QUAKER FABRIC CORP /DE/, S-1, 1997-02-18

QUAKER FABRIC CORP /DE/
S-1, 1997-02-18
BROADWOVEN FABRIC MILLS, MAN MADE FIBER & SILK

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1997
REGISTRATION NO. 333--
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

QUAKER FABRIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 2221 04-1933106
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>

941 Grinnell Street, Fall River, Massachusetts 02721
(508) 678-1951
------------------------

(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------

LARRY A. LIEBENOW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
QUAKER FABRIC CORPORATION
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
(508) 678-1951
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

Copies of Communications to:

<TABLE>
<S> <C>
ARNOLD S. JACOBS, ESQ. NEIL GOLD, ESQ.
PROSKAUER ROSE GOETZ & MENDELSOHN LLP FULBRIGHT & JAWORSKI L.L.P.
1585 BROADWAY 666 FIFTH AVENUE
NEW YORK, NEW YORK 10036-8299 NEW YORK, NEW YORK 10103
(212) 969-3000 (212) 318-3000
FAX (212) 969-2900 FAX (212) 752-5958
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE

<TABLE>
- -------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (2) OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share.................... 3,910,000 shares(1) $16.375 $64,026,250 $19,402
- -------------------------------------------------------------------------------------------------
</TABLE>

1. Includes 510,000 shares of Common Stock which the Underwriters have an
option to purchase to cover over-allotments, if any.
2. Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee,
using the average high and low trading price on the Nasdaq National
Market on February 13, 1997.
------------------------

The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION -- DATED FEBRUARY 18, 1997

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 February 14, 1997 the last
reported sales price for the Common Stock on the Nasdaq National Market was
$17.00 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>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C>
Total (3).................. $ $ $ $
================================================================================================
</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 $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and
the total Proceeds to Selling Stockholders will be $ . 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 , 1997.

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

February , 1997
<PAGE> 3

[PHOTOGRAPH OF FABRIC SAMPLES WITH THE COMPANY'S WHITAKER LOGO]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M (PENDING EFFECTIVENESS) UNDER THE
SECURITIES EXCHANGE ACT OF 1934 (THE "1934 ACT"). SEE "UNDERWRITING."

2
<PAGE> 4

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> 5

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 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%.

Penetrating Related Fabric Markets. The Company believes the
superior styling and performance characteristics of its 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 its Jacquard fabrics have enabled the Company
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> 6

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 $4.4 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 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 shares of its 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> 7

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>

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

(1) Does not include (i) 418,354 shares of Common Stock which may be issued
pursuant to the Company's stock option plans of which options to purchase
352,848 shares of Common Stock were outstanding on February 1, 1997, (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> 8

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)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 32,620 $ 32,620
Total assets......................................................................... 148,832 153,252
Long-term debt and capital leases.................................................... 42,235 42,235
Stockholders' equity................................................................. 66,572 70,992
</TABLE>

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

(2) Earnings per share for 1994, 1995 or 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 at an assumed offering price of $17.00 per
share (the last reported sales price for the Common Stock on the Nasdaq
National Market on February 14, 1997) 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> 9

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> 10

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

9
<PAGE> 11

outcome of 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. In addition, the
rights of holders of Common Stock will be subject to, and may be adversely
affected by, the rights of any holders of Preferred Stock that may be issued in
the future and that may be senior to the rights of the holders of Common Stock.
Under certain conditions, Section 203 of the General Corporation Law of the
State of Delaware would prohibit the Company from engaging in a "business
combination" with an "interested stockholder" (in general, a stockholder owning
15% or more of the Company's outstanding voting stock) for a period of three
years. The Board of Directors of the Company (the "Board") is also considering
the adoption of a shareholder rights plan which, if adopted, would give the
Board greater ability to require potential acquirors of the Company to negotiate
the terms of any acquisition with the Board.

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 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 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 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 February 14, 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

10
<PAGE> 12

(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 $4.4
million, based on an assumed offering price of $17.00 per share of Common Stock
(the last reported sales price on the Nasdaq National Market for the Common
Stock on February 14, 1997) and 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> 13

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 February 14, 1997).............. $19 1/4 $13 1/2
</TABLE>

On February 14, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $17.00 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> 14

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 (at an assumed
offering price of $17.00 per share, the last reported sales price for the Common
Stock on the Nasdaq National Market on February 14, 1997) 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 46,365
Retained earnings................................................ 25,959 25,959
Cumulative translation adjustment(2)............................. (1,415) (1,415)
-------- --------
Total stockholders' equity............................... 66,572 70,992
-------- --------
Total capitalization..................................... $108,807 $ 113,227
======== ========
</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> 15

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> 16

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 and distribution 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, and identified new markets and applications for its specialty
yarn products.

(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> 17

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 such 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 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> 18

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:

<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gross fabric sales:
Domestic sales.......................... $135,295 80.0% $135,037 85.3% $140,717 79.8%
Foreign sales(1)........................ 33,895 20.0 23,187 14.7 35,701 20.2
-------- -------- -------- -------- -------- --------
Gross fabric sales................ $169,190 100.0% $158,224 100.0% $176,418 100.0%
======== ======== ======== ======== ======== ========
</TABLE>

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

17
<PAGE> 19

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> 20

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 manufacturing 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

19
<PAGE> 21

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 working capital related to 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
$22.3 million in 1997, consisting of $14.4 million, plus the estimated $4.4
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, 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 of
this offering together with operating income and borrowings under the Credit
Agreement will provide sufficient funding for the Company's capital expenditures
and working capital needs for the foreseeable future.

As discussed in Note 5 of Notes to Consolidated Financial Statements, the
Company issued $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.

20
<PAGE> 22

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.

21
<PAGE> 23

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 cost-effective fabric
production, 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 advantage at the retail level.

22
<PAGE> 24

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. According to
Furniture/Today, this age group includes the largest consumers of
residential furniture.

(ii) Over the last several years, furniture manufacturers 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) Homeowners are decorating more casually today than they were a decade ago,
resulting in a trend toward more comfortable furniture. Within the casual
furniture segment, "motion furniture" has been the fastest growing
category in recent years. 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 differentiate their products.

GROWTH STRATEGY

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

Increasing Sales to 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. 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 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. 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 cost and style 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 furniture segment.

23
<PAGE> 25

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 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 to its customers. The Company
currently offers a product line consisting of over 3,000 fabric patterns. As a
result the Company is able to market its products to a wide range of furniture
manufacturers. 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 $4.4 million net proceeds
to the Company of this offering, on additional manufacturing equipment during
1997 primarily to expand chenille manufacturing capacity, increase capacity in
its weaving and fabric finishing areas and support its marketing, 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

24
<PAGE> 26

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 in 1995. The
average gross sales price 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
better-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 better-end upholstered furniture
products, and expanding the number of fabrics and styles offered at each price
point 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 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

25
<PAGE> 27

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. Merchandising plans are based on extensive
input from the Company'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. In addition to developing new yarns for sale to
the Company's yarn customers, Quaker's yarn development staff also develops
specialty yarns to meet the specific needs of Quaker's fabric designers. 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 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.

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<PAGE> 28

Quaker also markets its fabrics at a number of trade shows regularly
attended by its export customers, including shows in Belgium, Dubai, Germany,
Italy, Mexico and 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.

In addition to the specialty yarns the Company produces for use in the
manufacture of its fabric products, Quaker also uses its yarn development
expertise and yarn manufacturing equipment to produce specialty yarns for sale.
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 a half-day per week, three-shift
basis. 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 upholstery fabric and apparel
manufacturers 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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<PAGE> 29

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 248 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 $4.4 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 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

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<PAGE> 30

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 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

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<PAGE> 31

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 4, 1997, Quaker
employed 1,651 persons, including 1,342 production employees, 109 technical and
clerical employees, and 200 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

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<PAGE> 32

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> 33

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> 34

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........................ 56 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--Research and Technology, 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

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<PAGE> 35

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 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 -- Research and Technology, 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 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 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.,
an investment banking firm 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> 36

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 Delaware General Corporation Law, 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 Delaware General
Corporation Law, 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 Plan.

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 directors fees. 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-

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<PAGE> 37

year period. For a period of three months following the termination of
directorship for any reason except for 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 and
incentive compensation for all employees of the Company, except discussions and
decisions relating to his own salary 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 -- Research 1995 155,961 -- 22,370(4)
and Development 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, $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.
(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,

36
<PAGE> 38

Finneran's and Whitehead's and Ms. Gordan's accounts under the Company's
401(k) plan; and the 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> 39

EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS

In connection with the 1993 Recapitalization, the Company entered into an
Employment Agreement, dated as of March 12, 1993 (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 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. Mr. Liebenow may
terminate the Employment Agreement at any time upon three months' prior notice.
The Employment Agreement provides for an initial base salary of $550,000
(currently $575,000), 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 or
termination of employment for cause, Mr. Liebenow will receive a lump sum
payment equal to the discounted present value of three times his prior year's
base salary plus any bonus paid or payable with respect to the prior year,
assuming such payment was made in five equal annual installments starting at age
65. In the event of termination of employment for any other reason, Mr. Liebenow
will receive, at the election of the Company, (i) a lump-sum payment in an
amount equal to three times his prior year's base salary plus any bonus paid or
payable with respect to such prior year or (ii) an amount, payable in five equal
annual installments, equal to the discounted present value of three times his
prior year's base salary plus any bonus paid or payable with respect to such
prior year. If the Employment Agreement had terminated as of January 4, 1997,
Mr. Liebenow would have been entitled to receive $572,000 (in the event of a
voluntary termination or termination for cause) or $1,725,000 (in the event of a
termination for any other reason and assuming the Company elected to make a
lump-sum payment). The Employment Agreement also provides for the continuation
of his salary through March 12, 1998 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.

38
<PAGE> 40

The 1993 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 Compensation Committee currently consists of
Messrs. Ahn, Lewis, and Liebenow.

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 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 three months
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 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 Stock Option Plan) all options granted will become
immediately exercisable in full.

As of January 4, 1997, there were outstanding options 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 to each of Mr.
Finneran and Ms. Gordan each at a weighted average exercise price of $3.29.

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

NORTEX OPTION

Effective as of April 13, 1993, the Company granted 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.

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

39
<PAGE> 41

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 Plans 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 contribution 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.

401(K) PLAN

The Company has established a 401(k) plan (the "401(k) Plan") for eligible
employees of the Company who may contribute up to 15% of their annual salaries
(up to $9,500) to the 401(k) Plan. All contributions made by an employee are
fully vested and are not subject to forfeiture. Each year the Company is
required to contribute on behalf of each participating employee an amount equal
to 100% of the first $200 contributed by each such employee and 25% of the next
$800 contributed by such employee, for a maximum annual Company contribution of
$400 per employee. An employee is fully vested in the contributions made by the
Company upon his or her completion of five years of participation in the 401(k)
Plan.

40
<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 shares of its stock to MLGA Fund, MLGAL Partners, L.P. and other
affiliates of Morgan Lewis Githens & Ann, 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

41
<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.

(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 shares of Common Stock beneficially owned by Nortex Holdings.
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.

42
<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 shares were outstanding on such date. 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.

CERTAIN PROVISIONS

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 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.

43
<PAGE> 45

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 GCL, 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.

Section 203 of the GCL. The Company as a Delaware corporation, is subject
to Section 203 of the GCL. 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 GCL) 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."

The Board is considering adopting a shareholder rights plan which, if
adopted, would give the Board greater ability to require potential acquirors of
the Company to negotiate the terms of any acquisition with the Board.

TRANSFER AGENT

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

44
<PAGE> 46

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 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 are entitled to sell
Restricted Securities without regard to the volume, manner of sale, notice and
public information requirements of Rule 144.

As of February 14, 1997, outstanding options to purchase 357,848 shares of
Common Stock were held by certain officers, directors and employees of the
Company pursuant to the Company's stock option plans and an aggregate of 65,506
shares were available for the grant of future options thereunder. 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 February 14, 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 the Offering, will beneficially own in the
aggregate 3,152,553 shares of Common Stock) 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 he market price for the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities.

45
<PAGE> 47

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....................................
The Robinson-Humphrey Company, Inc. ..................................
Wheat, First Securities, Inc. ........................................
---------
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
$ per share; and that such dealers may reallow a concession of
$ 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 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 own in the aggregate
3,152,533 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

46
<PAGE> 48

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
may engage in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M (pending
effectiveness) under the Exchange Act 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 (pending effectiveness), 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.

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
Quaker 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. is serving in
such role and will recommend 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.

47
<PAGE> 49

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.

48
<PAGE> 50

ADDITIONAL INFORMATION

The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934 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.

49
<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

F-10
<PAGE> 61

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

obligations, declare and pay dividends, make certain investments, make capital
expenditures, and purchase, 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.

F-16
<PAGE> 67

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

NO DEALER, SALESPERSON OR 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........ 41
Description of Securities................. 43
Shares Eligible for Future Sale........... 45
Underwriting.............................. 46
Legal Matters............................. 47
Experts................................... 47
Additional Information.................... 48
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>

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

3,400,000 Shares

QUAKER FABRIC
CORPORATION

[QUAKER LOGO]

Common Stock

------------------------
PROSPECTUS
------------------------
PRUDENTIAL SECURITIES INCORPORATED

THE ROBINSON-HUMPHREY
COMPANY, INC.

WHEAT FIRST BUTCHER SINGER
February , 1997

============================================================
<PAGE> 68

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

An estimate of the fees and expenses of issuance and distribution (other
than underwriting discounts and commissions) of the Common Stock offered hereby
(all of which will be paid by the Company) is as follows:

<TABLE>
<S> <C>
SEC registration fee................................................... $ 19,402
NASD filing fee........................................................ 7,000
Nasdaq listing fee..................................................... 6,000
Printing and engraving expenses*.......................................
Legal fees and expenses*...............................................
Blue sky fees and expenses (including fees of counsel)................. 5,000
Accounting fees and expenses*..........................................
Transfer agent fees*...................................................
Miscellaneous expenses*................................................
-----------
Total............................................................. $
===========
</TABLE>

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

* To be filed by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware
("DGCL") grants each corporation organized thereunder the power to indemnify its
officers and directors against liability for certain of their acts. Article
NINTH of the Company's certificate of incorporation provides that the Company
shall indemnify any person who was or is a party to any action by reason of the
fact that he is or was or has agreed to become a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise against any liability incurred by him in connection with such action,
if he acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Company, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Company and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful. Article EIGHTH of the Company's certificate of incorporation provides,
except to the extent prohibited by the DGCL, that no director of the Company
shall be liable to the Company for monetary damages for breach of 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 directors' and
officers' liability insurance policy.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters and
their controlling persons on the other hand against certain liabilities in
connection with this offering, including liabilities under the Securities Act of
1933.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

None.

II-1
<PAGE> 69

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<S> <C>
1 -- Form of Underwriting Agreement.+
3.1 -- Certificate of Incorporation of the Company, as amended.(1)
3.2 -- By-laws of the Company.(1)
5 -- Opinion of Proskauer Rose Goetz & Mendelsohn LLP.+
10.1 -- Loan and Security Agreement, dated as of October 31, 1990, between the Company
and Continental Bank N.A., as amended by Amendments Nos. 1 through 9
thereto.(1)
10.2 -- Securities Purchase Agreement, dated April 13, 1993, among the Company, MLGA
Fund II, L.P. and MLGAL Partners, as amended by Amendment No. 1 thereto.(1)
10.3 -- Subscription Agreement, dated March 12, 1993, among the Company and MLGA Fund
II, L.P., Nortex Holdings, Inc., QFC Holdings Corporation, and Larry
Liebenow.(1)
10.4 -- Shareholders Agreement, dated March 12, 1993, by and among the Company, Larry
A. Liebenow, Ira Starr, and Sangwoo Ahn.(1)
10.5 -- Employment Agreement, dated as of March 12, 1993, between the Company and
Larry A. Liebenow.(1)
10.6 -- Director Indemnification Contract, dated October 18, 1989, between the Company
and Larry A. Liebenow.(1)
10.7 -- Director Indemnification Contract, dated October 18, 1989, between the Company
and Roberto Pesaro.(1)
10.8 -- Director Indemnification Contract, dated April 15, 1992, between the Company
and Samuel A. Plum.(1)
10.9 -- Director Indemnification Contract, dated May 2, 1991, between the Company and
Andrea Gotti-Lega.(1)
10.10 -- Severance Contract, dated August 15, 1988, between the Company and Thomas J.
Finneran.(1)
10.11 -- Severance Contract, dated May 26, 1989, between the Company and James
Dulude.(1)

10.12 -- Severance Contract, dated December 1, 1988, between the Company and Cynthia
Gordan.(1)
10.13 -- Equipment Financing Lease Agreement, dated September 18, 1992, between Quaker
Fabric Corporation of Fall River ("QFR") and United States Leasing
Corporation.(1)
10.14 -- Equipment Financing Lease Agreement, dated September 29, 1992, between QFR and
KeyCorp Leasing pursuant to a Notice of Assignment from U.S. Leasing.(1)
10.15 -- Equipment Financing Lease Agreement, dated February 16, 1989, between QFR and
Key Financial Services, Inc.(1)
10.16 -- Equipment Financing Lease Agreement, dated September 22, 1992, between QFR and
Dana Commercial Credit Corporation (Fleet National Bank).(1)
10.17 -- Equipment Financing Lease Agreement, dated October 8, 1992, between QFR and
Capital Associates International, Inc.(1)
10.18 -- Equipment Financing Loan Agreement, dated August 31, 1992, between QFR and
HCFS Business Equipment Corporation.(1)
10.19 -- Equipment Financing Lease Agreement, dated September 13, 1991, between QFR and
Sovran Leasing and Finance Corp/NationsBanc Leasing Corp.(1)
10.20 -- Equipment Financing Lease Agreement, dated December 18, 1990, between QFR and
IBM Credit Corporation.(1)
10.21 -- Equipment Financing Lease Agreement, dated May 5, 1993, between QFR and The
CIT Group.(1)
10.22 -- Equipment Financing Lease Agreement, dated June 30, 1993, between QFR and AT&T
Commercial Finance Corporation.(1)
</TABLE>

II-2
<PAGE> 70

<TABLE>
<S> <C>
10.23 -- Chicago, Illinois Showroom Lease, dated July 1, 1994, between the Company and
LaSalle National Bank, Trustee.+
10.24 -- Hickory, North Carolina Showroom Lease, dated July 5, 1995, between the
Company and Hickory Furniture Mart, Inc.+
10.25 -- High Point, North Carolina Showroom Lease, dated May 15, 1995, between the
Company and Market Square Limited Partnership.+
10.26 -- Los Angeles, California Showroom Lease, dated September 23, 1992, between the
Company and The L.A. Mart.(1)
10.27 -- Tupelo, Mississippi Showroom Lease, dated August 19, 1996, between the Company
and Tupelo Furniture Market.+
10.28 -- Mexico City, Mexico Warehouse Lease, dated June 6, 1993, between Quaker Fabric
Mexico, S.A. de C.V. and Irene Font Byrom.(1)
10.29 -- Licensing Agreement, dated May 17, 1990, between the Company as Licensee and
General Electric Company.(1)
10.30 -- Licensing Agreement, dated September 24, 1990, between the Company as Licensee
and Amoco Fabrics and Fibers Company.(1)
10.31 -- Software Licensing Agreement, dated October 29, 1987, between the Company as
Licensee and System Software Associates.(1)
10.32 -- Licensing Agreement, dated June 5, 1974, between the Company and E.I. DuPont
de Nemours & Company, Inc.(1)
10.33 -- Licensing Agreement, dated October 17, 1988, between the Company as Licensee
and Monsanto Company.(1)
10.34 -- Licensing Agreement, dated July 28, 1987, between the Company as Licensee and
Phillips Fibers Corporation.(1)
10.35 -- Software Licensing Agreement, dated July 7, 1988, between the Company as
Licensee and Software 2000, Inc.(1)
10.36 Licensing Agreement, dated February 1, 1977, between the Company as Licensee
and 3M.(1)
10.37 -- Software Licensing Agreement, dated April 8, 1992, between the Company as
Licensee and Premenos Corporation.(1)
10.38 -- Software Licensing Agreement, dated March 19, 1993, between the Company as
Licensee and Sophis U.S.A., Inc.(1)
10.39 -- Quaker Fabric Corporation 1993 Stock Option Plan and Form of Option Agreement
thereunder.(1)
10.40 -- Option to Purchase Common Stock issued to Nortex Holdings, Inc., effective
April 13, 1993.(1)
10.41 -- Amendment No. 1, dated as of October 25, 1993, to Shareholders Agreement,
dated March 12, 1993, by and among the Company, Nortex Holdings, Inc., MLGA
Fund II, L.P., MLGAL Partners, W. Wallace McDowell, Jr., William Ughetta, and
Ira Starr.(1)
10.42 -- Quaker Fabric Corporation Deferred Compensation Plan and related Trust
Agreement.(2)
10.43 -- Form of Split Dollar Agreement with Senior Officers.(2)
10.44 -- Credit Agreement, dated as of June 29, 1994, by and among the Company,
Continental Bank N.A. and The First National Bank of Boston.(3)
10.45 -- Equipment Schedule No. 5, dated as of September 14, 1994, to Master Lease
Agreement, dated as of May 5, 1993, between QFR and the CIT Group/Equipment
Financing, Inc.(4)
10.46 -- Commission and Sales Agreement, dated as of April 25, 1994, between QFR and
Quaker Fabric Foreign Sales Corporation.(4)
10.47 -- Stock Option Agreement, dated as of July 28, 1995, between the Company and
Eriberto R. Scocimara.(5)
10.48 -- Amended and Restated Credit Agreement, dated December 18, 1995, among the
Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de C.V.,
The First National Bank of Boston, and Fleet National Bank.(5)
</TABLE>

II-3
<PAGE> 71

<TABLE>
<S> <C>
10.49 -- Note Purchase and Private Shelf Agreement, dated December 18, 1995, among the
Company, The Prudential Insurance Company of America, and Pruco Life Insurance
Company.(5)
10.50 -- Guarantee Agreement, dated as of December 18, 1995, among the Company, The
Prudential Insurance Company of America, and Pruco Life Insurance Company.(5)
10.51 -- Amendment Agreement No. 1, dated as of March 21, 1996, to that certain Amended
and Restated Credit Agreement, dated as of December 18, 1995, among the
Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de C.V.,
The First National Bank of Boston, and Fleet National Bank.(5)
10.52 -- 1996 Stock Option Plan for Key Employees of QFR, dated April 26, 1996.
10.53 -- Amendment Agreement No. 2, dated as of October 21, 1996, to that certain
Amended and Restated Credit Agreement, dated as of December 18, 1995, among
the Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de
C.V., The First National Bank of Boston, and Fleet National Bank.
10.54 -- Software License Agreement dated October 31, 1996 between the Company and
System Software Associates Inc.
10.55 -- Medical Expense Reimbursement Plan
10.56 -- High Point, North Carolina Warehouse Lease, dated April 1, 1996 between QFR
and C&M Investments of High Point, Inc.+
10.57 -- Standard Industrial Lease Agreement, dated May 10, 1996, between CIIF
Associates II Limited Partnership and QFR.+
21 -- Subsidiaries.(5)
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion to be
filed as Exhibit 5).+
24 -- Power of Attorney (set forth on page II-5).
27 -- Financial Data Schedule.
</TABLE>

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

+ To be filed by amendment.

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, Registration No. 33-69002, initially filed with the Securities and
Exchange Commission on September 17, 1993, as amended.

(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.

(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
for the quarterly period ended July 2, 1994.

(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.

(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.

II-4
<PAGE> 72

(b) Financial Statement Schedules

The following financial statement schedule of the Company included herein
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto included elsewhere in this Registration Statement.

Report of Independent Public Accountants on Supplemental Schedule to the
Consolidated Financial Statements

Schedule II -- Valuation and Qualifying Accounts

All other schedules for the Company are omitted because either they are not
applicable or the required information is shown in the financial statements or
notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of the registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-5
<PAGE> 73

SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fall
River, State of Massachusetts on February 18, 1997.

QUAKER FABRIC CORPORATION

By /s/ LARRY A. LIEBENOW
------------------------------------
Larry A. Liebenow
President and Chief
Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Larry A. Liebenow, Paul
J. Kelly and Cynthia L. Gordan, or any of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities (until revoked in writing),
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-1, and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, to file the
same with all exhibits thereto and all other documents in connection therewith
with the Securities and Exchange Commission, granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do all such other acts
and things requisite or necessary to be done, and to execute all such other
documents as they, or either of them, may deem necessary or desirable in
connection with the foregoing, as fully as the undersigned might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed by the persons whose signatures appear below in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ------------------
<C> <S> <C>

/s/ LARRY A. LIEBENOW President, Chief Executive February 18, 1997
- ------------------------------------------ Officer, and Director
(LARRY A. LIEBENOW) (principal executive officer)

/s/ PAUL J. KELLY Vice President -- Finance and February 18, 1997
- ------------------------------------------ Treasurer (principal financial
(PAUL J. KELLY) and accounting officer)

/s/ SANGWOO AHN Director February 18, 1997
- ------------------------------------------
(SANGWOO AHN)

/s/ PERRY J. LEWIS Director February 18, 1997
- ------------------------------------------
(PERRY J. LEWIS)

/s/ ERIBERTO R. SCOCIMARA Director February 18, 1997
- ------------------------------------------
(ERIBERTO R. SCOCIMARA)

/s/ IRA STARR Director February 18, 1997
- ------------------------------------------
(IRA STARR)
</TABLE>

II-6
<PAGE> 74

SCHEDULE II

QUAKER FABRIC CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND JANUARY 4, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NET
BALANCE AT PROVISIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT END
DESCRIPTIONS OF PERIOD OPERATIONS ALLOWANCES OF PERIOD
- ------------------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Bad Debt Reserve............................... $1,650 $1,417 $ (1,883) $ 1,184
Sales Returns & Allowances Reserve............. 400 4,938 (4,608) 730

Year Ended December 30, 1995
Bad Debt Reserve............................... $1,184 $1,878 $ (1,706) $ 1,356
Sales Returns & Allowances Reserve............. 730 4,218 (4,319) 629

Year Ended January 4, 1997
Bad Debt Reserve............................... $1,356 $ 921 $ (1,002) $ 1,275
Sales Returns & Allowances Reserve............. 629 4,923 (4,775) 777
</TABLE>
<PAGE> 75

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS

To Quaker Fabric Corporation:

We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Quaker Fabric Corporation and
subsidiaries' included in this Registration Statement and have issued our report
thereon dated February 11, 1997. Our audit was made for the purpose of forming
an opinion on those financial statements taken as a whole. The schedule listed
in the index in Item 16(b) is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states, in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 11, 1997
<PAGE> 76

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement.+.......................................
3.1 -- Certificate of Incorporation of the Company, as amended.(1)............
3.2 -- By-laws of the Company.(1).............................................
5 -- Opinion of Proskauer Rose Goetz & Mendelsohn LLP.+.....................
10.1 -- Loan and Security Agreement, dated as of October 31, 1990, between the
Company and Continental Bank N.A., as amended by Amendments Nos. 1
through 9 thereto.(1)..................................................
10.2 -- Securities Purchase Agreement, dated April 13, 1993, among the Company,
MLGA Fund II, L.P. and MLGAL Partners, as amended by Amendment No. 1
thereto.(1)............................................................
10.3 -- Subscription Agreement, dated March 12, 1993, among the Company and
MLGA Fund II, L.P., Nortex Holdings, Inc., QFC Holdings Corporation,
and Larry Liebenow.(1).................................................
10.4 -- Shareholders Agreement, dated March 12, 1993, by and among the Company,
Larry A. Liebenow, Ira Starr, and Sangwoo Ahn.(1)......................
10.5 -- Employment Agreement, dated as of March 12, 1993, between the Company
and Larry A. Liebenow.(1)..............................................
10.6 -- Director Indemnification Contract, dated October 18, 1989, between the
Company and Larry A. Liebenow.(1)......................................
10.7 -- Director Indemnification Contract, dated October 18, 1989, between the
Company and Roberto Pesaro.(1).........................................
10.8 -- Director Indemnification Contract, dated April 15, 1992, between the
Company and Samuel A. Plum.(1).........................................
10.9 -- Director Indemnification Contract, dated May 2, 1991, between the
Company and Andrea Gotti-Lega.(1)......................................
10.10 -- Severance Contract, dated August 15, 1988, between the Company and
Thomas J. Finneran.(1).................................................
10.11 -- Severance Contract, dated May 26, 1989, between the Company and James
Dulude.(1).............................................................

10.12 -- Severance Contract, dated December 1, 1988, between the Company and
Cynthia Gordan.(1).....................................................
10.13 -- Equipment Financing Lease Agreement, dated September 18, 1992, between
Quaker Fabric Corporation of Fall River ("QFR") and United States
Leasing Corporation.(1)................................................
10.14 -- Equipment Financing Lease Agreement, dated September 29, 1992, between
QFR and KeyCorp Leasing pursuant to a Notice of Assignment from U.S.
Leasing.(1)............................................................
10.15 -- Equipment Financing Lease Agreement, dated February 16, 1989, between
QFR and Key Financial Services, Inc.(1)................................
10.16 -- Equipment Financing Lease Agreement, dated September 22, 1992, between
QFR and Dana Commercial Credit Corporation (Fleet National Bank).(1)...
10.17 -- Equipment Financing Lease Agreement, dated October 8, 1992, between QFR
and Capital Associates International, Inc.(1)..........................
10.18 -- Equipment Financing Loan Agreement, dated August 31, 1992, between QFR
and HCFS Business Equipment Corporation.(1)............................
10.19 -- Equipment Financing Lease Agreement, dated September 13, 1991, between
QFR and Sovran Leasing and Finance Corp/NationsBanc Leasing Corp.(1)...
10.20 -- Equipment Financing Lease Agreement, dated December 18, 1990, between
QFR and IBM Credit Corporation.(1).....................................
10.21 -- Equipment Financing Lease Agreement, dated May 5, 1993, between QFR and
The CIT Group.(1)......................................................
10.22 -- Equipment Financing Lease Agreement, dated June 30, 1993, between QFR
and AT&T Commercial Finance Corporation.(1)............................
</TABLE>
<PAGE> 77

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<S> <C> <C> <C>
10.23 -- Chicago, Illinois Showroom Lease, dated July 1, 1994, between the
Company and LaSalle National Bank, Trustee.+...........................
10.24 -- Hickory, North Carolina Showroom Lease, dated July 5, 1995, between the
Company and Hickory Furniture Mart, Inc.+..............................
10.25 -- High Point, North Carolina Showroom Lease, dated May 15, 1995, between
the Company and Market Square Limited Partnership.+....................
10.26 -- Los Angeles, California Showroom Lease, dated September 23, 1992,
between the Company and The L.A. Mart.(1)..............................
10.27 -- Tupelo, Mississippi Showroom Lease, dated August 19, 1996, between the
Company and Tupelo Furniture Market.+..................................
10.28 -- Mexico City, Mexico Warehouse Lease, dated June 6, 1993, between Quaker
Fabric Mexico, S.A. de C.V. and Irene Font Byrom.(1)...................
10.29 -- Licensing Agreement, dated May 17, 1990, between the Company as
Licensee and General Electric Company.(1)..............................
10.30 -- Licensing Agreement, dated September 24, 1990, between the Company as
Licensee and Amoco Fabrics and Fibers Company.(1)......................
10.31 -- Software Licensing Agreement, dated October 29, 1987, between the
Company as Licensee and System Software Associates.(1).................
10.32 -- Licensing Agreement, dated June 5, 1974, between the Company and E.I.
DuPont de Nemours & Company, Inc.(1)...................................
10.33 -- Licensing Agreement, dated October 17, 1988, between the Company as
Licensee and Monsanto Company.(1)......................................
10.34 -- Licensing Agreement, dated July 28, 1987, between the Company as
Licensee and Phillips Fibers Corporation.(1)...........................
10.35 -- Software Licensing Agreement, dated July 7, 1988, between the Company
as Licensee and Software 2000, Inc.(1).................................
10.36 Licensing Agreement, dated February 1, 1977, between the Company as
Licensee and 3M.(1)....................................................
10.37 -- Software Licensing Agreement, dated April 8, 1992, between the Company
as Licensee and Premenos Corporation.(1)...............................
10.38 -- Software Licensing Agreement, dated March 19, 1993, between the Company
as Licensee and Sophis U.S.A., Inc.(1).................................
10.39 -- Quaker Fabric Corporation 1993 Stock Option Plan and Form of Option
Agreement thereunder.(1)...............................................
10.40 -- Option to Purchase Common Stock issued to Nortex Holdings, Inc.,
effective April 13, 1993.(1)...........................................
10.41 -- Amendment No. 1, dated as of October 25, 1993, to Shareholders
Agreement, dated March 12, 1993, by and among the Company, Nortex
Holdings, Inc., MLGA Fund II, L.P., MLGAL Partners, W. Wallace
McDowell, Jr., William Ughetta, and Ira Starr.(1)......................
10.42 -- Quaker Fabric Corporation Deferred Compensation Plan and related Trust
Agreement.(2)..........................................................
10.43 -- Form of Split Dollar Agreement with Senior Officers.(2)................
10.44 -- Credit Agreement, dated as of June 29, 1994, by and among the Company,
Continental Bank N.A. and The First National Bank of Boston.(3)........
10.45 -- Equipment Schedule No. 5, dated as of September 14, 1994, to Master
Lease Agreement, dated as of May 5, 1993, between QFR and the CIT
Group/Equipment Financing, Inc.(4).....................................
10.46 -- Commission and Sales Agreement, dated as of April 25, 1994, between QFR
and Quaker Fabric Foreign Sales Corporation.(4)........................
10.47 -- Stock Option Agreement, dated as of July 28, 1995, between the Company
and Eriberto R. Scocimara.(5)..........................................
</TABLE>
<PAGE> 78

<TABLE>
<CAPTION>
EXHIBITS
- ---------
<S> <C> <C> <C>
10.48 -- Amended and Restated Credit Agreement, dated December 18, 1995, among
the Company, QFR, Quaker Textile Corporation, Quaker Fabric Mexico,
S.A. de C.V., The First National Bank of Boston, and Fleet National
Bank.(5)...............................................................
10.49 -- Note Purchase and Private Shelf Agreement, dated December 18, 1995,
among the Company, The Prudential Insurance Company of America, and
Pruco Life Insurance Company.(5).......................................
10.50 -- Guarantee Agreement, dated as of December 18, 1995, among the Company,
The Prudential Insurance Company of America, and Pruco Life Insurance
Company.(5)............................................................
10.51 -- Amendment Agreement No. 1, dated as of March 21, 1996, to that certain
Amended and Restated Credit Agreement, dated as of December 18, 1995,
among the Company, QFR, Quaker Textile Corporation, Quaker Fabric
Mexico, S.A. de C.V., The First National Bank of Boston, and Fleet
National Bank.(5)......................................................
10.52 -- 1996 Stock Option Plan for Key Employees of QFR, dated April 26,
1996...................................................................
10.53 -- Amendment Agreement No. 2, dated as of October 21, 1996, to that
certain Amended and Restated Credit Agreement, dated as of December 18,
1995, among the Company, QFR, Quaker Textile Corporation, Quaker Fabric
Mexico, S.A. de C.V., The First National Bank of Boston, and Fleet
National Bank..........................................................
10.54 -- Software License Agreement dated October 31, 1996 between the Company
and System Software Associates Inc. ...................................
10.55 -- Medical Expense Reimbursement Plan.....................................
10.56 -- High Point, North Carolina Warehouse Lease, dated April 1, 1996 between
QFR and C&M Investments of High Point, Inc.+...........................
10.57 -- Standard Industrial Lease Agreement, dated May 10, 1996, between CIIF
Associates II Limited Partnership and QFR.+............................
21 -- Subsidiaries.(5).......................................................
23.1 -- Consent of Arthur Andersen LLP. .......................................
23.2 -- Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion
to be filed as Exhibit 5).+............................................
24 -- Power of Attorney (set forth on page II-5).............................
27 -- Financial Data Schedule................................................
</TABLE>

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

+ To be filed by amendment

(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.

(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
for the quarterly period ended July 2, 1994.

(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.

(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.

<PAGE> 1
Exhibit 10.52

QUAKER FABRIC CORPORATION
1996 STOCK OPTION PLAN

1. Statement of Purpose.

The purpose of this Stock Option Plan (the "Plan") is to encourage and
enable key employees of Quaker Fabric Corporation of Fall River, a Massachusetts
corporation, or a subsidiary thereof (collectively, unless the context otherwise
requires, the "Company") to acquire a proprietary interest in Quaker Fabric
Corporation, a Delaware corporation, (the "Parent") through the ownership of
stock in the Parent over a period of years, thereby giving them a lasting stake
in the growth and prosperity of the Parent and the Company and encouraging the
continuance of their employment with the Company. As used herein, the term "key
employees" shall include employees who are not officers or directors of the
Parent. As used herein, the term "subsidiary" shall mean any present or future
corporation which is or would be a "subsidiary corporation" of the Company as
the term is defined in section 424 of the Internal Revenue Code of 1986, as
amended (the "Code") (determined as if the Company were the employer
corporation). An employee to whom an option has been granted hereunder is
referred to as a "Grantee."

2. Administration.

a. The Plan shall be administered by a compensation committee (the
"Committee"), consisting of two or more directors appointed by the board of
directors of the Parent (the "Board"), whose interpretation of the terms and
provisions of the Plan shall be final and conclusive.

b. A majority of the members of the Committee shall constitute a
quorum, and the action of a majority of the members of the Committee present at
a meeting at which a quorum is present, as well as actions taken pursuant to the
unanimous written consent of the members of the Committee without holding a
meeting, shall be deemed to
<PAGE> 2
be actions of the Committee. All actions of the Committee and all
interpretations and decisions made by the Committee with respect to the Plan
shall be binding upon the Parent and the Company and all other interested
parties.

c. Subject to the terms and conditions of the Plan and such limitations
as the Board may from time to time impose, the Committee shall be responsible
for the management and administration of the Plan and shall have authority as
shall be necessary or appropriate in order to carry out its responsibilities,
including, without limitation, the authority to (i) interpret and construe the
options granted pursuant to the Plan, including, but not limited to, the persons
to whom, and the time or times at which, grants shall be made, and the number of
options to be included in the grants; (ii) to adopt rules and regulations and to
prescribe forms for the operation and administration of the Plan; and (iii) to
take any other action not inconsistent with the provisions of the Plan that the
Committee may deem necessary or appropriate.

3. Eligibility and Participation.

Options shall be granted only to key employees of the Company and its
subsidiaries selected initially and from time to time by the Committee on the
basis of the employee's importance to the business of the Company or its
subsidiaries.

4. Granting of Options.

a. The Committee may grant options under which a total of not in excess
of 100,000 shares of the $0.01 par value common stock of the Parent (the "Common
Stock") may be purchased from the Parent, subject to adjustment as provided in
Section 11; provided that the Committee may not grant to any individual options
to purchase more than 5,000 shares of Common Stock or more than 5% of the total
number of options to purchase shares of Common Stock granted under the Plan.
Options granted under the Plan are intended not to be treated as incentive stock
options as defined in Section 422 of the Code.

b. In the event that an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in

2
<PAGE> 3
substitution for a canceled option). With respect to any individual, however, in
the case of an option that is terminated or canceled unexercised as to any
shares, such released shares shall continue to count against the maximum number
of shares that may be offered such individual under the Plan. Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock, as the Committee may from time to time determine.

5. Option Exercise Price.

The price at which shares may be purchased upon exercise of a
particular option shall be determined by the Committee and, subject to the
provisions of Section 11 hereof, shall be not less than the fair market value,
at the time the option is granted, of the shares of Common Stock subject to the
option.

6. Term and Vesting of Options.

a. Each option may be exercised, subject to the provisions of Section 9
hereof, until the tenth anniversary of the date of grant of such option.

b. Subject to the provisions of Section 8 hereof, each option shall be
for such term of not less than five years nor more than ten years, as shall be
determined by the Committee. Each option shall vest with respect to 20% of the
shares purchasable upon exercise of such option on each of the first through
fifth anniversaries of the date of grant of such option. The vested portion of
each option shall be exercisable in whole or in part at any time, or from time
to time; provided that the election to exercise an option shall be made in
accordance with applicable federal and state laws and regulations.

c. Notwithstanding the foregoing, the Committee may in its discretion
(i) specifically provide for another time or times of exercise or (ii) at any
time prior to the expiration or termination of any option previously granted,
extend the term of any option for such additional period as the Committee in its
discretion shall determine. In no event, however, shall the aggregate option
period with respect to any option, including the original term of the option and
any extensions thereof, exceed ten years.

3
<PAGE> 4
7. Acceleration of Vesting.

a. An option shall automatically be vested and immediately exercisable
in full upon the earlier of (i) approval by the stockholders of the Parent of an
agreement to merge or consolidate with or into another corporation (and the
Parent is not the survivor of such merger or consolidation), provided that the
surviving corporation, within 90 days of such merger or consolidation does not
agree to assume all of the Parent's obligations under this Plan or (ii) an
agreement to sell, lease, exchange, or otherwise dispose of all or substantially
all of the Parent's property and assets (including a plan of liquidation).

b. In addition to accelerated vesting upon the occurrence of any of the
events described in Section 7 a, the Committee shall have the authority at any
time or from time to time to accelerate the vesting of any individual option and
to permit any option not theretofore otherwise exercisable to become immediately
exercisable.

8. Exercise of Option.

a. As a condition to the exercise of any option, the "Quoted Price" (as
defined below) per share of Common Stock on the date of exercise must equal or
exceed the option exercise price referred to in Section 5 hereof. The "Quoted
Price" shall equal the closing selling price per share of Common Stock on the
date in question on the stock exchange upon which the Parent's Common Stock is
listed or, if the Common Stock is not listed on a stock exchange, on the NASDAQ
National Market System.

b. At the time of exercise of any option, the Parent may, if it shall
determine it necessary or desirable for any reason, require the Grantee (or his
heirs, legatees, or legal representative, as the case may be) as a condition to
the exercise thereof, to deliver to the Parent a written representation of
present intention to purchase the shares for investment and not for
distribution. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the Grantee
upon his exercise of part or all of the option and a stop transfer order may be
placed with the transfer agent. Each option shall also be subject to the
requirement that, if at any time the Parent determines, in its discretion, that
the listing, registration, or qualification of the shares subject to the option
upon any securities exchange or under any state or federal

4
<PAGE> 5
law, or the consent or approval of any governmental regulatory body is necessary
or desirable as a condition of or in connection with, the issue or purchase of
shares thereunder, the option may not be exercised in whole or in part unless
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Parent.

c. An option may be exercised by giving written notice to the Parent,
attention of the Secretary, specifying the number of shares to be purchased,
which shall be accompanied by the full purchase price for the shares to be
purchased either in cash or by certified check. No shares shall be delivered
pursuant to the exercise of any option, in whole or in part, until payment in
full of the option exercise price is received by the Parent and until payment in
cash of any applicable withholding taxes is received by the Parent. Upon receipt
by the Parent of notice of exercise of all or part of any exercisable option,
together with the appropriate option exercise price and any other documentation
which may be required under the Plan or the applicable option agreement, the
holder of such option or his or her legal representative, legatee, or
distributee, as the case may be, shall be deemed to be the holder of record of
the shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Parent shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
such holder.

d. No option may at any time be exercised with respect to a fractional
share.

9. Termination of Employment -- Exercise Thereafter.

a. In the event the Grantee's employment is terminated for any reason
other than death, Disability (as hereinafter defined), or Retirement (as
hereinafter defined), such Grantee's options shall expire and all rights to
purchase shares pursuant thereto shall terminate immediately. The Committee may,
in its sole discretion, permit any option to remain exercisable for such period
after such termination as the Committee may prescribe, but in no event after the
expiration date of the option.

b. In the event of termination of said relationship because of death,
Disability (as hereinafter defined), or Retirement (as hereinafter defined),
such Grantee's options

5
<PAGE> 6
shall expire and all rights to purchase shares pursuant thereto shall terminate
immediately, provided, however, such Grantee, or if he or she is not living, his
or her heirs, legatees, or legal representative (as the case may be) may
exercise the options which were otherwise exercisable on the date of his or her
termination within a period of three months after the date of death, Disability
(as hereinafter defined), or Retirement (as hereinafter defined), or such longer
period as the Committee may prescribe, but in no event after the expiration date
of the options. Retirement, for purposes of the Plan, shall mean, with respect
to any Grantee, such Grantee's retirement from employment with the Company or
any of its subsidiaries at an age of not less than 65 years, pursuant to the
Company's policies and procedures. Disability, for purposes of the Plan, shall
mean, with respect to any Grantee, that, as a result of incapacity due to
physical or mental illness or injury, such Grantee shall be unable to perform
the essential duties of his job for more than six consecutive months.

10. Non-Transferability of Options.

During the lifetime of the Grantee, options shall be exercisable only
by the Grantee, and options shall not be assignable or transferable by the
Grantee otherwise than by will or by the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined by the Code, or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.

11. Adjustment.

The number of shares subject to the Plan and to options granted under
the Plan shall be adjusted as follows: (a) in the event that the number of
outstanding shares of Common Stock of the Parent is changed by any stock
dividend, stock split, or combination of shares, the number of shares subject to
the Plan and to options granted hereunder shall be proportionately adjusted; (b)
in the event of any merger, consolidation, or reorganization of the Parent with
any other corporation or corporations, there shall be substituted, on an
equitable basis as determined by the Committee, for each share of Common Stock
then subject to the Plan, whether or not at the time subject to

6
<PAGE> 7
outstanding options, the number and kind of shares of stock or other securities
to which the holders of shares of Common Stock will be entitled pursuant to the
transaction; and (c) in the event of any other relevant change in the
capitalization of the Parent, the Committee shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the Plan,
whether or not then subject to outstanding options. In the event of any such
adjustment, the purchase price per share shall be proportionately adjusted.

12. No Impairment of Rights.

Nothing contained in the Plan or any option granted pursuant to the
Plan shall confer upon any Grantee any right to be continued in the employment
of the Company or interfere in any way with the right of the Company to
terminate such employment at any time in accordance with the provisions of
applicable law.

13. Option Agreements.

Options shall be evidenced by written instruments which shall, among
other things, (i) specify the number of shares covered by the option; (ii) set
forth specifically or incorporate by reference the applicable provisions of the
Plan, including the exercise price and option period; and (iii) contain such
other terms and conditions consistent with the Plan as the Committee may, in its
discretion, prescribe.

14. Amendment of Plan.

The Board may amend or discontinue the Plan at any time.

15. Effective Date.

The Plan shall become effective upon its adoption by the Board.

<PAGE> 1
EXHIBIT 10.53

AMENDMENT AGREEMENT NO. 2

to that certain

AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 18, 1995

This AMENDMENT AGREEMENT NO. 2 (the "Amendment"), dated as of October
21, 1996, is by and among (a) QUAKER FABRIC CORPORATION OF FALL RIVER, a
Massachusetts corporation (the "Company"), QUAKER TEXTILE CORPORATION, a
Massachusetts corporation ("Quaker Textile") and QUAKER FABRIC MEXICO, S.A.de
C.V., a Mexican corporation ("Quaker Mexico", and along with the Company and
Quaker Textile, the "Borrowers"), (b) QUAKER FABRIC CORPORATION, a Delaware
corporation (the "Parent"), (c) THE FIRST NATIONAL BANK OF BOSTON, FLEET
NATIONAL BANK and such other banking institutions that are or may become parties
to the Credit Agreement referred to below (collectively, the "Banks") and (d)
THE FIRST NATIONAL BANK OF BOSTON as agent for the Banks (the "Agent").

WHEREAS, the Borrowers, the Parent, the Banks and the Agent are parties
to that certain Amended and Restated Credit Agreement dated as of December 18,
1995 (as amended, restated, modified or supplemented and in effect from time to
time, the "Credit Agreement"), pursuant to which the Banks, upon certain terms
and conditions, have agreed to make loans to the Borrowers: and

WHEREAS, the Borrowers and the Parent have requested that the Banks
agree, and the Banks have agreed, on the terms and subject to the conditions set
forth herein, to amend certain provisions of the Credit Agreement;

NOW, THEREFORE, the parties hereto hereby agree as follows:

SECTION 1. Defined Terms. Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.

SECTION 2. Amendment of Credit Agreement. The Credit Agreement is
hereby amended as follows:

(a) Section 1.01 of the Credit Agreement is hereby amended by adding
the following new defined term in the appropriate place in the alphabetical
sequence:

"Export-Import Recourse Obligations" means Recourse Obligations
guaranteed by the Export-Import Bank of the United States on terms
acceptable to the Agent.

(b) Section 1.01 of the Credit Agreement is further amended by
inserting, in the
<PAGE> 2
-2-

second line of the definition of the term "Total Funded Debt" immediately
following the word "Debt" in subsection (a), the words "other than Export-Import
Recourse Obligations or those Recourse Obligations referred to in Section 5.10
(b)(ii) which are backed by other credit support acceptable to the Agent".

(c) Section 5.10 of the Credit Agreement is hereby amended by deleting
clause (ii) of paragraph (b) in its entirety and inserting the following new
clause (ii) in place thereof:

(ii) may sell, on a recourse basis, accounts receivable owing by
account debtors located outside of the United States, so long as such
sales are made for cash, the proceeds of such sales are used to prepay
the Advances and the aggregate amount of Recourse Obligations with
respect thereto does not exceed $3,000,000 at any time; provided,
however, in no event shall the aggregate amount of Recourse Obligations
referred to in the preceding clause which are neither Export-Import
Recourse Obligations or backed by other credit support acceptable to
the Agent exceed $1,000,000 at any time.

SECTION 3. Affirmation of the Company and the Parent. (a) The Company,
as guarantor of the Company guaranteed Obligations pursuant to Article IIB of
the Credit Agreement, hereby acknowledges that if has read and is aware of the
provisions of this Amendment. The company hereby reaffirms its absolute and
unconditional guaranty of the payment and performance of the Company Guaranteed
Obligations under the Credit Agreement as amended by this Amendment.

(b) The Parent, as guarantor of the Parent Guaranteed Obligations
pursuant to Article IIA of the Credit Agreement, hereby acknowledges that it has
read and is aware of the provisions of this Amendment. The parent hereby
reaffirms its absolute and unconditional guaranty of the payment and performance
of the Parent Guaranteed Obligations under the Credit Agreement as amended by
the Amendment.

SECTION 4. Representations and Warranties. Each of the Borrowers and
the Parent hereby represents and warrants to the Agent and the Banks as follows:

(a) Representations and Warranties in the Credit Agreement. The
representations and warranties of the Borrowers and the Parent contained in the
Credit Agreement were true and correct when made and continue to be true and
correct on and as of the date hereof as if made on the date hereof except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and to the extent that such representations and warranties
relate expressly to an earlier date. No Default or Event of Default has occurred
and is continuing.

(b) Corporate Existence and Standing; Authorization and Validity; No
Conflict; Government Consent. Each of the Borrowers and the Parent hereby
confirms that the representations and warranties of the Borrowers and the parent
contained in Section 4.01, 4.02 and 4.03 of the Credit Agreement are true and
correct on and as of the date hereof as if made on the date hereof. Each such
representation is hereby ratified, affirmed and
<PAGE> 3
-3-

incorporated herein by reference, with the same force and effect as if set forth
herein in its entirety.

SECTION 5. Effectiveness. This Amendment shall be effective upon the
execution and delivery of a fully executed copy of this Amendment to the Agent
by each of the Borrowers, the Parent, the Banks and the Agent.

SECTION 6. Miscellaneous Provisions. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument.

(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.

(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.

(d) The Borrowers hereby agree to pay to the Agent, on demand, all
reasonable out-of-pocket costs and expenses incurred or sustained by the Agent
in connection with the preparation of this Amendment (including reasonable legal
fees.
<PAGE> 4
-4-

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
an instrument under seal as of the date first written above.

QUAKER FABRIC CORPORATION
OF FALL RIVER

By: /s/ Larry A. Liebenow
----------------------------------------
Title:

QUAKER TEXTILE CORPORATION

By: /s/ Larry A. Liebenow
----------------------------------------
Title:

QUAKER FABRIC MEXICO, S.A. de C.V.

By: /s/ Larry A. Liebenow
----------------------------------------
Title:

QUAKER FABRIC CORPORATION

By: /s/ Larry A. Liebenow
----------------------------------------
Title:

THE FIRST NATIONAL BANK
OF BOSTON, as Agent, as Issuing
Bank and as a Bank

By: /s/ Christopher S. Allen
----------------------------------------
Director

STEPHEN CRAVEN BANK

By: /s/
----------------------------------------
Title: V. Pres.

By: /s/
----------------------------------------
Title: AVP

<PAGE> 5
CORPORATE CERTIFICATE

QUAKER FABRIC MEXICO, S.A. DE C.V.

I, Cynthia L. Gordan, the duly elected and acting Secretary of Quaker
Fabric Mexico, S.A. de C.V., a Mexico corporation (the "Company"),

DO HEREBY CERTIFY:

1. That the Company is a duly incorporated and existing corporation in
good standing under the laws of the country first above mentioned; and

2. That the resolutions which were duly and regularly adopted by Unanimous
Written consent of the Board of Directors of the Company dated as of
October 21, 1996 (attached as Exhibit A) are true and correct, and that
the same are new in full force and effect.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal
of the Company this 21st of October, 1996.

(CORPORATE SEAL)
/s/ Cynthia L. Gordan
------------------------------
Cynthia L. Gordan
Secretary
<PAGE> 6
EXHIBIT A

QUAKER FABRIC MEXICO, S.A. DE C.V.

RESOLVED: That the Board of Directors of the Company has determined that
it is in the best interests of the Company for the Company to
amend that certain $50.0 million Amended and Restated Credit
Agreement (the "Credit Agreement") with The First National
Bank of Boston ("FNB") and Fleet National Bank as the Banks
(as that term is defined in the Credit Agreement) as set forth
in Exhibit A attached; and further

RESOLVED: That the President, Vice President - Finance and Treasurer,
and the Vice President and Secretary of the company (the
"Authorized Officers") hereby are, and each of them hereby is,
reauthorized in the name of and on behalf of the Company; (I)
to negotiate, agree to, enter into, execute, seal,
acknowledge, deliver, and cause the Company to perform in
accordance with the terms of the Credit Agreement, as twice
amended; (ii) to affix such signatures and the corporate seals
of the Company as may be required to execute and deliver to
the appropriate person or persons such documents, agreements,
and instruments as may be necessary or advisable to implement
the transactions contemplated by the foregoing resolutions in
such form as the Authorized Officers executing the same shall
approve, such approval to be conclusively evidenced by the
signature thereon of the Authorized Officer; and (iii) to take
such other actions as such officer shall deem in the exercise
of his or her judgment to be necessary or advisable to
implement the transactions contemplated by the foregoing
resolutions the taking of such actions to be conclusive
evidence that he or she was duly authorized thereunto by the
terms of this resolution; and further

RESOLVED: That the Secretary of the Company is hereby directed to
certify, under the corporate seal, a copy of these resolutions
and, in her capacity as a Secretary of the Company, to certify
the names of the present incumbents of the offices of the
Company hereinbefore referred to; and to further certify from
time to time hereafter the manes of any successors to the
present incumbents of said offices, or changes in the
Authorized Officers authorized to act in the premises,
together with specimens of their respective signatures. The
Banks and the Agent are hereby authorized, empowered and
directed to rely upon any such certificate unless and until
certificate of the Company under its corporate seal, duly
attested; and that until notice is received the Banks and the
Agent are authorized to act in pursuance of these resolutions,
and shall be indemnified against any loss
<PAGE> 7
suffered, or liability incurred by them, or any of them, in
continuing to act in pursuance of these resolutions even
though these resolutions may have been changed; and further

RESOLVED: That all prior actions taken by the Authorized Officers and
each of them, and by and appropriate officer or employee of
the company designated by and Authorized Officer, with respect
to the matters referred to in the preceding resolutions, are
hereby ratified and approved in all respects.
<PAGE> 8
CORPORATE CERTIFICATE

QUAKER TEXTILE CORPORATION

I, Cynthia L. Gordan, the duly elected and action Secretary of Quaker Textile
Corporation, a Massachusetts corporation (the "Company"),

DO HEREBY CERTIFY:

1. That the Company is a duly incorporated and existing corporation in
good standing under the laws of the country first above mentioned; and

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal
of the Company this 21st of October, 1996.

(CORPORATE SEAL)
/s/ Cynthia L. Gordan
------------------------------
Cynthia L. Gordan
Secretary
<PAGE> 9
EXHIBIT A

QUAKER TEXTILE CORPORATION

RESOLVED: That the President, Vice President - Finance and Treasurer,
and the vice President and Secretary of the company (the
"Authorized Officers") hereby are, and each of them hereby is,
reauthorized in the name of and on behalf of the Company; (i)
to negotiate, agree to, enter into, execute, seal,
acknowledge, deliver, and cause the Company to perform in
accordance with the terms of the Credit Agreement, as twice
amended; (ii) to affix such signatures and the corporate seals
of the Company as may be required to execute and deliver to
the appropriate person or persons such documents, agreements,
and instruments as may be necessary or advisable to implement
the transactions contemplated by the foregoing resolutions in
such form as the Authorized Officers executing the same shall
approve, such approval to be conclusively evidenced by the
signature thereon of the Authorized Officer; and (iii) to take
such other actions as such officer shall deem in the exercise
of his or her judgment to be necessary or advisable to
implement the transactions contemplated by the foregoing
resolutions the taking of such actions to be conclusive
evidence that he or she was duly authorized thereunto by the
terms of this resolution; and further

RESOLVED: That the Secretary of the Company is hereby directed to
certify, under the corporate seal, a copy of these resolutions
and, in her capacity as a Secretary of the Company, to certify
the names of the present incumbents of the offices of the
Company hereinbefore referred to; and to further certify from
time to time hereafter the manes of any successors to the
present incumbents of said offices, or changes in the
Authorized Officers authorized to act in the premises,
together with specimens of their respective signatures. The
Banks and the Agent are hereby authorized, empowered and
directed to rely upon any such certificate unless and until
certificate of the Company under its corporate seal, duly
attested; and that
<PAGE> 10
until notice is received the Banks and the Agent are
authorized to act in pursuance of these resolutions, and shall
be indemnified against any loss suffered, or liability
incurred by them, or any of them, in continuing to act in
pursuance of these resolutions even though these resolutions
may have been changed; and further

QUAKER FABRIC CORPORATION OF FALL RIVER

I, Cynthia L. Gordan, the duly elected and action Secretary of Quaker Fabric
Corporation of Fall River, a Massachusetts corporation (the "Company"),

DO HEREBY CERTIFY:

That the Company is a duly incorporated and existing corporation in good
standing under the laws of the country first above mentioned; and

That the resolutions which were duly and regularly adopted by Unanimous Written
consent of the Board of Directors of the Company dated as of October 21, 1996
(attached as Exhibit A) are true and correct, and that the same are new in full
force and effect.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal
of the Company this 21st day of October, 1996.

(CORPORATE SEAL)
/s/ Cynthia L. Gordan
------------------------------
Cynthia L. Gordan
Secretary
<PAGE> 12
EXHIBIT A

QUAKER FABRIC CORPORATION OF FALL RIVER

RESOLVED: That, to induce the Banks to provide financing pursuant to
the Credit Agreement and for other good and valuable
consideration, it is in the best interests of the Company to
reaffirm the guaranty of the obligations of Quaker Textile
Corporation and Quaker Fabric Mexico S.A. de C.V. under the
Credit Agreement; and further

RESOLVED: That the President, Vice President - Finance and Treasurer,
and the Vice President and Secretary of the company (the
"Authorized Officers") hereby are, and each of them hereby is,
reauthorized in the name of and on behalf of the Company; (i)
to negotiate, agree to, enter into, execute, seal,
acknowledge, deliver, and cause the Company to perform in
accordance with the terms of the Credit Agreement, as twice
amended; (ii) to affix such signatures and the corporate seals
of the Company as may be required to execute and deliver to
the appropriate person or persons such documents, agreements,
and instruments as may be necessary or advisable to implement
the transactions contemplated by the foregoing resolutions in
such form as the Authorized Officers executing the same shall
approve, such approval to be conclusively evidenced by the
signature thereon of the Authorized Officer; and (iii) to take
such other actions as such officer shall deem in the exercise
of his or her judgment to be necessary or advisable to
implement the transactions contemplated by the foregoing
resolutions the taking of such actions to be conclusive
evidence that he or she was duly authorized thereunto by the
terms of this resolution; and further

RESOLVED: That the Secretary of the Company is hereby directed to
certify, under the corporate seal, a copy of these resolutions
and, in her capacity as a Secretary of the Company, to certify
the names of the present incumbents of the offices of the
Company hereinbefore referred to; and to further certify from
time to time hereafter the manes of any successors to the
present
<PAGE> 13
incumbents of said offices, or changes in the Authorized
Officers authorized to act in the premises, together with
specimens of their respective signatures. The Banks and the
Agent are hereby authorized, empowered and directed to rely
upon any such certificate unless and until certificate of the
Company under its corporate seal, duly attested; and that
until notice is received the Banks and the Agent are
authorized to act in pursuance of these resolutions, and shall
be indemnified against any loss suffered, or liability
incurred by them, or any of them, in continuing to act in
pursuance of these resolutions even though these resolutions
may have been changed; and further

QUAKER FABRIC CORPORATION

I, Cynthia L. Gordan, the duly elected and action Secretary of Quaker Fabric
Corporation, a Delaware corporation (the "Company"),

DO HEREBY CERTIFY:

1. That the Company is a duly incorporated and existing corporation in
good standing under the laws of the country first above mentioned; and

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal
of the Company this 21st day of October, 1996.

(CORPORATE SEAL)
/s/ Cynthia L. Gordan
------------------------------
Cynthia L. Gordan
Secretary
<PAGE> 15
EXHIBIT A

QUAKER FABRIC CORPORATION

RESOLVED: That, to induce the Banks to provide financing pursuant to
the Credit Agreement and for other good and valuable
consideration, it is in the best interests of the Company to
reaffirm the guaranty of the obligations of QFR, Quaker
Textile Corporation, and Quaker Fabric Mexico S.A. de C.V.
under the Credit Agreement; and further

RESOLVED: That the Secretary of the Company is hereby directed to
certify, under the corporate seal, a copy of these resolutions
and, in her capacity as a Secretary of the Company, to certify
the names of the present incumbents of the offices of the
Company hereinbefore referred to; and to further certify from
time to time hereafter the manes of
<PAGE> 16
any successors to the present incumbents of said offices, or
changes in the Authorized Officers authorized to act in the
premises, together with specimens of their respective
signatures. The Banks and the Agent are hereby authorized,
empowered and directed to rely upon any such certificate
unless and until certificate of the Company under its
corporate seal, duly attested; and that until notice is
received the Banks and the Agent are authorized to act in
pursuance of these resolutions, and shall be indemnified
against any loss suffered, or liability incurred by them, or
any of them, in continuing to act in pursuance of these
resolutions even though these resolutions may have been
changed; and further

<PAGE> 1
EXHIBIT 10.54

SYSTEM SOFTWARE ASSOCIATES, INC.
SOFTWARE LICENSE AGREEMENT

Software License Agreement between System Software Associates, Inc. ("SSA) and
the specific customer of SSA as identified on the reverse side hereof
("CLIENT").

This Software License Agreement, together with each Supplemental Schedule made a
part hereto, contain the terms and conditions under which CLIENT agrees to
acquire from SSA Software and On-Going Support.

1. DEFINITIONS. The following terms shall have the meanings set forth below:

"Agreement" means the combination of the terms and conditions set forth in this
Software License Agreement together with the terms of each Supplemental Schedule
made a part hereof.

"AS/SET Specifications" means action diagrams contained within the Software
repository (or any portion thereof) as may be available from time to time in the
ordinary course of SSA's business.

"Generated Code" means computer programs developed by or on behalf of CLIENT
using certain Software products which provide for an information engineering
based software application development environment.

"Licensed Computer" means the computer or workstations supported by SSA and
identified in a Supplemental Schedule.

"Method of Acquisition" means the Software use option identified in a
Supplemental Schedule; it being understood that CLIENT may select, to the extent
available in the ordinary course of SSA's business and in accordance with SSA's
then current policies and procedures, either (i) a computer "Level" based option
(which enables CLIENT to use the Software on the Licensed Computer without
limitation as to the number of individual users gaining access to the Software);
or (ii) a user "Access" based option which restricts access to the Software on
Licensed Computer to either (a) the maximum number of individual users per each
Software product, or (b) in the case of workstation (client) designated
Software, the maximum number of available workstations through which the
Software may be accessed, as indicated in a Supplemental Schedule.

"Object Code" means the machine readable form of the Software.

"On-Going Support" means Software maintenance and telephone support as defined
in Section 5, below.

"Run-Time License" means the graphical software interface, as and when available
in the ordinary course of SSA's or SSA's Licensor's business, which is required
to run a Software product in a PCS for Windows operating environment; such
interface to be regarded as "Additional Software", as that term is used herein.

"SSA's Affiliate" means a third party entity which has been authorized by SSA to
market, distribute, and/or support some or all of the Software.

"SSA's Licensor" means a third party entity whose software products have been
made available to SSA for distribution and licensing to clients of SSA in
accordance with the terms contained in this Agreement. Certain software products
developed by SSA's Licensor and made available hereunder may be referred to
herein or in a Supplemental Schedule as either "Additional Software" or "Third
Party Software."

"Software" means: (i) the software products identified in a Supplemental
Schedule; (ii) the related documentation; (iii) the related Updates and Upgrades
to such software products and documentation; (iv) modifications and improvements
of such software products, documentation, Updates and Upgrades; and (v) all
copies of the foregoing. Unless designated otherwise in a Supplemental Schedule,
the Software shall be made available to CLIENT in Object Code and Source Code
format (including AS/SET Specifications as may be available from time to time in
the ordinary course of SSA's business), except for decision support products,
security programs, and Software designated in SSA's standard price list as
either AS/SET, AS/Vision, and Vision Flashpoint Developer, or as otherwise
designated in a Supplemental Schedule, which Software products shall be made
available in Object Code format only.

"Source Code" means the human readable form of the Software including all
comments and procedural code such as job control language.
<PAGE> 2
"Supplemental Schedule" shall have the meaning as set forth in Section 2, below.

"Updates" means error corrections and maintenance releases to the Software
subject to availability in the ordinary course of SSA's (or SSA's Licensor's)
business, Updates shall be provided at no additional charge for so long as
CLIENT obtains On-Going support.

"Upgrades means Software enhancements that accomplish incidental, structural,
functional, and performance improvements for which SSA does not generally impose
a separate charge. Subject to availability in the ordinary course of SSA's (or
SSA's Licensor's) business. Upgrades shall be provided at no additional charge
for so long as CLIENT obtains On-Going Support.

2. SUPPLEMENTAL SCHEDULE - ORDERING PROCEDURE. SSA will furnish to CLIENT and
CLIENT will accept and pay for the Software and On-Going Support identified in a
Supplemental Schedule.

<TABLE>
<CAPTION>
Supplemental SSA Client/Server
Schedule Software products

<S> <C>
A PCS Software
B Additional Software
C Third Party Software
</TABLE>

Additional terms and conditions set forth in each Supplemental Schedule shall
apply only to the Software listed in the Supplemental Schedule. CLIENT may order
Software and On-Going Support under this Software License Agreement by
submitting a properly completed and signed Supplemental Schedule. SSA may elect
to alter, change, delete or add a Supplemental Schedule listing for the purpose
of reflecting SSA's then current product offerings, policies and procedures. Any
such change shall apply to future orders for Software and On-Going Support which
are placed by CLIENT and accepted by SSA in accordance with the terms of this
Agreement.

3. OWNERSHIP. CLIENT acknowledges that the Software and all copyright, trade
secrets and other right, title and interest therein, are the sole property of
SSA (or SSA's Licensor), and the CLIENT shall gain no right, title or interest
in the Software by virtue of this Agreement other than the non-exclusive right
of use granted herein. Without limiting the foregoing, subject to the provisions
of Section II, CLIENT specifically acknowledges SSA's (or SSA's Licensor's)
exclusive rights to ownership of any modification, translation or adaption of
the Software (including, but not limited to, any modification, translation or
adaption of the Software) and any other improvement or development based
thereon, which is developed, supplied, installed or paid for by or on behold of
CLIENT.

4. LICENSE OF SOFTWARE, In consideration of CLIENT's payment of the Software
license fees and On-Going Support fees specified in a Supplemental Schedule, SSA
grants to CLIENT a perpetual, personal, nontransferable and non-exclusive right
and license to use the Software on the Licensed Computer referred to therein.
CLIENT represents, warrants and agrees that the Software will be used only in
accordance with the terms, conditions and limitations set forth in this
Agreement, and only for the benefit of CLIENT and its subsidiaries (companies
more than fifty (50%) percent owned and controlled by CLIENT.

5. On-Going Support. As and when available from time to time in the ordinary
course of SSA's business, SSA (or SSA's Licensor or SSA's Affiliate, as
determined by SSA) shall, unless indicated otherwise in a Supplemental Schedule,
make available to CLIENT (I) Updates and Upgrades and (ii) access via telephone
(or other electronic means as determined by SSA) to qualified technical
personnel for advice and consultation regarding CLIENT's use of the Software
(collectively "On-Going Support").

Unless indicated otherwise in a Supplemental Schedule, during the first twelve
(12) months this Agreement remains in effect, SSA (or SSA's Licensor or SSA's
Affiliate, as determined by SSA) shall provide to CLIENT On-Going Support and,
in consideration thereof, CLIENT shall pay SSA an On-Going Support fee equal to
eighteen (1*%) of SSA's current standard Software license fee for the Software
listed in a Supplemental Schedule. After the first twelve (12) months, and for a
period of two (2) consecutive years thereafter, CLIENT may elect to receive
On-Going Support upon payment to SSA of an annual On-Going Support fee equal to
eighteen (18%) of the then current Software license fee charged to new customers
of SSA for the then current version of the Software listed in the Supplemental
Schedule and acquired under the same Method of Acquisition. Thereafter, CLIENT
may elect to receive On-Going Support upon payment of such fees to be
established by SA in accordance with SSA's then current policies and procedures.

The On-Going Support fee together with the initial term (beginning upon the
effective date of the related Supplemental Schedule) during which On-Going
Support will be made available by SSA (or SSA's Licensor or SSA's Affiliate, as
conflict between any On-Going Support fee calculated in accordance with the
foregoing paragraph and the corresponding fee set forth in the Supplemental
Schedule, the fee set forth in the Supplemental Schedule shall govern and
control with respect to the Software identified therein.

SSA will invoice CLIENT the appropriate On-Going Support fee annually prior to
the anniversary date of this Agreement or, in the
<PAGE> 3
case of multiple year commitments for which full payment has been received by
SSA, prior to the expiration of such commitment and annually thereafter. If
CLIENT elects to renew On-Going Support fee annually prior to the anniversary
date of this Agreement or, in the case of multiple year expiration of such
commitment and annually thereafter. If CLIENT elects to renew On-Going Support,
it shall pay the applicable On-Going Support fee prior to the expiration date of
the On-Going Support services then being provided.

Nothing in this Section shall entitle CLIENT to receive Software updates and
upgrades which are separately priced and licensed by SSA (or SSA's Licensor or
SSA's Affiliate) as new products.

If Client allows On-Going Support to lapse, it may thereafter renew such support
for the affected Software by paying the then current annual On-Going fee plus an
amount equal to the aggregate On-Going Support fees that would have been payable
for the affected Software during the period of lapse.

Whenever SSA issues a Software Upgrade, SSA (or SSA's Licensor or SSA's
Affiliate, as determined by SSA) will continue to provide On-Going Support for,
at a minimum, the two (2) versions immediately preceding the latest Upgrade;
subject to SSA's option to discontinue such support earlier by providing CLIENT
with no less than six (6) months prior written notice (in which event CLIENT may
be entitled to a prorated refund of the applicable On-Going Support fees
previously paid to SSA for the balance of the discontinued support period).

6. SERVICES EXCLUDED. This Agreement covers only the right to use the Software
and acquire On-Going Support. To the extent CLIENT requires any other related
services not specifically addressed in this Agreement (e.g. software
installation, custom programming, training, integration of Updates and
Upgrades), CLIENT may procure such services (to be performed by SSA, SSA's
Licensor, SSA's Affiliate, or other third party as appropriate) by separate
contract. CLIENT agrees that SSA shall not be responsible for the results
attained from any such services directly provided to CLIENT by SSA's Licensor,
SSA's Affiliate, or other third party not related to SSA.

7. PROPRIETARY DATA: CONFIDENTIALITY, CLIENT acknowledges that the information
contained in the Software is confidential and contains trade secrets and
proprietary data belonging to SSA (or SSA's Licensor), and that the presence of
copyright notices on the medium containing the Software does not constitute
publication or otherwise impair the confidential nature thereof CLIENT shall
implement all reasonable measures necessary to safeguard SSA's (and SSA's
Licensor's) ownership of, and the confidentiality of the Software, including
without limitation: (I) to allow its employees, agents and third parties access
to the Software only to the extent necessary to permit the performance of their
ordinary services to CLIENT and to require, as a condition to such access that
such persons comply with the provisions of this Section 7 (ii) to cooperate with
SSA (and SSA's Licensor, if appropriate) in the enforcement of such compliance
by CLIENT's employees, agents and third parties, (xix) not to permit the removal
or alteration of any copyright or confidentiality labels or notices contained in
the Software; (iv) not to dissemble, decompile or reverse engineer the Software;
and (v) not to duplicate or reproduce the Software, except that CLIENT may, at
no additional charge, make one archival copy and, if necessary, one copy to run
temporarily on a replacement computer for backup in an emergency (or for
replacement in the event of material destruction of the media containing the
Software originally provided by SSA), and then in either case only if all
copyright and confidentiality notices are included in the copy CLIENT
acknowledges that use or disclosure of the Software in violation of this
Agreement may cause irreparable harm to SSA (and/or SSA's Licensor)
Notwithstanding the foregoing, CLIENT agrees not to disclose the Software
without SSA's prior written consent) to any service bureau or other agent or
third party whose primary function shall be to provide CLIENT with day-to-day
management and support responsibility of the Software.

8. WARRANTY. SSA warrants to CLIENT that the Software (excluding Software made
available by SSA's Licensor) does not violate any United States copyright or
patent or other third party intellectual property right. SSA's sole obligation
in respect to a breach of this warranty shall be to modify or replace the
Software so as to eliminate the infringement.

SSA further warrants that for so long as CLIENT obtains On-Going Support from
SSA and remits, on a timely basis, the related On-Going Support fee pursuant to
Section 5, the Software (excluding Third party Software) shall function
substantially in accordance with its related user documentation provided by SSA
(or SSA Licensor). In the case of all Software except Additional Software and
Third Party Software, SSA's sole obligation in respect of a breach of this
warranty shall be to modify or replace the Software so as to correct the
defective performance. In the case of Additional Software, SSA's sole obligation
shall be to exercise its best efforts to either: (i) modify or replace the
Software so as to correct the defective performance or (ii) at SSA's option,
obtain the advice and assistance of SSA's Licensor to modify or replace the
Additional Software so as to correct the defective performance. In the case of
Third party Software, related support and warranty provisions shall be
determined in accordance with Supplemental Schedule C.

CLIENT shall give SSA prompt written notice of any claims under the foregoing
warranties.

The foregoing warranties shall not apply to the extent that any alleged
infringement or defect derives from: (i) a combination of the
<PAGE> 4
Software with any program, equipment or device not supplied or recommended by
SSA; (ii) any modification or customization of the Software by or on behalf of
CLIENT; or (iii) CLIENT's failure to promptly install any Updates or Upgrades
provided by SSA (or SSA's Licensor).

9. DISCLAIMER OF OTHER WARRANTIES. Except as provided in Section 8, all
warranties, conditions, representations and guarantees, whether express or
implied, arising by law, custom, oral or written statements of SSA, SSA's
Licensor, SSA's Affiliate or otherwise (including, but not limited to, any
warranty of merchantability or fitness for particular purpose or of error-free
and uninterrupted use) are hereby superseded, excluded and disclaimed. Without
limiting the generality of the foregoing, SSA makes no warranty that Generated
Code will contain computer programs with characteristics or specifications
desired by CLIENT or that such Generated Code will be error free.

10. REMEDY LIMITATIONS. In no event shall SSA (including SSA's Licensor and
SSA's Affiliate) be liable for any consequential damages, whether foreseeable,
whether based upon lost goodwill, lost profits, loss of use of the Software,
loss of money, loss of data or interruption in its use or availability, stoppage
of other work, impairment of other assets or otherwise and whether arising out
of breach of any express or implied warranty, breach of contract, negligence,
misrepresentation, strict liability in tort or otherwise, and under or in
connection with this Agreement, except only in cases of personal injury where
and to the extent applicable law imposes such liability CLIENT agrees that SSA's
(including SSA's Licensor and SSA's Affiliate's) liability for damages,
regardless of the form of action, shall, in any event, be limited to the
Software license fees and On-Going Support fees received from CLIENT under this
Agreement.

11. OWNERSHIP OF GENERATED CODE: INDEMNITY. Neither SSA (nor SSA's Licensor nor
SSA's Affiliate) shall have any right, title, or interest in any Generated Code.
CLIENT shall indemnify SSA (including SSA's Licensor and SSA's Affiliate)
against any loss, liability or expense (including reasonable attorney's fees)
arising out of or in connection with the use, marketing licensing or sale of any
Generated Code or the maintenance, support or other services or activities
related thereto.

12. TERMINATION, SSA shall have the right to terminate this Agreement for cause
upon thirty (30) calendar days' written notice if CLIENT breaches any of its
obligations under this Agreement and thereafter fails to cure such breach to the
satisfaction of SSA within the first the (10) days following CLIENT's receipt of
such notice of termination. CLIENT shall, no later than the effective date of
such termination,; (i) purge all Software from all computer systems, terminals,
personal computers, storage media, and any and all other devices and files with
which the Software is used; (ii) return to SSA all copies (including partial
copies) of the Software, and (iii) if requested by SSA, certify to SSA in
writing partial copies of the Software to any third party. The termination of
this Agreement for any reason shall not extinguish or diminish CLIENT's
obligation under Section 7 to maintain the confidentiality of the Software,
which obligation shall continue and survive termination of this Agreement.

13. ASSIGNMENT. This Agreement is personal to CLIENT and neither this Agreement
nor any of CLIENT's rights or duties hereunder shall be assigned, sublicensed,
sold or otherwise transferred by CLIENT, including to any successor-in-interest
to CLIENT's rights in the Licensed Computer, without SSA's prior written consent
(which consent shall not be unreasonably withheld).

14. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Illinois United States of America.

15. PAYMENT, CLIENT shall pay SSA the Software license fees and the On-Going
Support fees as specified in the Supplemental Schedule(s) upon the signing of
each Supplemental Schedule by CLIENT. If CLIENT selects the user Access based
Method of Acquisition, CLIENT agrees to immediately notify SSA if the actual
quantity of individual users or workstations (as applicable) exceeds the maximum
number indicated in a Supplemental Schedule and immediately remit to SSA
additional Software license fees and fees for On-Going Support in accordance
with SSA's then current policies and procedures.

Payment shall be made in full, without deduction for any sales, use or other
taxes or similar charges, which shall be borne exclusively by CLIENT and, to the
extent required by applicable law, collected by SSA from CLIENT.

16. KEY. CLIENT acknowledges that a special security program ("Key") owned and
controlled by SSA (or SSA's Licensor) may be required to render operational the
Software. Any such Key will prevent the Software from operating (I) on any
computer with a model number or serial number different from the Licensed
Computer; or (ii) if applicable, for more than the maximum number of Access
based users specified in the related Supplemental Schedule. SSA (or SSA's
Licensor or SSA's Affiliate, as determined by SSA) shall deliver the permanent
Key(s) to CLIENT promptly after CLIENT's payment in full of the applicable
Software license fees and initial On-Going Support fees as specified in each
Supplemental Schedule. Any attempt by any person other than an authorized SSA
representative to alter, remove or deactivate the Key will be deemed a fraud by
such person on SSA and a material breach by CLIENT of this Agreement.

If CLIENT selects the user Access based Method of Acquisition, CLIENT agrees
that SSA may periodically gain access to the
<PAGE> 5
CLIENT site(s) to confirm the actual number of individual users or workstations
(as applicable) gaining access to the Software and, if not Key protected at the
time of initial delivery, install a Key to restrict access to the Software in
accordance with the foregoing paragraph.

17. MISCELLANEOUS. CLIENT shall not disclose the terms and conditions of this
Agreement to third parties (except CLIENT's auditors, legal counsel or third
parties whose review is mandated by law) without the prior written authorization
from SSA. No amendment of this Agreement or waiver of any rights hereunder shall
be effective unless in writing and signed by an authorized representative of the
party against whom enforcement is sought.

SSA is not responsible for failure to fulfill its obligations under this
Agreement due to causes beyond its reasonable control.

This Software License Agreement and each Supplemental Schedule shall be deemed
effective on the date of signed acceptance by SSA. SSA's obligation to perform
hereunder is, at SSA's option, contingent upon SSA's timely receipt form CLIENT
of the original signed documents.

This Agreement contains the entire agreement and understanding of the parties as
to the subject matter hereof and merges and supersedes all prior discussions and
agreements with respect thereto. Any modification to this Agreement shall be in
writing and signed by authorized representatives of the parties. For purposes of
this Software License Agreement, each, Supplemental Schedule, and any
modification hereto or thereto, an authorized representative of SSA shall be
deemed to mean the Chief Executive Officer, President or any Vice-President of
SSA.

REFERENCE IS MADE TO ADDENDUM "a", WHICH IS MADE A PART HEREOF.

CLIENT agrees that it has read this Agreement, (including the
front side hereof), understands it, and agrees to be bound by it.

<TABLE>
<S> <C>
For System Software Associates, Inc. For (Name of Client) Quaker Fabric Corporation
of Fall River
/s/ Joseph J. Skadra /s/ Paul J. Kelly
- ------------------------------------ ------------------------------------------------
Signature Signature
Joseph J. Skadra Paul J. Kelly
- ------------------------------------ ------------------------------------------------
Typed or Printed Name Typed or Printed Name
V.P. and C.F.O. V.P. Finance, 10/31/96
- ------------------------------------ ------------------------------------------------
Title / Date Title /Date
</TABLE>
<PAGE> 6
Addendum "A" to Software License Agreement
Between
System Software Associates, Inc. (SSA)
and
Quaker Fabric Corporation of Fall River. (CLIENT)

In the event of a conflict between the terms of the Software License Agreement
and the provisions of this Addendum, the provisions of this Addendum shall
govern and control. All references herein are to the Software License Agreement
unless otherwise noted. Capitalized terms used herein but not defined shall have
the same meaning given to them in the Software License Agreement.

A) Definitions

"Access(es)" means either: (a) the maximum number of individual
client-side users per each Software product; or (b) in the case of
workstation (client) designated Software, the maximum number of
available workstations through which the Software may be accessed, as
indicated herein; provided, however, that it is understood that no
maximum number shall apply through October 31, 2001.

B) Grant of license and Rights

In consideration of CLIENT'S remittance of 1.5 million dollars
($1,500,000.00) in Accordance with Section E below, it is agreed that:

1) SSA grants to CLIENT a worldwide non-transferable and
non-exclusive right for unlimited Accesses for all Software
listed on Supplemental Schedule A for a period of five (5)
years commencing on October 31, 1996. This includes any
version of these Software products and for use on any SSA
Supported computer platform (including servers, clients,
operation systems or data base management systems) or
successor model, or a CPU installed to replace a CPU where a
copy of the Software products are currently licensed and
installed, provided that any and all such Software is
available on such computer platform in the ordinary course of
SSA's business at the time of CLIENT'S order for such
Software, and that an order for such Software is received by
SSA in accordance with the terms of this addendum within a
period of (5) years commencing on Oct. 31, 1996; provided,
however, that the right granted hereby with respect to any
software licensed hereunder shall not terminate solely because
SSA ceases to make such software available on CLIENT's
platform.

2) It is further agreed that the number of user Accesses may be
determined by audit, conducted by SSA on Oct. 31, 2001 and in
subsequent six month intervals, with payment to SSA for user
Accesses in excess of the total user Accesses determined on
Oct.31, 2001.

3) Additional Software and On-Going Support for a period of five
(5) years beginning on October 31, 1996.

C) Additional Software and On-Going Support
<PAGE> 7
1) SSA grants that through October 31, 2006 CLIENT will have the
option to acquire SSA developed Software at a 50% discount off
the then Current SSA List Price of that Software, or at a
price not to exceed $4,000.00 per user in the aggregate for
all software products acquired pursuant to this section C1.

2a) SSA grants that, from Oct. 31, 2001 to Oct. 31, 2006, CLIENT
has the option to acquire an additional five year period of
On-Going Support for 50% of the On- Going Support base price
in 2b below for licensed SSA Software, provided that any and
all such software remains available on such computer platform
in the ordinary course of SSA's business at the time of
CLIENT'S payment for such On-Going Support, and that the
payment for such On-Going Support is received by CLIENT may
elect to receive On-Going Support upon payment of such fees to
be established by SSA in accordance e with SSA's then current
policies and procedures.

2b) Solely for purposes of the calculation contemplated in 2a,
above, it has been agreed to by SSA and CLIENT that the
initial On-Going Support base price of the Software listed on
Schedule A is $1,100,000.00. Any new SSA Software acquisitions
will be added to this amount to determine the On-Going Support
base price for the On-Going Support calculation.

3) On-Going Support will be offered to CLIENT by SSA, for
additional Software acquired by CLIENT at anytime prior to
October 31, 2001. If at CLIENT's sole option, CLIENT desires
this additional On-Going Support, then CLIENT will prepay to
SSA at the rate of 0.00833 (0.833%) per month, applied to the
net price of the Software for the balance of the 60 month
period.

4) If and when available in the normal course of SSA's business
and in accordance with the terms and conditions of this
Agreement, CLIENT may obtain the right and license to use up
to five (5) additional new SSA developed Software products at
no additional charge and be entitled to unlimited accesses to
these products. This option expires on October 31, 2001.

D) The Software License Agreement is hereby modified as follows:

1) Section 1: DEFINITIONS, the definition of Updates is hereby
deleted in its entirety and replaced with the following:

"Updates" means error corrections and maintenance releases to
the Software. From time to time as and when they are developed
and available to any SSA Client, Updates shall be provided at
no additional charge for so long as CLIENT obtains On-Going
Support.

2) Section 1 DEFINITIONS, the definition of Upgrades is hereby
deleted in its entirety and replaced with the following:

"Upgrades" means Software enhancements that accomplish
incidental, structural, functional, and performance
improvements for which SSA does not generally impose a
separate charge. From time to time, as and when they are
<PAGE> 8
developed and available to any SSA Client, Upgrades shall be
provided at no additional charge for so long as CLIENT obtains
On-Going Support.

3) Section 2 is hereby amended by deleting the third sentence
following the list of schedules in the second paragraph.

4) Section 3 Ownership, is hereby amended by replacing the last
sentence with the following:

Client specifically acknowledges SSA's (or SSA's Licensor's)
rights to ownership of any modification, translation or
adaptation of the pre-existing Software licensed to Client in
accordance with the terms and conditions of this Agreement.
For so long as Client rightfully possesses the Software to
which such modifications, translations or adaptations relates,
Client shall have a right and license to use same in
accordance with the terms of this Agreement. With respect to
any modifications made to the pre-existing Software which
Client deems to be of competitive value, it is agreed that if
1) SSA agrees to participate in the development of such
modifications or 2) such modifications are made separately by
or on behalf of Client (without any participation by SSA),
then SSA shall not make any such modifications available to
competitors of Client without Client's prior written consent.
The foregoing shall not prevent SSA from the independent
development of software code which contains the same or
similar functions contained in the modifications.

With the exception of the foregoing, SSA and Client
acknowledge that title of all other newly developed software
code developed by or on behalf of Client (Hereinafter "Newly
Developed Software") shall vest in Client. Notwithstanding the
foregoing, Client agrees not to resell, remarket, or
distribute or license any such Newly Developed Software.

SSA shall retain a world-wide, unlimited, perpetual and
royalty-free right to use, for any purpose, any ideas,
concepts or techniques relating to general data processing
guidelines and techniques which may be learned by SSA as a
result of SSA's participation (as may be requested by Client)
in the development of any Newly Developed Software. In
addition, nothing herein shall prevent SSA from the
independent development of software code, which may contain
the same or similar functionality of the Newly Developed Code.

5) Section 4: LICENSE OF SOFTWARE, is hereby deleted in its
entirety and replaced with the following:

In consideration of CLIENT's payment of the Software license
fees, and OnGoing Support fees specified in a Supplemental
Schedule, SSA grants to CLIENT a worldwide perpetual,
personal, nontransferable and nonexclusive rights and license
to use the Software as described in Section B of this Addendum
A. Any third party provider of support and maintenance
services to CLIENT ("Third Party Providers"), may have access
to Software strictly for the purpose of them supporting the
CLIENT in implementing the Software for CLIENT's benefit on a
need to know basis as long as such Third Party Provider
<PAGE> 9
is not a direct or indirect competitor of SSA with regard to
Software and providing Third Party Provider enters into a non
disclosure agreement with respect to the Software containing
terms reasonably acceptable to SSA. CLIENT represents,
warrants and agrees that the Software will be used only in
accordance with the terms, conditions and limitations set
forth in this Agreement, and only for the benefit of CLIENT
and Quaker Fabric Corporation and subsidiaries thereof
(companies fifth (50%) percent directly or indirectly owned
and controlled by CLIENT or Quaker Fabric Corporation) whether
in existence as of the date hereof or acquired or created
afterward, provided companies owned by Quaker Fabric
Corporation execute and SSA Software License Agreement
substantially similar to this License Agreement, as modified,
hereby, prior to use.

6) Section 5: On-Going Support, The first paragraph of Section 5
is hereby deleted in its entirety and replaced with the
following:

SSA (or SSA's Licenser or SSA's Affiliate, as determined by
SSA) shall unless indicated otherwise in a Supplemental
Schedule, make available to CLIENT, (I) Updated and Upgrades,
and (ii) access via telephone (or other electronic means as
determined by SSA subject to CLIENT's consent which may not be
unreasonably withheld) to qualified technical personnel for
advice and consultation regarding CLIENT'S use of the Software
(collectively "On-Going Support")

7) Section 5: On-Going Support, The second paragraph of Section 5
is hereby deleted in its entirety.

8) Section 5: On-Going Support, The second sentence of the third
paragraph of Section 5 is hereby deleted in its entirety.

9) Section 5: On-Going Support, The fourth paragraph of Section 5
is hereby deleted in its entirety.

10) Section 5 On-Going Support, The seventh paragraph of Section 5
is hereby deleted in its entirety and replaced with the
following:

11) Section 6: SERVICES EXCLUDED, The last sentence of Section 6
has been deleted in its entirety and replaced with:

CLIENT agrees that SSA shall not be responsible for the
results attained from any such services directly provided
under separate contract or marked as such under separate
schedules (agreed to by CLIENT) to CLIENT by SSA's Licensor,
SSA's Affiliate, or other third party not related to SSA.

12) Section 7: PROPRIETARY DATA; CONFIDENTIALITY, The last
sentence of
<PAGE> 10
Section 7, shall be deleted in its entirety and replaced with
the following:

Notwithstanding the foregoing, CLIENT may disclose the
Software, on a need to know basis in order to support and
maintain CLIENT, to any Third Party Provider who is not a
direct or indirect competitor of SSA with regard to Software
which enters into a non-disclosure agreement with respect to
the Software containing terms reasonably acceptable to SSA.

13a) Section 8: WARRANTY, The first paragraph of Section 8 shall be
deleted in its entirety and replaced with the following:

SSA warrants to CLIENT that the Software does not violate any
United States copyright or patent or other third party
intellectual property right. SSA's sole obligation in respect
to a breach of this warranty shall be to modify or replace the
Software (on a timely bases so as to not result in a
disruption to Client's day-to-day business operations) so as
to eliminate the infringement.

13b) Section 8: WARRANTY is hereby amended by adding after the
words "related user documentation" in the second paragraph the
words "or the software functionality defined in the following
specific SSA materials: #130010, 130002, 130003, 130001,
135003, all copyrighted 1995."

14) Section 8: WARRANTY, is hereby amended by adding the following
paragraph as the last paragraph in Section 8.

In addition SSA hereby warrants that the programs listed in
Attachment 1a are capable of complying in all material
respects to the throughput capabilities set forth in
Attachment 1a subject to the conditions set forth in
Attachment 1a and hardware configuration listed in Attachment
1b. The foregoing warranty shall not apply to the extent that
any other software installed on the hardware is determined to
he a material contributing factor to the inability of the
programs listed in Attachment 1a to meet the stated throughput
capabilities.

15) Section 6 is hereby amended by deleting the words "supplied
or" in the fourth paragraph.

16) Section 10 remedy limitations is hereby amended by deleting it
in its entirety and replaced with the following.

In no event shall SSA (including SSA's Licensor and SSA's
affiliate) be liable for any consequential, indirect,
incidental or special damages whether arising out of breach of
any express or implied warranty, breach of contract,
negligence, misrepresentation, strict liability in tort or
otherwise, and whether based on this Agreement, any
transaction performed or undertaken under or in connection
with this Agreement, except only in cases of personal injury
where and to the extent applicable law imposes such liability.
Client agrees that SSA's (including SSA's Licensor and SSA's
Affiliate's) liability for damages, regardless of the form of
action shall, in any event, be limited to one and one-half
times the Software license fees and On-Going Support fees
required to be paid by Client
<PAGE> 11
under this Agreement.

17) Section 12: TERMINATION, the first sentence of Section 12
shall be modified to state:

Each party shall have the right to terminate this Agreement
for cause upon thirty (30) days written notice if the other
party breaches any of its material obligations under this
Agreement and thereafter fails to cure such breach to the
satisfaction of the non-breaching party within the first then
(10) days following the breaching party's receipt of such
notice of termination.

18) Section 13: ASSIGNMENT, is hereby amended by adding the
following new final sentence:

Notwithstanding the foregoing, CLIENT may, without SSA's
consent, assign its rights and duties under this Agreement to
any person, firm or entity who acquires substantially all of
the assets of CLIENT or that occurs as a result or in
connection with a merger between CLIENT or CLIENT's parent and
any other entity provided that (I) the successor company
executes a Software License Agreement substantially similar to
this License Agreement for the sole benefit of the CLIENT or
its parent who is merged or whose assets were substantially
acquired and (ii) the Software would be solely for use at
sites covered by this License Agreement, provided, however,
that in the event of such an assignment prior to October 31,
2001, the rights to the Software granted hereby shall not
extend to businesses acquired after such assignment by CLIENT,
its parent or Subsidiaries (as defined in Section 4) of either
of them outside the industries in which CLIENT and Quaker
Fabric Corporation are engaged at the time of the assignment.

19) Section 17: MISCELLANEOUS, is hereby deleted in its entirety
and replaced with the following:

CLIENT shall not disclose the terms and conditions of this
Agreement to third parties (except CLIENT's auditors, legal
counsel or third parties whose review is mandated by law)
without the prior written authorization from SSA.
Notwithstanding the foregoing, CLIENT may disclose the terms
and conditions of this Agreement to any person, firm or entity
that agrees to be bound by a non- disclosure agreement with
respect to such terms and conditions in connection with a
proposed merger, acquisition or similar transaction involving
the CLIENT.

E) Payment Terms are as follows:

First payment $300,000 due October 31, 1996.
Balance plus tax to be paid in 10 equal payment beginning January 5,
1997, and ending October 5, 1997.

ACCEPTED:
<PAGE> 12
SYSTEM SOFTWARE ASSOCIATES, INC. QUAKER FABRIC CORPORATION
OF FALL RIVER

- ------------------------------------ -------------------------------
Signature Signature

- ------------------------------------ -------------------------------
Title/Date Title/Date
<PAGE> 13
BPCS Software Supplemental
Schedule A

BPCS SOFTWARE SCHEDULE

In accordance with the terms and conditions of this Supplemental Schedule and
the Software License Agreement currently in effect between the parties, SSA
agrees to make available and CLIENT agrees to acquire and remit payment for the
Software and On-Going Support identified herein. In the event of conflict
between the provisions of the Software License Agreement and the terms set forth
in this Supplemental Schedule, the terms of this Supplemental Schedule shall
govern and control.

SOFTWARE PRODUCTS

<TABLE>
<S> <C> <C> <C>
1) Accounts Payable 2) Accounts Receivable
3) Advanced Budgets and Analysis 4) Advanced Process Industries
5) Advanced Remittance Processing 6) Billing and Sales Analysis
7) Capacity Planning 8) CIMPath
9) Configurable Currency Translation 10) Configurable Ledger
11) Configurable Order Management 12) Configuration Management
13) Cost Accounting 14) Credit and Deduction Management
15) Distribution Resources Planning 16) Draft Management
17) Enterprise Structures and Consolidations 18) Fixed Assets
19) Forecasting 20) Inventory Management
21) Just-In-Time 22) Laboratory Management
23) Manufacturing Data Management 24) Master Production Scheduling
25) Material Requirements Planning 26) Multiple Currencies
27) Outbound Logistics Management 28) Promotions and Deals
29) Purchasing 30) Quality Management
31) Shop Floor Control 32) User Performance Measurement
33) User / Vision 34) Warehouse Management
</TABLE>

<PAGE> 14
SOFTWARE PRODUCTS Supplemental Schedule A

<TABLE>
<S> <C> <C> <C>
35) Object Development Facility 36) LAN Repository
(if and when available) (if and when available)
37) Electronic Commerce Manager 38) Release Management
(if and when available) (if and when available)
39) Sales Performance Management 41) Equipment Tracking
(if and when available) (if and when available)
40) Component Tracking 43) MRO Parts Management
(if and when available) (if and when available)
42) Maintenance Cost Tracking 45) Warranty Claims Tracking
(if and when available) (if and when available)
44) Preventative Maintenance Tracking
(if and when available)
46) Work Order Schedule / Control
(if and when available)
</TABLE>

<TABLE>
<S> <C> <C> <C>
Licensed Computer Total Software
Make and Model License Fee and
-----------------
Location 5 Years of
-----------------
Serial Number On-Going Support $1,500,000
----------------- ----------
Client Information Sales Tax - Amount $ 75,000
Contact / Phone ----------
Address

Total Amount Due $1,575,000
----------
</TABLE>

This Supplemental Schedule shall be of no force and effect unless duly signed by
CLIENT on or before October 31, 1996 and thereafter signed by an authorized
representative of SSA (which shall be deemed to mean either the Chief Executive
Office, president or any Vice President of SSA).

This Supplemental Schedule is an Amendment to and an integral part of the
Software License Agreement previously executed between the parties and dated
October 31, 1996. CLIENT agrees that it has read this Supplemental Schedule,
understands it and agrees to be bound by it.

For: System Software Associates, Inc. For: Quaker Fabric Corporation
of Fall River

/s/ Joseph J. Skadra /s/ Paul J. Kelly
------------------------------- --------------------------------
Signature Signature

V.P. and C.F.O. 10/31/96 V.P.-Finance, 10/31/96
------------------------------- ---------------------------------
Title/Date Title/Date
<PAGE> 15
ATTACHMENT 1a
Page 1 of 2

Three hundred eighty-five customer orders per day, with 30 concurrent and 45
total order takers using the COM Software product (Order Entry Program) version
6.0 or later mixed mode for AS/400 assuming the orders average 60 lines each and
none of the lines use the configurator feature. There is little or no use of the
Promotions and Deals pricing anticipated.

Further Assumptions.

Data base approximately consists of the following (Note this is "as-is" data.
Growth would be shown using an 18% multiplier).
<TABLE>
<S> <C>
5k Customer Records
200k Item Records
5 Warehouses
500k Bills of Materials
314k Location Master Files
</TABLE>

Order volumes per site are as follows:
High 25 orders per day.
Average 18 orders per day at site High Point via 256kb throughput available for
Software using 2-3 *pc's.

High 50 orders per day.
Average 30 orders per day at site Eupelo via 256kb throughput available for
Software using 405 *pc's.

High 60 orders per day.
Average 30 orders per day at site Mexico via 256kb throughput available for
Software using 5-6 *pc's.

High 15 orders per day.
Average eight orders per day at site Los Angeles via 256kb throughput available
for Software using 2-3 *pc's.

High 235 orders per day.
Average 140 orders per day at site Fall River via LAN (Two (2) 16MB Token Rings)
using 15 *pc's.

*Remote pc's connect to BPCS application server via the network, therefore, each
remote PC will require a network interface card. Each remote site will require a
PC hub and network router (connected to a router on the BPCS side).
<PAGE> 16
ATTACHMENT 1a
Page 2 of 2

Aggregate CPU workload assumptions.

<TABLE>
<CAPTION>
Type of Transactions Today

<S> <C>
Total number of users 450
Total concurrent users 250
Total concurrent order entry users 38 (first shift)
Total customer orders entered per day 375
Average lines per customer order 60
Total acknowledgments per day 375
Total invoices per day 750
Total A/P vouchers per week 800
Total PO's per day 220
Total MRP runs per week (regent) 2 (not first shift)
Total MRP runs per day (net change) 2 (not first shift)
Total Cost Roll ups per week 2-3 (not first shift
Total number of inventory transactions per day 40,000 (over 3 shifts
Total number of shop orders per day 900
Total number of batch allocation runs 6
</TABLE>
<PAGE> 17
ATTACHMENT 1b

HARDWARE CONFIGURATION

IBM AS/400 MODEL 530 (2151)

Memory 768MB.

256KB OF THE THROUGHPUT IS AVAILABLE TO SOFTWARE AT EACH OF THE
FOUR (4) REMOTE SITES. LOCAL AREA NETWORK IS A 16MB TOKEN RING
NETWORK. AS/400 WITH 2 TOKEN RING ADAPTER CARDS. PCS ON 10 BASE
T ETHERNET LAN BRIDGED TO NETWORK BIA A NETWARE SERVER. FOR
IMPROVED THROUGHPUT, 10 BASE T ETHERNET SEGMENT MAY NEED TO BE
SPLIT INTO 2 OR MORE SEGMENTS OR REPLACED WITH 100 BASE T CABLE.

DASD KEPT TO 50% UTILIZATION

PC CLIENT HARDWARE CONFIGURATION FOR ORDER ENTRY AND FINANCIALS
AND ANY OBJECT PRESENTATION SERVER APPLICATIONS.
PENTIUM 133Mhz with 24 MB OF MEMORY FOR SOFTWARE AND A 1GB
HARDDISK DEDICATED TO SOFTWARE. THE OPERATING SYSTEM IS WINDOWS
95 OR NT 4.0 (WINDOWS 3.1 IS SUPPORTED BUT SLOWER DUE TO 16 BIT)
<PAGE> 18

Schedule B
Supplemental Schedule
Additional Software of Third Party Software

None
<PAGE> 19
QUAKER FABRIC CORPORATION OF FALL RIVER

CHECK FOR $300,000.00

<PAGE> 1
MEDICAL EXPENSE REIMBURSEMENT PLAN EXHIBIT 10.66

SECTION I - BENEFITS

SCHEDULE OF BENEFITS

MEDICAL REIMBURSEMENT BENEFITS

Maximum Benefit is as shown in the participating Employer's Application and
Adoption Agreement.

Maximum Benefit is payable for an employee's family unit during a calendar year.

Benefits Percentage .....................................................100%

Benefit Period

A Benefit Period with respect to an insured individual commences when the
individual has been paid benefits by Lincoln National during a calendar year
for eligible charges for treatment or prevention of illnesses.

A Benefit Period with respect to an individual's illness terminates on the
earliest of the following:

1. the last day of the calendar year in which it was established;
2. the day coverage provided herein terminates; or
3. the day the maximum benefit is paid.

ELIGIBLE INDIVIDUALS

The individuals eligible for insurance hereunder are those who are covered
under an employer-sponsored group insurance plan or an individual health
policy, herein called "the underlying plan," and are:

1. employees as designated by the Participating Employer(s) as indicated
on the Employer Participation Agreement; or
2. dependents of those employees who are meeting the requirements of
No. 1 above.

WAITING PERIOD

There is no waiting period.

CLASSIFICATION CHANGE DATE

A change in an employee's benefits caused by a change in his classification
will be effective on January 1, following the change in classification.

OCCUPATIONAL AND NON-OCCUPATIONAL BENEFITS

Benefits are issued on a non-occupational basis.
<PAGE> 2
MEDICAL REIMBURSEMENT BENEFITS

If an insured individual incurs eligible charges during a Benefit Period
established with respect to the individual's family unit, Medical Reimbursement
Benefits are payable.

I. Benefit Period

A Benefit Period with respect to an insured individual commences and
terminates as shown on the Schedule of Benefits.

II. Determination of Benefit

Benefits payable are equal to

A. the Benefits Percentage shown on the Schedule of Benefits,
multiplied by

B. the total eligible charges payable by Lincoln National during
the Benefit Period.

III. Maximum Benefit

The total Medical Reimbursement Benefits payable for an individual's
illnesses will not exceed the individual's Maximum Benefit, even
though the individual may not have been continuously insured.

IV. Eligible Charges are charges that are not covered under any other
group insurance plan, individual health policy, and/or Medicare and
which are for one of the following:

A. Room and board and routine nursing services for each day of
confinement in a hospital
B. Room and board for each day of confinement in a skilled nursing
facility
C. Intensive nursing care for each day of confinement in a hospital
D. Medical services and supplies furnished by the hospital
E. Anesthetics and their administration
F. Medical treatment or prevention of illness (including but not
limited to surgical operations) rendered by and in the physical
presence of a legally qualified physician
G. Charges for the diagnosis of infertility
H. Charges for the treatment of infertility (only to the extent that
such charges are payable by the underlying plan)
I. Services provided by
1. a registered nurse (R.N.) for private duty nursing services
2. a licensed practical nurse (L.P.N.) for private duty nursing
services or
3. a licensed physiotherapist
J. X-ray examination (other than dental), microscopic and laboratory
tests and other diagnostic services
K. X-ray and radiation therapy
L. Transportation within the United States and Canada of the
individual by professional ambulance service, railroad or
regularly scheduled airline to a hospital or sanitarium
M. Medical supplies, as follows:
1. Drugs and medicines that are prescribed by a physician
2. Blood and other fluids to be injected into the circulatory
system
3. Artificial limbs and eyes for loss of natural limbs and eyes
4. Casts, splints, trusses, braces, crutches and surgical
dressings

Page 2
<PAGE> 3
5. Rental of hospital-type equipment, including wheelchair, hospital bed,
iron lung and other mechanical equipment for the treatment of respiratory
paralysis and equipment for the administration of oxygen

6. Purchase or rental of hospital-type equipment for kidney dialysis for the
personal and exclusive use of the patient, the total price to be eligible
on a monthly pro-rata basis during the first 24 months of ownership, but
only so long as dialysis treatment continues to be medically required.
Lincoln National also will consider as eligible all charges for supplies,
materials and repairs necessary for the proper operation of such equipment
and also reasonable and necessary expenses for the training of a person to
operate and maintain the equipment for the sole benefit of the patient.

EXCEPT THAT: No benefits are payable for an individual on or after
the day such individual is entitled to benefits under Medicare.

N. Services provided by a legally qualified physician or qualified speech
therapist for restoratory or rehabilitory speech therapy for speech loss or
impairment due to an illness, or to surgery on account of an illness

O. Dental Benefits

1. Payment will be made up to the Maximum Benefit for one or more of the
following charges:

a. Dental care performed by or under the direct supervision of a
legally qualified dentist

b. Dental X-ray examinations

c. Cosmetic dental procedures performed as a result of an accident

d. Space maintainers for deciduous teeth

e. Orthodontics

f. Medications prescribed or ordered by a dentist

g. Oral examinations and/or prophylaxis

h. Denture adjustment or relinings

i. Payment will be made for the following:

i. Dentures or fixed bridgework

ii. Addition of one or more teeth to dentures or fixed bridgework

iii. Crowns or gold restorations involving dentures or fixed
bridgework

j. Replacement of any lost or stolen dental appliance

2. Exclusions

No Dental Benefits will be paid for the following charges:

a. Any dental procedure (other than Orthodontia Treatment for which
charges are billed on a monthly basis) no initiated and completed
while insured
b. Dental appointments which are not kept
c. Teeth bleaching and other cosmetic dental procedures

P. Hearing Aid Benefits
1. Eligible charges for audio examinations and/or audio supplies, will be
payable according to the maximum Benefit and Benefit Percentage as shown
on the Schedule of Benefits for the following:
a. Otologic examination by a physician
b. Hearing evaluation by a qualified audiologist, if such evaluation is
recommended on the basis of the otologic examination. The hearing
evaluation will include:

i. Audiometric testing, including testing of hearing acuity with
respect to air conduction, bone conduction, speech reception and
discrimination of speech, and

ii. A hearing aid evaluation to determine and recommend the type of
hearing aid necessary to improve the insured hearing acuity

Page 3
<PAGE> 4
c. Follow-up consultation with the audiologist

d. A hearing aid (monaural or binaural) as prescribed by a qualified
audiologist

e. Ear molds, batteries, cord and ancillary equipment in connection
with the hearing aid

2. Exclusions

No Hearing Aid Benefits will be paid for:

a. Hearing aids not prescribed as a result of an otologic examination
by a qualified physician

b. Hearing evaluation not prescribed as a result of an otologic
examination by a legally qualified physician

c. Medical or surgical treatment of the ear

d. Any services or supplies to the extent that benefits are payable for
such under any other provisions of the policy

e. Drugs or medication

The term "qualified audiologist" means an audiologist who has a masters
degree in speech pathology, possesses a Certificate of Clinical
Competence in audiology from The American Speech and Hearing Association
and is licensed to perform audio-metric examinations in the state in
which the testing is performed, if such licensing is required.

Q. Vision Benefits

Eligible charges for vision examination and materials up to the Maximum
Benefit and Benefits Percentage as shown on the Schedule of Benefits for the
following:

Complete visual analysis, including case history and refraction (payable
only when an eye refraction is performed). Lens (single-vision, bi-focal,
tri-focal, lenticular, contact) and frames.

Page 4
<PAGE> 5
SECTION II - INDIVIDUALS

I. ELIGIBLE INDIVIDUALS

The individuals eligible for insurance hereunder are shown on the
Schedule of Benefits.

II. INSURANCE BENEFITS

The Insurance Benefits provided under the policy for an insured individual
will be in accordance with the provisions of this policy and the
individual insured's insurance classification, as shown, in the Employer's
Application and Adoption Agreement. If more than one insurance
classification is designated, any change in the amount of an individual's
insurance, occasioned by change in an employee's classification, is
effective on the Classification Change Date shown on the Schedule of
Benefits.

III. EFFECTIVE DATES OF INSURANCE

An individual's insurance hereunder will be effective as follows:

A. EMPLOYEES

An employee's insurance will become effective automatically on the
date he or she becomes eligible.

B. DEPENDENTS

1. An employee's insurance with respect to his or her dependent(s)
will become effective automatically with respect to each dependent
on the date such dependent of the employee becomes an eligible
individual hereunder and while the employee qualifies as an
individual eligible for insurance as shown on the Schedule of
Benefits.

2. A dependent will become an insured individual automatically if the
employee is insured for dependent's insurance on the date such
person becomes a dependent.

C. EMPLOYEES AND DEPENDENTS

1. If a person does not qualify as an eligible individual because,

a. in the case of an employee, if he or she is not actively
expending time and energy in the employ of the Employer on the
date the individual would otherwise become insured, the
individual will not become insured until the next following
date on which he or she is actively expending time and energy
in the employ of the Participating Employer(s); or

b. in the case of dependent,

i. the employee does not qualify because of a. above or

ii. the dependent is confined in a hospital, such dependent
will not become insured until the next following day on
which both the employee is actively expending time and
energy in the employ of the Employer and the dependent is
no longer confined in a hospital.

Page 5
<PAGE> 6
IV. NOTICE AND PROOF OF CLAIM AND EXAMINATION

A. NOTICE -- 30 DAYS

1. Written notice of each injury or illness for which benefits may
be claimed must be given to Lincoln National with thirty (30)
days of the date any expense is incurred.

2. Failure to furnish notice within thirty (30) days will not
invalidate or reduce any claim if it is shown that notice was
provided as soon as was reasonably possible.

3. Lincoln National, upon receipt of such notice, will furnish its
form(s) for filing proof of claim to the employee. If such forms
are not furnished within fifteen (15) days after Lincoln
National's receipt of notice, the individual insured will be
deemed to have complied with the requirements of the policy as
to proof of claim upon submitting, within the time fixed in the
policy for filing proofs of claim, written proof concerning the
occurrence, character and extent of the loss for which claim is
made.

B. PROOF -- 90 DAYS

1. Affirmative proof of claim on account of hospital confinement
for which claim is made must be furnished to Lincoln National
within ninety (90) days after the termination of the period for
which claim is made, and while this policy is in force.

2. Affirmative proof of any other claim must be furnished Lincoln
National not later than ninety (90) days after the date of loss.

3. Failure to furnish proof of any other claim within ninety (90)
days will not invalidate or reduce any claim if it is shown that
proof was provided as soon as was reasonably possible and while
this policy is in force.

C. PAYMENT OF CLAIM

All benefits are payable to the employee. If any such benefits
remain unpaid at the death of the employee, or if the employee is a
minor or is, in the opinion of Lincoln National, incapable of giving
a legally binding receipt for payment of any benefit, Lincoln
National may, at its option, pay such benefit to any one or more of
the following relatives of the employee: spouse, parent(s),
child(ren), brother(s), or sister(s). Any payments so made by
Lincoln National will completely discharge its obligation to the
extent of such payment. Lincoln National will not be responsible as
to the application of such payment.

D. EXAMINATION

1. Lincoln National will have the right and opportunity at its own
expense to examine the person of any individual whose injury or
illness is the basis of a claim hereunder when and so often as
it may reasonably require during pendency of such claim.

2. Lincoln National will have the right and opportunity to make an
autopsy where not prohibited by law

V. CHOICE OF PHYSICIAN

The individual insured will have free choice of any legally
qualified physician.

Page 6
<PAGE> 7
VI. WORKER'S COMPENSATION

This policy is not in lieu of, and does not affect, any requirement for
coverage by worker's compensation insurance.

VII. LEGAL PROCEEDINGS

No action at law or in equity will be brought to recover on this policy
before the expiration of sixty (60) days after proof of claim has been
filed in accordance with the requirements of this policy. No such action
will be brought at any time unless brought within the time allowed by
the laws of the Situs of Delivery. If the laws of the Situs of Delivery
do not designate the maximum length of time during which such action may
be brought, no action may be brought after the expiration of two (2)
years of the time within which proof of loss is required by the policy.

VIII. STATEMENTS

In the absence of fraud, all statements made by a insured employee and
his or her dependents will be deemed representations and not warranties.
No such representations will void the insurance or be used in defense to
a claim hereunder unless a copy of the instrument containing such
representation is or has been furnished to such employee or to his
beneficiary, if any.

IX. TERMINATION OF INDIVIDUAL'S INSURANCE

An individual's insurance will automatically terminate immediately upon
the earliest of the following dates:
A. The date the policy terminates
B. The date the individual's Participating Employer(s) ceases to
participate under the policy or
C. The day the individual is no longer insured under his or her
employer-sponsored group health insurance plan or individual policy.

<PAGE> 8
SECTION III - GENERAL POLICY PROVISIONS

I. BENEFIT EXCLUSIONS AND LIMITATIONS

A. Non-occupational Coverage

No benefits are provided as a result of
1. any accidental bodily injury that arises out of or in the course of any
employment with any Participating Employer(s) and/or for which the
individual is entitled to benefits under any worker's compensation law
or occupational disease law, or receives any settlement from a worker's
compensation carrier; or
2. any illness in which the individual is entitled to benefits under any
worker's compensation or occupational disease law, or receives any
settlement from a worker's compensation carrier.

B. War

No benefits are provided for losses that are due to war or any action of
war, whether declared or undeclared.

C. Individual Must Be Under the Direct Care of a Physician

No benefits are payable unless the individual is under the direct care of
a legally qualified physician.

D. Legal Obligation

Insurance is provided only in connection with charges for treatment for
which the individual is, in the absence of this insurance, legally
obligated to pay.

E. Necessary, Reasonable and Customary

Insurance is provided only for
1. charges for treatment, equipment or supplies that are necessary to the
treatment or prevention of illness, are medically cost efficient and
incurred on the recommendation of a legally qualified physician, and
2. charges that are not in excess of the regular and customary charges for
the services performed and the materials furnished.

No benefits are provided unless the Individual is under the direct care of
a legally qualified physician.

F. The following charges are specifically excluded from coverage:
1. All charges for which benefits are not specifically provided hereunder
2. Charges for any cosmetic treatment or surgery. However, we will pay for
cosmetic treatment or surgery that is due solely to any of the
following:

Page 8

<PAGE> 9
a. An accidental bodily injury

b. The surgical removal or reconstruction of all or part of the
breast tissue as a result of an illness

c. birth defect

3. Charges for hospitalization, services, treatments or supplies
furnished by the United States or a foreign governmental agency
unless otherwise prohibited by law.

4. Charges for the treatment of infertility if such charges are excluded
by the underlying plan.

5. Charges for medical treatment by a legally qualified physician for
any treatment that is not rendered by or in the physical presence of
the attending physician

6. Charges made by a hospital for confinement as a bed patient in a long
term care unit, or for confinement in a skilled nursing facility,
unless such confinement

a. commences within fourteen (14) days after the sick or injured
individual is discharged from hospital confinement, for which at
least three consecutive days of hospital room and board charges
were eligible charges hereunder, and

b. is for treatment of the illness causing the hospital confinement
mentioned in (a.) above, and

c. is one during which professional calls are made by the physician
or surgeon on and in the physical presence of such individual in a
frequency of not less than one such call per thirty (30)
consecutive days of such confinement. and

d. does not primarily involve routine custodial type care

7. Insurance premiums of any kind

8. Weight Control Treatment. This exclusion applies but is not limited
to all methods of treatment that seek to result in weight reduction
or control, including but not limited to, dietary treatment of
counseling, nutritional supplements, testing required with the use of
low-calorie diets, gastric bypasses, gastric balloons, stomach
stapling, wiring of the law and jejunal bypasses, unless the obesity
is primarily responsible for a medical illness or condition that is
life-threatening or causing total disability.

9. Non-prescription drugs.

II. NON-FORFEITURE

If the terms and conditions set forth in this policy are performed by the
insured within the prescribed period, then the benefits which accrue under
this policy will become payable. However, if any terms and conditions are
not performed within the prescribed period, then the insured will forfeit
his/her right to such benefits that may have arisen under this policy with
respect to the loss not timely reported.

III. DATE OF SERVICE OR PURCHASE

The charge for service or purchase will be deemed to have been incurred on
the date the service is performed or the date the purchase occurs.

Page 9
<PAGE> 10
SECTION IV * DEFINITIONS

1. "Administrator" means LNC Administrative Services Corporation.

2. "Medical Reimbursement Insurance" means only coverages provided herein.

3. "Certificate" means a written statement, including all riders and
supplements, if any, setting forth the insurance benefits to which the
insured individual is entitled, to whom the benefits are payable and any
limitations or requirements applicable to the insured individual. Such
certificates will not constitute a part of this policy.

4. "Cosmetic surgery" means the surgical alteration of tissue for the
improvement of the insured individual's appearance rather than improvement
or restoration of bodily function.

5. "Dependent" -- See Definition No. 22.

6. "Employee" means a person
a. directly employed in the regular business of and compensated for services
by the Participating Employer(s) and
b. who actively expends time and energy in the service of the Participating
Employer(s).

No director or officer of a corporate employer will be considered as being
an employee unless such person is otherwise eligible as a bona fide employee
of the corporation by performing services other than the usual duties of a
director. No individual proprietor or partner will be considered as being an
employee unless he/she is actively engaged in and devotes time and energy to
the conduct of the business of the proprietorship or partnership.

Notwithstanding 6.b., a person will be deemed actively expending time and
energy in the service of the Participating Employer(s) on each day of a
regular paid vacation and on a regular non-working day on which he/she is
not disabled, provided he/she was actively expending time and energy in the
service of the Participating Employer(s) on the last preceding regular
working day.

Any person performing services of a recognized profession, including but not
limited to an attorney-at-law and an accountant, who is remunerated on a
basis other than regular wage or salary by the Participating Employer(s),
will not be considered an employee for the purposes of the definition.

7. "Family unit" means an insured employee and, if they are insured persons,
his/her children, if any, and his/her spouse.

8. "Herein", "hereof", "hereunder" and "hereinafter" refer to the policy in its
entirety.

9. "Hospital" means an institution that
a. is licensed as a hospital (if hospital licensing is required where it is
situated),

<PAGE> 11
b. is open at all times,
c. is operated primarily for the medical treatment of sick and/or injured
persons as patients,
d. has a staff of one or more licensed physicians available at all times,
e. provides continuous 24-hour nursing service by graduate registered
nurses (R.N.),
f. provides organized facilities for diagnosis and major surgery, and
g. is not primarily a clinic, nursing home, rest home, convalescent home or
similar establishment.

10. "Illness" means a bodily disorder or disease, mental infirmity, accidental
bodily injury or pregnancy. All bodily injuries sustained by an individual in
a single accident, or all illnesses that are due to the same or related cause or
causes, will be deemed one illness.

11. "Individual" means
a. an employee and/or
b. a dependent with respect to whom an employee is or may become insured.

12. "Intensive care unit" means a section, ward or wing within the hospital
that is separated from other hospital facilities and
a. is operated exclusively for the purpose of providing professional
medical treatment for critically ill patients,
b. has special supplies and equipment necessary for such medical treatment
available on a standby basis for immediate use, and
c. provides constant observation and treatment by registered nurses (R.N.)
or other highly trained hospital personnel.

A hospital facility maintained for the purpose of providing normal
post-operative recovery treatment or service is not considered an "intensive
care unit".

13. "Lincoln National" means The Lincoln National Life Insurance Company.

14. "Medical Insurance" means any coverages provided herein under the
individual's group medical insurance plan or individual health policy.

15. "Medicare" means the medical benefits provided by Title XVIII of the Social
Security Act as amended from time to time.

16. "Month" means "calendar month," which, for the purposes hereof, will mean
the time period from and including any date of any of the months in the
calendar to, but not including the corresponding date of the next month in
the calendar; but if there be no corresponding date, then to and including
the last day of the next month in the calendar. For example, June 15 through
July 14 inclusive, or January 31 through February 28 inclusive.

17. "Policy" or "This Policy" means the policy under the terms of which this
certificate is written. This certificate is not a part of the policy.

18. "Qualified speech therapist" means a speech therapist who has a master's
degree in speech pathology, has completed a supervised internship and who is
licensed by the state in which the services are performed, if that state
requires licensing.

Page 11

<PAGE> 12

19. "Reasonable and customary" means the usual charge made by the person,
group or other entity rendering or furnishing the services, treatments
or materials, but in no event meaning a charge in excess of the level
of charges made by such persons, groups or other entities rendering
or furnishing such services, treatment or material to persons of
similar income or net worth.

20. "Room and board charges" are charges made by the hospital or skilled
nursing facility for the cost of the room, meals and services (such as
general nursing services) that are routinely provided to all
inpatients.

21. "Skilled nursing facility" means an institution qualified as such under
Medicare.

22. "Dependent" means
a. an employee's spouse (unless such spouse is legally separated from
the employee), or
b. an employee's unmarried child (including a stepchild or legally
adopted child) from live birth until the date the child attains
19 years of age; except that the term "dependent" includes an
employee's unmarried child who has attained age 19 while
i) the child is
a) mentally or physically incapable of earning his/her own
living, and proof of incapacity is submitted to Lincoln
National within 31 days of the date insurance hereunder
would have terminated due to age,
b) actually dependent on the employee for a majority of
his/her support, and
c) insured hereunder on the date immediately preceding the
day insurance otherwise would have been terminated due to
age.
ii) the child is registered in an accredited school as a full-time
student as defined in the regulations of the school that
he/she is attending. In no event, however, is such child
eligible or insured hereunder on or after the date of
attainment of age 25.

To maintain the eligibility under b. above, due proof that the
employee, or who is entitled to benefits under any extension of such
insurance, is not a dependent.

In the event that a husband and wife are both insured as employees
herein, their dependents, if any, may be considered dependents of
either the husband or the wife for purposes of this policy.

Page 12

<PAGE> 13

The Language in This Certificate is On File With The District of Columbia
Department Of Insurance Under Forms:

40,000-CB 40,000-INDEX
40,001 40,001-1
40,001-2 40,001-3
40,002 40,002-1
40,002-2 40,003
40,003-1 40,004
40,004-1 40,004-2

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Quaker Fabric Corporation:

As independent public accountants, we hereby consent to the use of our
report dated February 11, 1997 (and to all references to our Firm) included in
or made part of this Registration Statement and related Prospectus of Quaker
Fabric Corporation.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 14, 1997

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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-START> DEC-31-1995
<PERIOD-END> JAN-04-1997
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<SECURITIES> 0
<RECEIVABLES> 28,313
<ALLOWANCES> 2,052
<INVENTORY> 27,737
<CURRENT-ASSETS> 57,914
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