5,000
shares of common stock were granted to a director of the Company. These options
vest over three years and are exercisable for ten years.

During 1996 options to purchase 94,000 shares of common stock were granted
to certain officers. These options vest over five years and are exercisable for
ten years. Options for 56,400 shares were granted at $4.12 per share and 37,600
were granted at $2.06 per share. The fair market value of the common stock on
the grant date was $7.00 per share. The difference of $348 between the fair
market value at grant date and exercise price is being charged to compensation
expense over five years. However, these options and those in the preceding
paragraph vest immediately upon a change in control, as defined, of the Company.
The offering contemplated by this Prospectus meets the change in control
definition. Accordingly, the unamortized portion of the deferred compensation
will be accelerated and recorded immediately upon the closing of this offering.

Also during 1996, the Company adopted the 1996 stock option plan for key
middle management employees. Options are granted at not less than fair market
value, vest over a five year period, and are exercisable for ten years. 100,000
shares are reserved under this plan. During 1996, options for 48,000 shares were
granted at $8.25 per share and options for 1,500 shares were canceled.

During 1996, the Company recorded $261 as stock option compensation
expense. The following table summarizes all option activity as of January 4,
1997:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
--------- ---------------
<S> <C> <C> <C> <C>
Outstanding, January 1, 1994................................. 635,795 $1.20 - 4.12
Cancelled.................................................. (42,470) $2.06 - 4.12
------- ---------------
Outstanding, December 31, 1994............................... 593,325 $1.20 - 4.12
Granted.................................................... 5,000 $ 11.00
Exercised.................................................. (10,618) $ 4.12
------- ---------------
Outstanding, December 30, 1995............................... 587,707 $1.20 - 11.00
Granted.................................................... 142,000 $2.06 - 8.25
Cancelled.................................................. (1,500) $8.25
------- ---------------
Outstanding, January 4, 1997................................. 728,207 $1.20 - 11.00
======= ===============

Exercisable, January 4, 1997................................. 351,289
========
Weighted Average Option Price of Options Exercisable......... $2.01
======
Weighted Average Option Price of All Options................. $2.60
======
</TABLE>

During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation costs for those plans using
the method of accounting prescribed by APB Opinion 25. Entities electing to
remain with the accounting in APB Opinion 25 must make pro forma disclosures of
net income and, if presented, earnings per share as if the fair value based
method of accounting defined in SFAS 123 has been applied.

F-15
<PAGE> 66

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

The Company has elected to account for its stock-based compensation plans
under APB Opinion 25. Had compensation cost for these plans been determined
consistent with FASB Statement No. 123, the Company's net income and earnings
per share would not have been materially different from the amounts reported.
Because the Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
costs may not be representative of that to be expected in future years.

Set forth below is a summary of options granted in 1995 and 1996:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE OPTIONS PER SHARE
---------------- ----------- FAIR VALUE
EXERCISE PRICES OPTIONS EXERCISE PRICE REMAINING LIFE EXERCISABLE OF OPTIONS
- --------------- ------- ---------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$2.06-$4.12 94,000 $ 3.30 10 Years 0 $ 5.95
$8.25 46,500 $ 8.25 10 Years 0 $ 6.31
$11.00 5,000 $11.00 9 Years 1,665 $ 6.24
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for the 1995 and 1996 grants: Risk free interest rate of 6.44%,
expected dividend yield at zero, expected lives of 10 years and expected
volatility of 60.1%.

9. EXPORT SALES

Export sales from the United States to unaffiliated customers were $24,300
in 1994, $19,500 in 1995, and $30,100 in 1996.

10. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITOR'S REPORT

On February 24, 1997 the Company's Board of Directors approved a new
Stockholder Rights Plan. See page 44 of this Prospectus for a description of the
plan.

Also on February 24, 1997 the Company's Board of Directors approved an
amendment to the President and Chief Executive Officer's employment agreement.
See page 38 of this Prospectus for a description of the amendment.

F-16
<PAGE> 67
[PHOTOGRAPHS OF THE COMPANY'S PRODUCTION EQUIPMENT AND OF ONE OF THE COMPANY'S
FABRIC PRODUCTS BEING PRODUCED AND THE PHRASE "VERTICAL INTEGRATION--THE
CORNERSTONE TO INNOVATION IN YARN AND FABRIC"]
<PAGE> 68

============================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
Use of Proceeds........................... 11
Price Range of Common Stock............... 12
Dividend Policy........................... 12
Capitalization............................ 13
Selected Consolidated Financial and
Operating Data.......................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 15
Business.................................. 22
Management................................ 33
Principal and Selling Stockholders........ 42
Description of Securities................. 44
Shares Eligible for Future Sale........... 47
Underwriting.............................. 48
Legal Matters............................. 50
Experts................................... 50
Additional Information.................... 50
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>

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3,400,000 Shares

[QUAKER LOGO]

Common Stock

------------------------
PROSPECTUS
------------------------

PRUDENTIAL SECURITIES INCORPORATED

THE ROBINSON-HUMPHREY
COMPANY, INC.

WHEAT FIRST BUTCHER SINGER

March 18, 1997

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