QUAKER FABRIC CORP /DE/, 424B1, 1998-07-30

QUAKER FABRIC CORP /DE/
424B1, 1998-07-30
BROADWOVEN FABRIC MILLS, MAN MADE FIBER & SILK

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PROSPECTUS
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[LOGO]

3,200,000 SHARES
QUAKER FABRIC CORPORATION
Common Stock
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Of the 3,200,000 shares of common stock, par value $.01 per share (the 'Common
Stock'), offered hereby, 3,000,000 are being sold by Quaker Fabric Corporation
('Quaker' or the 'Company') and 200,000 are being sold by a stockholder of the
Company (the 'Selling Stockholder'). See 'Principal and Selling Stockholders.'
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholder.

The Common Stock is included in The Nasdaq Stock Market's National Market (the
'Nasdaq National Market') under the symbol 'QFAB.' On July 29, 1998, the last
reported sales price for the Common Stock on the Nasdaq National Market was
$13.125 per share. See 'Price Range of Common Stock.' All share and per share
numbers in this Prospectus reflect a three-for-two stock split paid on June 19,
1998.

SEE 'RISK FACTORS' ON PAGES 9 THROUGH 13 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholder (2)
<S> <C> <C> <C> <C>
Per Share........................................ $13.00 $0.71 $12.29 $12.29
Total (3)........................................ $41,600,000 $2,272,000 $36,870,000 $2,458,000
</TABLE>

(1) The Company and the Selling Stockholder 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 offering expenses estimated to be $400,000 payable by the
Company.

(3) The Company and the Selling Stockholder have granted the several
Underwriters 30-day over-allotment options to purchase, in the aggregate, up
to 480,000 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 $47,840,000, the
Underwriting Discounts and Commissions will be $2,612,800, the Proceeds to
Company will be $41,540,200 and the Proceeds to Selling Stockholder will be
$3,687,000. See 'Underwriting.'
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The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholder 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 through the facilities of the Depository Trust Company, New York, New
York on or about August 4, 1998.

PRUDENTIAL SECURITIES INCORPORATED

THE ROBINSON-HUMPHREY COMPANY

WHEAT FIRST UNION

July 29, 1998

[GRAPHICS]

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE 'UNDERWRITING.'

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
'Commission'), through the Electronic Data Gathering, Analysis and Retrieval
System ('EDGAR'), a Registration Statement on Form S-3 (the 'Registration
Statement') under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, filed as part of the Registration Statement, does not
contain all of the information included in the Registration Statement and the
exhibits and schedules thereto, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus by reference
as to the contents of any contract, agreement or other document referred to are
not necessarily complete and in each such instance, reference is made to the
copy of such contract, agreement or other document filed as an exhibit to the
Registration Statement for a more complete description of the matters involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge and copied at the offices of the
Commission at Room 1024, Judiciary Plaza, 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 materials
may be obtained at the prescribed rates from the Commission's Public Reference
Section at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Electronic registration statements filed through EDGAR may also be
accessed electronically through the Commission's home page on the World Wide Web
at http://www.sec.gov.

The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith, it files reports, proxy statements and other information
required thereby with the Commission via EDGAR. Copies of such material may be
inspected and copied at the offices of the Commission set forth above and
accessed electronically through the Commission's home page on the World Wide
Web. The Common Stock is quoted for trading on the Nasdaq National Market and
reports, proxy statements, information statements and other information
concerning the Company may also be inspected at the Nasdaq Stock Market, 1735
K Street, Washington, D.C. 20006-1500.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:

(1) the Company's Annual Report on Form 10-K for the year ended
January 3, 1998;

(2) the Company's Quarterly Report on Form 10-Q for the quarter ended
April 4, 1998;

(3) the Company's Current Report on Form 8-K dated June 23, 1998; and

(4) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A, Registration No. 0-22592.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be modified or superseded,
for purposes of this Prospectus, to the extent that a statement contained herein
or in any subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company will provide, upon written or oral request, without charge to
each person to whom a copy of this Prospectus has been delivered, including any
beneficial owner, a copy of any or all of the documents which have been or may
be incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to: Corporate
Secretary, Quaker Fabric Corporation, 941 Grinnell Street, Fall River,
Massachusetts 02721; (508) 678-1951.

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 or incorporated by reference herein. Except as
otherwise indicated, the information in this Prospectus (a) assumes that the
Underwriters' over-allotment options will not be exercised and (b) reflects a
three-for-two stock split of the Common Stock paid on June 19, 1998. 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, '1996' means the fiscal year
ended January 4, 1997 and '1997' means the fiscal year ended January 3, 1998.

THE COMPANY

GENERAL

Quaker is a leading designer, producer and marketer of woven upholstery
fabrics for residential furniture markets in the United States and around the
world. The Company also designs and produces specialty yarns, primarily for use
in the production of its fabrics. Quaker's specialty yarns are also sold to
manufacturers of apparel and home furnishings products throughout the United
States. In 1997, Quaker had net sales of $219.2 million, with 85.5% of net sales
represented by the sale of fabric and 14.5% of net sales represented by the sale
of specialty yarns.

Quaker is a product design and development leader with over 3,000 fabric
patterns in its product line, the majority of which are copyrighted Jacquards
with detailed designs woven directly into the fabric. Quaker also offers a full
range of plain, plaid and striped woven fabrics to complement its core line of
unique Jacquard designs. Each year, the Company creates and adds more than 700
new fabric patterns to its product line. The Company's new product
introductions, including its Ankyra chenille yarns and fabrics, its Whitaker
Collection fabrics and its Quaker Plush products, have substantially increased
demand for the Company's fabrics. Since 1992, the Company has expanded its
fabric line significantly by increasing the number of middle to better-end
fabrics in its line, as well as the number of products it offers at each price
point and in each styling category. The Company's expanded product offerings
have enabled it to sell more products to its existing customers and add new
higher-end furniture manufacturers to its customer base.

In 1997, Quaker sold over $150.5 million (gross) of fabric to its domestic
customers, which include virtually every major manufacturer of upholstered
furniture in the United States. Quaker's key domestic accounts include Furniture
Brands International (Action by Lane, Broyhill and Thomasville), Klaussner,
La-Z-Boy, Lifestyle Furnishings International (Berkline, Benchcraft and others),
Rowe Furniture and Simmons. The continued expansion of Quaker's better-end
product line has resulted in sales to a number of well-known higher-end
furniture manufacturers, including Bernhardt, Century, Henredon and Sherill. In
addition, in 1997, Quaker sold over $39.7 million (gross) of fabric to its
foreign customers in over 40 countries.

The Company's manufacturing operations are vertically integrated, beginning
with the production of specialty yarns for use in its fabrics and continuing
through fabric weaving and finishing. The Company's ability to produce its own
specialty yarns, a critical fabric component, combined with Quaker's product
styling and design expertise, allow the Company to offer a broad range of
distinctive fabrics at competitive prices.

The Company invests continuously to improve its operating performance and
capitalize on increased customer demand. The success of Quaker's new product
introductions has resulted in customer demand which substantially exceeds
Quaker's current production capacity. To meet this demand and improve customer
service, in 1997, Quaker began implementing an $80.0 million capital investment
program. This program includes the purchase of new weaving, yarn manufacturing
and fabric finishing equipment and the installation of a new Enterprise Resource
Planning system. By the

end of 1998, the Company expects to have the capacity to manufacture
approximately 63.0 million yards of upholstery fabric annually. In 1996 and
1997, the Company sold 43.6 million and 45.0 million yards of fabric,
respectively. To support the Company's long-term growth, Quaker is developing a
new capital investment program. This new program would provide for the
investment of approximately $50.0 million to construct or acquire and to equip a
modular manufacturing facility in the Fall River, Massachusetts area. Management
believes that adding capacity at a separate facility will allow the Company to
increase production with minimal disruption to its existing operations.

The Company's net sales increased from $123.4 million in 1992 to $219.2
million in 1997, representing a compound annual growth rate ('CAGR') of 12.2%.
Reflecting strong demand for the Company's products, Quaker's backlog of
unfilled customer orders at the end of the first quarter of 1998 was $69.9
million, a 131% increase over the backlog at the end of the first quarter of
1997 and a 31% increase over the backlog at the end of 1997.

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:

Innovative Product Design and Development. Management believes that
Quaker's product design and development expertise is the Company's most
important competitive strength. Each year, Quaker creates and adds more than 700
new fabric patterns to its product line. All of the Company's fabrics benefit
from the use of Quaker's proprietary yarns and advanced finishing methods which
enhance their appearance, durability and softness.

Broad and Differentiated Product Assortment. Quaker is a full-service
supplier of Jacquard and plain woven fabrics and the Company is one of the
largest producers of Jacquard fabrics in the world. Management believes that the
breadth of the Company's product line will allow Quaker to further increase its
market share at each price point and in each styling category.

Vertical Integration. Management believes that the Company's vertically
integrated operations are an important factor in Quaker's ability to maintain
its product leadership position and achieve its customer service and operating
objectives. Quaker produces approximately 70% of the specialty yarns used in its
upholstery fabrics and weaves and finishes substantially all of its fabrics.
Management believes that Quaker's vertically integrated operations enhance its
design capabilities, improve its quality performance and reduce its customer
delivery lead times.

GROWTH STRATEGY

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

Capitalize on Increased Demand. To meet increased customer demand, the
Company has been investing aggressively to expand its production capacity and
improve customer service. During the 15-month period ended April 4, 1998, the
Company invested $37.8 million in capital expenditures, and has budgeted
additional capital expenditures of $42.2 million through the end of 1998. In
addition to this $80.0 million capital investment program, the Company is
developing a plan to invest approximately $50.0 million in capital expenditures
to increase capacity.

$3.66 in 1992 to $4.23 in 1997. The success of Quaker's Whitaker Collection and
Quaker Plush fabrics has resulted in additional favorable product mix shifts,
causing the average gross sales price per yard of the Company's middle to
better-end product category to increase from $4.70 during the first quarter of
1997 to $5.04 during the first quarter of 1998.

Penetrate Related Fabric Markets. The Company believes that the superior
styling and performance characteristics of its fabrics and recent ISO 9001
certification of its operations provide opportunities to penetrate the contract
market and increase Quaker's share of the interior decorator and recreational
vehicle markets. Management believes Quaker's Jacquard Ankrya chenille fabrics
and Quaker Plush products will provide the Company with a product advantage in
these markets.

Expand Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns. Management believes it is the world's largest producer of chenille yarns,
including its proprietary, abrasion-resistant Ankyra chenille yarns. Management
believes additional planned expansion of the Company's yarn manufacturing
capacity will allow Quaker to increase sales of its specialty yarns to producers
of apparel and home furnishings products.

Pursue Strategic Acquisitions. Management believes that the execution of
its business strategy has created the design, production, service, information
systems and administrative infrastructure to manage a much larger business. The
Company intends to seek strategic acquisitions of businesses with complementary
products, manufacturing equipment or distribution capabilities.

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

Ankyra'tm', Quaker'tm', Quaker Plush'tm' and Whitaker'tm' are trademarks
of the Company.

RECENT DEVELOPMENTS

In June 1998, the Company amended its senior unsecured revolving credit
agreement which matures December 31, 2002 (the 'Credit Agreement') to increase
the amount available thereunder from $50.0 million to $70.0 million and to
eliminate covenant limitations with respect to capital expenditures. After
consummation of this offering and application of the net proceeds therefrom as
set forth in 'Use of Proceeds,' the Company will have approximately $68.9
million of availability under the Credit Agreement.

On July 21, 1998, the Company reported net sales of $64,075,000, net income
of $2,542,000, and diluted earnings per share of $0.19 for the three-month
period ended July 4, 1998, compared to net sales of $52,475,000, net income of
$2,801,000, and diluted earnings per share of $0.21 for the three months ended
July 5, 1997. Basic earnings per share for the second quarters of 1997 and 1998
were $0.22 and $0.20, respectively. For the first six months of 1998 net sales
were $126,805,000, net income was $4,478,000, and diluted earnings per share
were $0.34, as compared to net sales of $105,673,000, net income of $5,311,000,
and diluted earnings per share of $0.41 for the corresponding period of 1997.
Basic earnings per share for the first six months of 1997 and 1998 were $0.43
and $0.35, respectively. Set

forth below in tabular form are the Company's results of operations for the
three months and six months ended July 4, 1998, as compared to the comparable
year earlier periods.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JULY 5, 1997 JULY 4, 1998 JULY 5, 1997 JULY 4, 1998
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................................................. $ 52,475 $ 64,075 $105,673 $126,805
Gross margin............................................... 13,006 14,594 26,105 28,185
Income before provision for income taxes................... 4,181 3,911 7,928 6,889
------------ ------------ ------------ ------------
Net income............................................ $ 2,801 $ 2,542 $ 5,311 $ 4,478
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common share -- basic......................... $0.22 $0.20 $0.43 $0.35
Earnings per common share -- diluted....................... $0.21 $0.19 $0.41 $0.34
</TABLE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company............................... 3,000,000 shares

Common Stock Offered by the Selling Stockholder................... 200,000 shares

Common Stock to be Outstanding after the Offering(1).............. 15,642,925 shares

Use of Proceeds by the Company.................................... To repay amounts outstanding under the
Credit Agreement and for capital
expenditures, working capital and
potential acquisitions. See 'Use of
Proceeds.'

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

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(1) Based on 12,642,925 shares of Common Stock outstanding as of July 27, 1998.
Does not include (i) 1,202,792 shares of Common Stock which may be issued
pursuant to the Company's stock option plans, of which options to purchase
1,029,992 shares of Common Stock were outstanding on July 27, 1998, (ii)
22,500 shares of Common Stock which may be issued upon exercise of options
granted to three directors and (iii) 555,538 shares of Common Stock which
may be issued upon exercise of an option issued to Nortex Holdings, Inc.
('Nortex Holdings'), the Selling Stockholder. All share and option numbers
give effect to the three-for-two stock split paid on June 19, 1998.

RISK FACTORS

Investors should consider the risk factors involved in connection with an
investment in the Common Stock and the impact from various events that could
adversely affect the Company's business. See 'Risk Factors.'

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------------------------------------- --------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1994 1994 1995 1997(1) 1998 1997 1998
---------- ------------ ------------ ---------- ---------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $147,867 $180,842 $173,487 $198,856 $219,174 $53,198 $62,730
Gross margin................. 37,114 47,674 36,404 46,069 51,773 13,099 13,591
Operating income............. 14,822 20,114 10,228 16,948 19,462 4,631 4,193
Income before provision for
income taxes and
extraordinary item......... 9,587 16,217 6,232 12,779 15,697 3,747 2,978
Income before extraordinary
item....................... 5,369 9,526 5,520 8,562 11,113 2,510 1,936
Net income applicable to
common stock............... $ 2,749 $ 9,526 $ 5,520 $ 8,562 $ 11,113 $ 2,510 $ 1,936
---------- ------------ ------------ ---------- ---------- ------- -------
---------- ------------ ------------ ---------- ---------- ------- -------
Earnings per common share --
basic(2)(3)................ $ 0.32 $ 0.79 $ 0.46 $ 0.71 $ 0.90 $ 0.21 $ 0.15
Earnings per common share --
diluted(2)(3).............. $ 0.30 $ 0.77 $ 0.44 $ 0.69 $ 0.85 $ 0.20 $ 0.15

SELECTED OPERATING DATA:
EBITDA(4).................... $ 19,710 $ 25,920 $ 16,821 $ 24,569 $ 28,479 $ 7,162 $ 6,713
Depreciation and
amortization............... 5,019 5,603 6,462 7,437 8,511 1,969 2,535
Net capital
expenditures(5)............ 10,558 18,727 13,165 11,979 25,484 2,440 12,312
Backlog of unfilled customer
orders..................... 28,000 24,619 24,459 29,063 53,427 30,275 69,904
Unit volume (in yards)....... 36,289 41,641 40,761 43,552 44,976 11,013 12,224
Average gross sales price per
yard....................... $ 3.87 $ 4.06 $ 3.88 $ 4.05 $ 4.23 $ 4.26 $ 4.52
</TABLE>

<TABLE>
<CAPTION>
APRIL 4, 1998
-----------------------
AS
ACTUAL ADJUSTED(6)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 47,651 $ 69,321
Total assets....................................................................................... 194,852 216,522
Long-term debt and capital leases, net of current portion.......................................... 65,321 50,521
Stockholders' equity............................................................................... 84,261 120,731
</TABLE>

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(1) The fiscal year ended January 4, 1997 was a 53-week period.

(2) Earnings per share for fiscal 1993 give effect to the early extinguishment
of debt in connection with a recapitalization in March 1993, which resulted
in an extraordinary loss of $2.6 million, and the use of proceeds from the
Company's initial public offering of Common Stock in November 1993 as though
both events had occurred at the beginning of 1993.

(3) Reflects a three-for-two stock split paid on June 19, 1998.

(4) 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.

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

(6) Adjusted to give effect to the sale of 3,000,000 shares of Common Stock
offered hereby by the Company after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company and the
application of the net proceeds to the Company therefrom. See 'Use of
Proceeds' and 'Capitalization.'

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 Exchange 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 capital expenditure and 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 or incorporated by reference in this
Prospectus, including without limitation the information set forth herein under
the headings 'Risk Factors,' 'Use of Proceeds,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and 'Business,'
identifies important factors that could cause such differences.

POTENTIAL INABILITY TO SUSTAIN GROWTH OR INCREASE PRODUCTION CAPACITY. In
recent years, the Company has experienced significant growth in demand for its
products. As a result of this demand, the Company is devoting substantial
resources to increasing its production capacity. However, capacity constraints
have caused the Company's production backlog and delivery lead times to increase
substantially, with orders pending for fabric and yarn increasing to
approximately $69.9 million as of April 4, 1998 from $30.3 million as of April
5, 1997. The costs associated with increasing capacity, including hiring,
training and overtime costs, as well as decreased manufacturing efficiency as
new employees are integrated into the Company's work force, adversely affected
the Company's gross margin percentage in the second half of 1997 and the first
quarter of 1998. There can be no assurance that: (i) this increased demand for
the Company's products will continue; (ii) increased delivery lead times will
not cause customers to seek other sources of upholstery fabric; (iii) the
Company can profitably increase its production capacity; or (iv) the costs
associated with increasing the Company's capacity will not continue to adversely
affect the Company's gross margin percentage. Sustaining growth will also
require enhancement of the Company's operational, management and financial
systems and the continuing recruitment, training and retention of qualified
personnel. There can be no assurance that the Company will be able to manage its
expanding operations effectively or maintain or accelerate its growth. Any of
these occurrences could have a material adverse effect on the Company's
business, financial condition and results of operation.

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.

NEW COMPUTER SYSTEMS AND YEAR 2000 SOFTWARE RISK. The Company recently
completed the conversion of its management information system to a new
management information, or Enterprise Resource Planning, system and anticipates
that full implementation will be completed by the end of 1998. In addition to
providing new systems applications, the related software is year 2000 compliant.
However, to the extent that the new software or any software in the Company's
machinery or desktop computers is unable to recognize the year 2000, the Company
may incur expenses in connection with

the need to remediate such software in addition to the potential expense of any
disruptions that may be caused by the software's impaired functioning as the
year 2000 approaches. There can be no assurance that any such remediation
efforts will be successful or that the Company's operations will not be
adversely affected during the process of implementing this new system. In
addition, if any of the Company's significant customers or suppliers do not
successfully and timely achieve year 2000 compliance, the Company's business
could be materially affected.

FOREIGN SALES. The Company anticipates that an increasing portion of its
revenues will be derived from foreign and export sales (together 'foreign
sales'). In 1997, foreign sales totaled $39.7 million (gross), or 20.9% 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 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 1997 gross fabric sales to customers in four foreign
countries were $28.4 million in the aggregate, representing 71.6% of the
Company's total foreign sales and 14.9% of the Company's gross fabric sales.
There can be no assurance that economic, political or other events in any
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.
Future price levels of raw materials will depend upon world-wide supply and
demand conditions, the general inflation rate and overall economic conditions.
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. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General.' Although other sources of supply are available, the
Company currently procures approximately one-half of its raw materials from
Unifi, Inc. and Amoco Fabric and Fibers Company ('Amoco'), and Amoco 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 material adverse effect on the Company.

POTENTIAL INABILITY TO CONSUMMATE ACQUISITIONS AND INTEGRATE ACQUIRED
BUSINESSES. An element in the Company's growth strategy is the strategic
acquisition of other businesses that will add to the growth of or complement its
existing business. The Company has never acquired another business and therefore
has no experience in integrating an acquired business. There can be no assurance
that the Company will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses into the
Company without substantial costs, delays or other operational or financial
problems. Customer dissatisfaction or performance problems at an acquired
business could have an adverse effect on the reputation of the Company and the
Company's sales and marketing initiatives. There can be no assurance that any
business acquired in the future will achieve anticipated revenues and earnings.
Further, acquisitions involve a number of special risks, including possible
adverse effects on the Company's operating results, diversion of management's
attention, failure to retain key personnel at an acquired business, risks
associated with unanticipated events or liabilities and amortization of goodwill
or other acquired intangible assets, some or all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

GOVERNMENT REGULATIONS. In May 1998, the U.S. Consumer Product Safety
Commission (the 'CPSC') conducted a hearing to receive scientific and technical
information relating to the toxicity, exposure, bioavailability and
environmental effects of flame retardant chemicals that may be suitable for use
in residential upholstered furniture, particularly in upholstery fabrics. The
CPSC intends to evaluate the information obtained from the hearing as part of
its deliberations on whether to propose a standard to address the hazards
associated with small open flame ignitions of upholstered furniture. The

Company is unable to predict when or if any such standard will be adopted and
the effect any such standard would have on the Company. Any requirement to treat
fabrics for upholstered furniture with flame retardant chemicals would increase
the Company's production costs. There can be no assurance that the Company would
be able to pass any of such increased costs on to its customers. In addition,
any such requirement could adversely affect the aesthetics of the Company's
products resulting in lower demand.

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 of such facility 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.'

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. See
'Business -- Competition.' 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.

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. See 'Management.'

ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's certificate
of incorporation and bylaws may make it more difficult for a third party to
acquire, or may discourage acquisition bids for,

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

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 15,642,925 shares of Common Stock outstanding (16,022,925
shares if the Underwriter's over-allotment options are exercised in full). Of
these shares, a total of 13,279,488 shares (13,759,488 shares if the
Underwriters' over-allotment options are exercised in full), including the
shares offered hereby, will be freely tradable without restrictions or further
registration under the Securities Act. The remaining 2,363,437 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 one year 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 156,429 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 for at least three months and who have held these shares for more
than two 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 1,202,792 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
July 29, 1998, an aggregate of 489,792 shares were

subject to presently exercisable stock options and, when issued, would be freely
tradeable without restriction. The Company, its directors and executive officers
and the Selling Stockholder each has agreed (except as to an aggregate of
150,000 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, 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 Stockholder 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 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 of shares by Nortex Holdings pursuant to the exercise of
certain outstanding stock options, which shares will be subject to similar
restrictions on transferability. Prudential Securities Incorporated may, in its
sole discretion, at any time and without 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' and 'Underwriting.'

USE OF PROCEEDS

The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered hereby by the Company are approximately $36.5 million ($41.1
million if the Underwriters' over-allotment option by the Company is exercised
in full) after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company will not receive any of
the proceeds from the sale of shares of Common Stock offered by the Selling
Stockholder.

The Company intends to apply a portion of the net proceeds from the
offering to repay the amounts outstanding under the Credit Agreement (which are
expected to total approximately $37.4 million at the closing of the offering).
Indebtedness under the Credit Agreement has been used for working capital and
capital expenditure purposes, is due December 31, 2002 and bears interest at an
annual variable rate (8.5% as of July 29, 1998). See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.' Amounts repaid under the Credit Agreement, which provides
for maximum borrowings, including letters of credit, of $70.0 million, may be
reborrowed.

The Company will use the remaining net proceeds, if any, for capital
expenditures, working capital and potential acquisitions. The Company currently
has no agreements or understandings with respect to any potential acquisitions.

The Company intends to complete the $80.0 million capital investment
program it began implementing in 1997 by investing $29.5 million during the last
six months of 1998. To support the Company's long-term growth, Quaker is
developing a new capital investment program. This new program would provide for
the investment of approximately $50.0 million to construct or acquire and to
equip a modular manufacturing facility in the Fall River area. The Company is
planning to use the balance of the net proceeds, if any, of this offering,
together with cash flow from operations and borrowings under the Credit
Agreement, to fund its capital investment programs.

Pending such applications, the Company intends 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.

PRICE RANGE OF COMMON STOCK

The Common Stock is included for quotation 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, adjusted to reflect a three-for-two stock split paid on June 19, 1998.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 4, 1997:
First Quarter............................................................................... $6.33 $3.79
Second Quarter.............................................................................. 6.50 4.83
Third Quarter............................................................................... 7.08 4.67
Fourth Quarter.............................................................................. 9.67 6.17
FISCAL YEAR ENDED JANUARY 3, 1998:
First Quarter............................................................................... 12.83 8.50
Second Quarter.............................................................................. 11.50 8.50
Third Quarter............................................................................... 16.16 9.75
Fourth Quarter.............................................................................. 16.33 11.16
FISCAL YEAR ENDING JANUARY 2, 1999:
First Quarter............................................................................... 17.50 10.75
Second Quarter.............................................................................. 21.58 12.83
Third Quarter (through July 29, 1998)....................................................... 16.25 12.00
</TABLE>

On July 29, 1998, the last reported sales price of the Common Stock on the
Nasdaq National Market was $13.125 per share. As of July 27, 1998, there were 50
record owners of the Common Stock.

DIVIDEND POLICY

The Company has not declared or paid dividends on the Common Stock since
its initial public offering in 1993, 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 Company's Board of Directors
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 Senior 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.

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company as of April 4, 1998, and as adjusted to give effect to the sale of
the 3,000,000 shares of Common Stock offered hereby by the Company and the
application of the net proceeds therefrom as described under 'Use of Proceeds.'
This table should be read in conjunction with '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>
APRIL 4, 1998
--------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt.................................................... $ 994 $ 994
Current portion of capitalized leases(1)............................................. 1,185 1,185
-------- --------
Total current portion of long-term debt and capitalized leases.................. $ 2,179 $ 2,179
-------- --------
-------- --------
Long-term debt:
Credit Agreement..................................................................... $ 14,800 $ 0
Capitalized leases(1)................................................................ 5,034 5,034
Senior Notes......................................................................... 45,000 45,000
Other................................................................................ 487 487
-------- --------
Total long-term debt............................................................ $ 65,321 $ 50,521
-------- --------
-------- --------
Stockholders' equity(2):
Common Stock, par value $.01 per share, 20,000,000 shares authorized; 12,602,110
shares issued and outstanding; and 15,602,110 shares issued and outstanding as
adjusted............................................................................ 126 156
Additional paid-in capital........................................................... 46,542 82,982
Retained earnings.................................................................... 39,008 39,008
Cumulative translation adjustment(3)................................................. (1,415) (1,415)
-------- --------
Total stockholders' equity...................................................... 84,261 120,731
-------- --------
Total capitalization............................................................ $149,582 $171,252
-------- --------
-------- --------
</TABLE>

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

(1) For information concerning capital lease commitments, see Note 7(b) of Notes
to Consolidated Financial Statements.

(2) Reflects a three-for-two stock split paid on June 19, 1998.

(3) 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.

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth certain consolidated financial and operating
data of the Company for the periods indicated. The data for the Company's fiscal
years have 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. The selected consolidated financial data for the
three months ended April 5, 1997 and as of and for the three months ended April
4, 1998 have been derived from the unaudited consolidated financial statements
of the Company included elsewhere herein which, in the opinion of management,
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the consolidated results of operations and
financial position of the Company. The results of operations for the three
months ended April 4, 1998 are not necessarily indicative of the results that
may be achieved for the fiscal year ending January 2, 1999. This selected
consolidated 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 THREE MONTHS ENDED
------------------------------------------------------------------------- --------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1994 1994 1995 1997(1) 1998 1997 1998
----------- ------------ ------------ ----------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PER YARD DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............ $ 147,867 $180,842 $173,487 $ 198,856 $ 219,174 $ 53,198 $ 62,730
Cost of products
sold............... 110,753 133,168 137,083 152,787 167,401 40,009 49,139
----------- ------------ ------------ ----------- ----------- -------- --------
Gross margin......... 37,114 47,674 36,404 46,069 51,773 13,099 13,591
Selling, general and
administrative
expenses........... 22,292 27,560 26,176 29,121 32,311 8,468 9,398
----------- ------------ ------------ ----------- ----------- -------- --------
Operating income..... 14,822 20,114 10,228 16,948 19,462 4,631 4,193
Interest expense,
net................ 4,936 3,863 3,898 4,092 3,700 875 1,200
Other expenses,
net................ 299 34 98 77 65 9 15
----------- ------------ ------------ ----------- ----------- -------- --------
Income before
provision for
income taxes and
extraordinary
item............... 9,587 16,217 6,232 12,779 15,697 3,747 2,978
Provision for income
taxes.............. 4,218 6,691 712 4,217 4,584 1,237 1,042
Net income........... 2,819 9,526 5,520 8,562 11,113 2,510 1,936
Preferred stock
dividends.......... 70 -- -- -- -- -- --
----------- ------------ ------------ ----------- ----------- -------- --------
Net income applicable
to common stock.... $ 2,749 $ 9,526 $ 5,520 $ 8,562 $ 11,113 $ 2,510 $ 1,936
----------- ------------ ------------ ----------- ----------- -------- --------
----------- ------------ ------------ ----------- ----------- -------- --------
Earnings per common
share -- basic(2)(3)... $ 0.32 $ 0.79 $ 0.46 $ 0.71 $ 0.90 $ 0.21 $ 0.15
Earnings per common
share -- diluted(2)(3)... $ 0.30 $ 0.77 $ 0.44 $ 0.69 $ 0.85 $ 0.20 $ 0.15
Weighted average
shares outstanding --
basic(2)(3)... 12,015 12,015 12,032 12,032 12,412 12,096 12,602
Weighted average
shares outstanding --
diluted(2)(3)... 12,804 12,451 12,440 12,498 13,022 12,706 13,273

SELECTED OPERATING DATA:
EBITDA(4)............ $ 19,710 $ 25,920 $ 16,821 $ 24,569 $ 28,479 $ 7,162 $ 6,713
Depreciation and
amortization....... 5,019 5,603 6,462 7,437 8,511 1,969 2,535
Net capital
expenditures(5).... 10,558 18,727 13,165 11,979 25,484 2,440 12,312
Backlog of unfilled
customer orders.... 28,000 24,619 24,459 29,063 53,427 30,275 69,904
Unit volume (in
yards)............. 36,289 41,641 40,761 43,552 44,976 11,013 12,224
Average gross sales
price per yard..... $ 3.87 $ 4.06 $ 3.88 $ 4.05 $ 4.23 $ 4.26 $ 4.52
</TABLE>

<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 4,
1994 1994 1995 1997(1) 1998 1998
----------- ------------ ------------ ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...... $ 25,915 $ 30,994 $ 30,780 $ 32,620 $ 42,634 $ 47,651
Total assets......... 109,908 130,476 138,117 148,832 178,088 194,852
Long-term debt and
capital leases..... 35,172 43,845 45,118 42,235 52,772 65,321
Stockholders'
equity............. 43,574 52,589 57,850 66,572 82,313 84,261
</TABLE>

(footnotes on next page)

(footnotes from previous page)

(1) The fiscal year ended January 4, 1997 was a 53-week period.

(3) Reflects a three-for-two stock split paid on June 19, 1998.

(4) 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.

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

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

The new products the Company has introduced since 1994 have resulted in
record demand for Quaker's products and significant increases in the Company's
order rates, sales and backlog of customer orders pending. To meet this demand
and improve customer service, in 1997, Quaker began implementing an $80.0
million capital investment program to expand capacity in the Company's weaving,
yarn manufacturing, and fabric finishing areas and to upgrade the Company's
management information and production planning and control systems. By the end
of 1998, the Company will have the capacity to manufacture approximately 63.0
million yards of upholstery fabric annually. In 1996 and 1997, the Company sold
43.6 million and 45.0 million yards of fabric, respectively. Pending completion
of this program, the Company has focused on meeting customer demand by incurring
significant overtime expenses and outsourcing a portion of its manufacturing
requirements, reducing the Company's gross margin percentage. Further, since the
second quarter of 1997, the Company's gross margin percentage has also been
adversely affected by expenses related to its expansion program, including
facilities planning and set-up costs, hiring and training expenses, and
manufacturing inefficiencies related to the installation and start-up of new
equipment and operations within its existing manufacturing facilities.

The Company intends to complete the $80.0 million capital investment
program it began implementing in 1997 by investing $42.2 million during the last
three quarters of 1998. To support the Company's long-term growth, Quaker is
developing a new capital investment program. This new program would provide for
the investment of approximately $50.0 million to construct or acquire and to
equip a modular manufacturing facility in the Fall River area. Management
believes that adding capacity at a separate facility will allow the Company to
increase production, with minimal disruption to its existing operations.

During 1995, the Company reported a decrease in net sales and lower gross,
operating and net margins principally as a result of adverse economic and
industry conditions in the Company's U.S. and international markets. Significant
market price increases for the Company's most important raw materials adversely
affected the Company's gross margin, as the Company was unable to fully pass
along these cost increases to customers until 1996. Finally, the Company
experienced a number of sharp changes in its order rates which adversely
affected equipment utilization rates, quality performance and overtime costs.

In 1996, management implemented a comprehensive performance improvement
plan to increase sales, margins and earnings. The successful implementation of
this plan caused the Company's sales and margins to improve compared to prior
periods in each of the last three quarters of 1996 and during the first two
quarters of 1997 primarily as a result of (i) increased domestic and
international sales of higher margin, middle to better-end fabrics, (ii)
improved manufacturing efficiencies related to the acquisition of newer, more
efficient manufacturing equipment and more efficient use of the Company's
existing equipment, (iii) improved quality performance, and (iv) decreased raw
material costs.

QUARTERLY OPERATING RESULTS

The following table sets forth certain condensed unaudited consolidated
statements of income data for the nine fiscal quarters ended April 4, 1998.

<TABLE>
<CAPTION>
FISCAL
FISCAL 1996(1) FISCAL 1997(1) 1998(1)
---------------------------------------- ---------------------------------------- -----------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $43,254 $51,025 $46,436 $58,141 $53,198 $52,475 $55,130 $58,371 $62,730
Gross margin............... 9,297 11,312 10,751 14,709 13,099 13,006 12,656 13,012 13,591
Gross margin percentage.... 21.5% 22.2% 23.2% 25.3% 24.6% 24.8% 23.0% 22.3% 21.7%
Operating income........... 2,673 4,014 4,053 6,208 4,631 5,020 4,873 4,938 4,193
Operating income
percentage............... 6.2% 7.9% 8.7% 10.7% 8.7% 9.6% 8.8% 8.5% 6.7%
Income before provision for
income taxes............. $ 1,696 $ 2,972 $ 2,984 $ 5,127 $ 3,747 $ 4,181 $ 3,925 $ 3,844 $ 2,978
------- ------- ------- ------- ------- ------- ------- ------- -----------
Net income................. $ 1,136 $ 1,992 $ 1,999 $ 3,435 $ 2,510 $ 2,801 $ 3,080 $ 2,722 $ 1,936
------- ------- ------- ------- ------- ------- ------- ------- -----------
------- ------- ------- ------- ------- ------- ------- ------- -----------
Earnings per common
share -- basic........... $ .09 $ .17 $ .17 $ .29 $ .21 $ .22 $ .25 $ .22 $ .15
------- ------- ------- ------- ------- ------- ------- ------- -----------
------- ------- ------- ------- ------- ------- ------- ------- -----------
Earnings per common
share -- diluted......... $ .09 $ .16 $ .16 $ .27 $ .20 $ .21 $ .23 $ .21 $ .15
------- ------- ------- ------- ------- ------- ------- ------- -----------
------- ------- ------- ------- ------- ------- ------- ------- -----------
</TABLE>

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

(1) The data reflected in this table have 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.

The Company follows industry practice by closing its operating facilities
for a one-to-two week period during July of each year. In 1996, this shutdown
period, and the resulting effect on sales, occurred in the third fiscal quarter.
In 1997 and 1998, the first week of the annual shut down period occurred in the
second fiscal quarter.

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>
FIRST
FISCAL YEAR FISCAL QUARTER
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold..................................... 79.0 76.8 76.4 75.4 78.3
----- ----- ----- ----- -----
Gross margin.............................................. 21.0 23.2 23.6 24.6 21.7
Selling, general and administrative expenses.............. 15.1 14.7 14.7 15.9 15.0
----- ----- ----- ----- -----
Operating income.......................................... 5.9 8.5 8.9 8.7 6.7
Interest expense, net..................................... 2.2 2.1 1.7 1.7 1.9
Other expenses, net....................................... 0.1 -- -- -- --
----- ----- ----- ----- -----
Income before provisions for income taxes................. 3.6 6.4 7.2 7.0 4.8
Provisions for income taxes............................... 0.4 2.1 2.1 2.3 1.7
----- ----- ----- ----- -----
Net income................................................ 3.2% 4.3% 5.1% 4.7% 3.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

FIRST QUARTER OF 1998 COMPARED TO FIRST QUARTER OF 1997

Net Sales. Net sales for the first three months of 1998 increased $9.5
million, or 17.9%, to $62.7 million from $53.2 million for the first three
months of 1997. The average gross sales price per yard increased 6.1%, to $4.52
for the first three months of 1998 from $4.26 for the first three months of
1997. This increase was principally due to an increase in the average selling
price of middle to better-end

fabrics and an increase in foreign and export sales, which have a higher than
average selling price. The gross volume of fabric sold increased 11.0%, to 12.2
million yards for the first three months of 1998 from 11.0 million yards for the
first three months of 1997. The Company sold 13.0% more yards of middle to
better-end fabrics and 7.1% more yards of promotional-end fabrics in the first
three months of 1998 than in the first three months of 1997. The average gross
sales price per yard of middle to better-end fabrics increased by 7.2%, to $5.04
in the first three months of 1998 as compared to $4.70 in the first three months
of 1997. The average gross sales price per yard of promotional-end fabric
increased by 2.3%, to $3.49 in the first three months of 1998 as compared to
$3.41 in the first three months of 1997.

Gross fabric sales within the United States increased 16.1%, to $45.1
million in the first three months of 1998 from $38.9 million in the first three
months of 1997. Foreign and export sales increased 26.7%, to $10.1 million in
the first three months of 1998 from $8.0 million in the first three months of
1997. Gross yarn sales increased 19.2%, to $8.8 million in the first three
months of 1998 from $7.4 million in the same period of 1997.

Gross Margin. The gross margin percentage for the first three months of
1998 decreased to 21.7% as compared to 24.6% for the first three months of 1997.
The decrease in the gross margin percentage was primarily due to (i) lower
operating efficiencies and other period costs associated with the implementation
of the Company's $80.0 million capital investment program and (ii) overtime
expenses associated with operating almost all of the Company's manufacturing
areas on a six and one-half day per week schedule to meet customer demand.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $9.4 million for the first three months of
1998 from $8.5 million for the first three months of 1997. The increase in
selling, general and administrative expenses was primarily due to an increase in
labor and fringe benefits, yarn development expenses, continued expansion of the
design staff and period costs associated with the Company's entry into the
contract market. Selling, general and administrative expenses as a percentage of
net sales decreased to 15.0% in the first three months of 1998 from 15.9% in the
first three months of 1997. The decrease in selling, general and administrative
expenses as a percentage of net sales was due to a $480,000 non-cash increase in
stock option amortization expense in the first quarter of 1997. This charge was
due to the accelerated vesting of certain stock options as a result of the stock
offering during the first quarter of 1997. Adjusting for this charge would have
resulted in selling, general and administrative expenses as a percentage of net
sales of 15.0% in the first three months of 1997.

Interest Expense, Net. Interest expense increased to $1.2 million for the
first three months of 1998 from $875,000 for the first three months of 1997 due
to higher borrowings to fund the Company's capacity expansion plan and related
period costs together with a general increase in domestic interest rates.

Effective Tax Rate. The effective tax rate was 35.0% for the first three
months of 1998, and 33.0% for the first three months of 1997.

FISCAL 1997 COMPARED TO FISCAL 1996

Net Sales. Net sales for 1997 increased $20.3 million, or 10.2%, to $219.2
million from $198.9 million in 1996. 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 7.0%, to $150.5 million in 1997 from $140.7 million
in 1996. Foreign sales increased 11.1%, to $39.7 million in 1997 from $35.7
million in 1996. This increase was due to improved sales in Mexico and Canada as
well as increased penetration of other international markets. Gross yarn sales
increased 23.3%, to $33.0 million in 1997 from $26.8 million in 1996.

The gross volume of fabric sold increased 3.3%, to 45.0 million yards in
1997 from 43.6 million yards in 1996. The average gross sales price per yard
increased 4.4%, to $4.23 in 1997 from $4.05 in 1996. The increase was
principally due to a product shift to more middle to better-end fabrics. The
Company sold 2.5% more yards of middle to better-end fabrics and 4.7% more yards
of promotional-end fabrics in 1997 than in 1996. The average gross sales price
per yard of middle to better-end fabrics

increased by 6.5%, to $4.72 in 1997 from $4.43 in 1996. The average gross sales
price per yard of promotional-end fabrics increased by 0.3%, to $3.41 in 1997
from $3.40 in 1996.

Gross Margin. The gross margin percentage for the first half of 1997
increased to 24.7% as compared to 21.9% for the first half of 1996. The increase
in the gross margin percentage was due to (i) increased sales volume in the
higher-margin middle to better-end and foreign/export fabric categories, (ii)
lower manufacturing costs resulting from improved manufacturing efficiencies,
and (iii) improved manufacturing quality performance resulting in a decrease in
sales of second quality fabric. For the second half of 1997, the gross margin
percentage was 22.6% as compared to 24.3% in 1996. This decrease is attributable
to the effects of the capacity expansion program initiated during the third
quarter of 1997. The adverse effects on gross margin included higher training
costs, reorganization of manufacturing facilities and operations, production
inefficiencies and higher overtime.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $32.3 million in 1997 from $29.1 million in
1996 due to increases in sales commissions, labor and fringes, and freight
expenses associated with the Company's higher net sales for the period. Selling,
general and administrative expenses as a percentage of net sales were 14.7% in
both 1997 and 1996.

Interest Expense, Net. Interest expense decreased to $3.7 million in 1997
from $4.1 million in 1996 principally due to the use of proceeds from the sale
of 450,000 shares of Common Stock in March 1997 to repay amounts borrowed under
the Credit Agreement.

Effective Tax Rate. The effective tax rate decreased to 29.2% in 1997 from
33.0% in 1996. The decrease in the effective tax rate was due to the reversal of
tax reserves no longer required and the increase in the foreign sales
corporation benefit partially offset by an increase in state and foreign income
taxes. See Note 6 of Notes to Consolidated Financial Statements included
elsewhere herein.

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 increase 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.

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.

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 expansion of the Company's production capacity and increased
working capital needs associated with the growth of the Company's sales.

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 $12.0 million, $14.8 million, $11.1 million and $67,000 in 1995,
1996, 1997 and the first quarter of 1998, respectively. Net cash provided by
operating activities decreased significantly during the first quarter of 1998
primarily due to (i) an increase in accounts receivable related to increased
sales during the first quarter and (ii) an increased investment in inventory
needed to support higher anticipated production levels during the second quarter
in response to a significant increase in the Company's backlog. The Company has
supplemented its operating cash flow with borrowings. Net borrowings
(repayments) and equipment leases were $1.3 million in 1995, $(2.5) million in
1996, $10.2 million in 1997 and $12.6 million in the first quarter of 1998. The
Company also received net proceeds of $3.3 million from the public offering and
sale of 450,000 shares of Common Stock in March 1997.

Capital expenditures in 1995, 1996, 1997 and the first quarter of 1998 were
$13.2 million, $12.0 million, $25.5 million and $12.3 million, respectively.
Capital expenditures during 1997 were funded by operating cash flow, borrowings
under the Credit Agreement and the March 1997 public offering. Capital
expenditures during the first quarter of 1998 were funded primarily by
borrowings under the Credit Agreement. Management anticipates that capital
expenditures will total approximately $42.2 million in the remainder of 1998,
primarily for new production equipment to expand capacity in the Company's yarn
manufacturing, weaving and fabric finishing areas, and to complete the upgrade
of the Company's management information systems. In addition to this $80.0
million capital investment program, the Company is developing a new program to
invest approximately $50.0 million in capital expenditures to increase capacity.
Management believes that the net proceeds to the Company from this offering,
together with cash flow from operations and borrowings under the Company's
Credit Agreement, will provide sufficient funding for the Company's capital
expenditures and working capital needs for at least the next 18 months.

As discussed in Note 5 of Notes to Consolidated Financial Statements
included elsewhere herein, the Company issued $45.0 million of Senior Notes due
October 2005 and 2007 (the 'Senior Notes') during 1997. Proceeds from the Senior
Notes were used to replace the 6.81% Series A Notes and reduce borrowings under
the Credit Agreement. One Senior Note in the principal amount of $15.0 million
bears interest at a fixed rate of 7.09% per year and the other Senior Note in
the principal amount of $30.0 million bears interest at a fixed rate of 7.18%
per year. Annual principal payments begin on October 10, 2003 with a final
payment due October 10, 2007.

In December 1997, the Company amended its Credit Agreement to extend its
maturity to December 31, 2002. The Credit Agreement provides for interest at a
variable rate based on LIBOR plus an applicable margin or the prime rate, at the
Company's option. As of July 29, 1998, the interest rate under the Credit
Agreement was 8.5% per year. As of April 4, 1998, the Company had $14.8 million
outstanding under the Credit Agreement and unused availability of $35.1 million,
net of outstanding letters of credit. In June 1998, the Company further amended
its Credit Agreement to increase the amount of the facility from $50.0 million
to $70.0 million and to eliminate covenant

limitations with respect to capital expenditures. The Company intends to use a
portion of the net proceeds from the offering to repay all amounts outstanding
under the Credit Agreement. After such repayment, the Company will have
approximately $68.9 million of availability under the Credit Agreement, 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 Senior 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, 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 Senior Notes and management believes the Company's
continued compliance will not prevent the Company from operating in the normal
course of business.

INFLATION

The Company does not believe that inflation has had a significant impact on
Quaker'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

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, 'Reporting Comprehensive Income.' SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components (e.g. foreign currency translation adjustments and unrealized
gains and losses on certain marketable securities). 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 April 4, 1998
were $1.8 million. Mexico has been designated as a 'highly inflationary country'
for purposes of applying SFAS No. 52, Foreign Currency Translation. Accordingly,
in 1997 and 1998 the Company recorded translation gains and losses in the income
statement rather than as a separate component of equity.

YEAR 2000

During 1996, the Company began a project to review all of its computer
systems. Among the considerations at that time was the effect, if any, the year
2000 would have on computer systems. In late 1996, the Company made a commitment
to purchase and install a new computer system to meet its current and projected
needs. In addition to providing new systems applications, the software is year
2000 compliant.

The Company recently completed the conversion of its management information
system to a new management information, or Enterprise Resource Planning, system
and anticipates that full implementation will be completed by the end of 1998.
Management believes that subject to the successful implementation of this new
software package, the year 2000 issue will not have a material adverse impact on
the Company's results of operations. See 'Risk Factors -- New Computer Systems
and Year 2000 Software Risk.'

BUSINESS

GENERAL

To support the Company's long-term growth, Quaker is developing a new
capital investment program. This new program would provide for the investment of
approximately $50.0 million to construct or acquire and to equip a modular
manufacturing facility in the Fall River area. Management believes that adding
capacity at a separate facility will allow the Company to increase production,
with minimal disruption to its existing operations.

The Company's revenues increased from $123.4 million in 1992 to $219.2
million in 1997, representing a CAGR of 12.2%. Reflecting strong demand for the
Company's products, Quaker's backlog of unfilled customer orders at the end of
the first quarter of 1998 was $69.9 million, a 131% increase over the backlog at
the end of the first quarter of 1997 and a 31% increase over the backlog at the
end of 1997.

INDUSTRY

In 1997, total domestic residential upholstery fabric sales were
approximately $2.0 billion. 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.

Demand for upholstery fabric is a function of consumer demand for
upholstered furniture. Domestic shipments of upholstered furniture on a
wholesale basis have grown from $5.8 billion in 1992 to $8.7 billion in 1997, a
CAGR of 7.8%. Total upholstered furniture demand is affected by population
growth, consumer confidence, and economic and demographic factors, including
housing starts, disposable income 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. As a result, the fabric decisions a furniture manufacturer makes play
a critical role in its ability to gain a product differentiation advantage at
the retail level.

Upholstery fabric is also sold to the contract (office, commercial and
institutional applications), automotive and recreational vehicle industries.
Fabrics sold into these non-residential market segments must be more abrasion
resistant and meet more stringent performance standards than fabrics sold into
the residential market.

Industry Consolidation. The furniture industry has been consolidating at
both the retail and manufacturing levels for several years. As a result, fabric
suppliers are required to deal with larger customers that require shorter
delivery lead times, customer-specific inventory management programs, and
additional information technology-based support services. Large integrated
fabric suppliers have an advantage over smaller competitors because of their
ability to meet the volume and delivery requirements of the large furniture
manufacturers and retailers and offer a broader range of product choices.

Trend Toward Casual Lifestyles. The Company believes that there is a
growing trend in the United States toward a more casual lifestyle, as evidenced
by 'casual Fridays' in the workplace and product shifts in the apparel and home
furnishings industries. Management believes this trend has resulted in growing
demand for less formal furniture upholstered with more comfortable fabric.

Increased Usage of and Applications for Jacquard Fabrics. 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. 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.

Expanding Export Sales. Management believes most of the largest U.S. fabric
producers have expanded their export sales, leveraging their size and broad
product lines. U.S. fabric producers with international distribution
capabilities have also benefitted from a growing demand for American styles and
designs by foreign consumers.

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:

Innovative Product Design and Development. Management believes that
Quaker's product design and development expertise is the Company's most
important competitive strength. The Company's designers work directly with
furniture retailers and Quaker's customers to assess general market trends and
specific design, color, quality and price point requirements. Each year, Quaker
creates and adds more than 700 new fabric patterns to its product line. The
Company's most important new product developments include its abrasion-resistant
Ankyra chenille fabrics first sold in 1995, the elegant, high-end Jacquard
fabrics included in its Whitaker Collection first introduced in 1996, and the
finishing

process marketed as Quaker Plush which the Company first began using in 1997 to
enhance the appearance and softness of its middle to better-end fabrics.
Management believes that the Company's focus on the creation of unique Jacquard
products is the primary reason for Quaker's reputation as a value-added supplier
to its customers and a design leader in its industry.

State-of-the-Art Operations. Management believes that the Company has one
of the most modern manufacturing operations in the industry and that the
Company's ongoing investments in state-of-the-art equipment, a well-trained
workforce and new information systems technology will allow Quaker to gain a
service advantage over its competitors. In addition, management is committed to
building quality into each product manufactured by the Company and, consistent
with that commitment, Quaker achieved ISO 9001 certification of its operations
in December 1997.

GROWTH STRATEGY

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

Capitalize on Increased Demand. To meet increased customer demand, the
Company has been investing aggressively to expand its production capacity and
enhance its customer service. During the 15-month period ended April 4, 1998,
the Company invested $37.8 million in capital expenditures, and has budgeted
additional capital expenditures of $42.2 million through the end of 1998. In
addition to this $80.0 million capital investment program, the Company is
developing a plan to invest approximately $50.0 million in capital expenditures
to increase capacity. Management believes that adding capacity at a separate
facility will allow the Company to increase production, with minimal disruption
to its existing operations.

Enhance Product Mix. Since 1992, the Company has expanded the number of
middle to better-end fabrics in its line, enabling the Company to increase sales
of higher margin products to its existing customers and to add new higher-end
furniture manufacturers to its customer base. As a result, sales of the
Company's middle to better-end products have increased from $66.3 million in
1992 to $132.8 million in 1997 and the average gross sales price per yard of the
Company's fabrics has increased from $3.66 in 1992 to $4.23 in 1997. The success
of Quaker's Whitaker Collection and Quaker Plush fabrics has resulted in
additional favorable product mix shifts, causing the average gross sales price
per yard of the Company's middle to better-end product category to increase from
$4.70 during the first quarter of 1997 to $5.04 during the first quarter of
1998.

Continue Development of International Sales. Quaker has built an
international sales and distribution network to develop and market fabrics which
meet the styling and design needs of its international customers. Key existing
international markets include Canada, Mexico and the Middle East. To support its
sales into the Mexican market, the Company has operated a distribution and
customer service center in Mexico City since 1991. With the establishment of
additional distribution and customer service centers modeled after the Company's
existing Mexico City operation and aggressive marketing efforts by Quaker's
international sales staff, management believes that significant opportunities
exist for additional sales in Europe, Australia, Latin America and the Far East.

vehicle markets. Management believes Quaker's Jacquard Ankrya chenille fabrics
and Quaker Plush products will provide the Company with a product advantage in
these markets.

Expand Specialty Yarn Sales. Quaker is a leading producer of specialty
yarns and management believes it is the world's largest producer of chenille
yarns, including its proprietary, abrasion-resistant Ankyra chenille yarns.
Sales of the Company's specialty yarns have increased from $7.8 million (gross)
in 1992 to $33.0 million (gross) in 1997, a CAGR of 33.4%. In addition to the
popularity of the Company's current line of chenille and other specialty yarns,
Quaker regularly creates innovative specialty yarns for use in the Company's
fabrics and for sale to the Company's customers in the domestic apparel and home
furnishings markets. In addition, the Company believes that important markets
exist for its specialty yarns outside the United States. Management believes
additional planned expansion of the Company's yarn manufacturing capacity will
allow Quaker to increase sales of specialty yarns to producers of apparel and
home furnishings products.

PRODUCTS

The Company's primary products are upholstery fabrics (85.5% of the
Company's 1997 net sales) and specialty yarns (14.5% of the Company's 1997 net
sales).

Upholstery Fabrics. The Company offers a broad assortment of contemporary,
traditional, transitional and country fabrics at promotional to better-end
prices ranging from $2.50 to $20.00 per yard. While most of the Company's
fabrics are sold under the Quaker label, in late 1996, the Company began
marketing a select group of its higher margin, middle to better-end fabrics
under its Whitaker brand. In 1997, the Company introduced its new line of Quaker
Plush products, which benefit from an additional finishing process to enhance
their appearance and feel and which are known for their softness, vibrant colors
and rich appearance.

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 offering more
products 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. Quaker's broad product line allows its customers to meet most of their
fabric needs through one full-service supplier and to create coordinated fabric
groupings that differentiate their new lines of upholstered furniture from those
of their competitors.

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 1995:

<TABLE>
<CAPTION>
FISCAL YEAR FIRST FISCAL QUARTER
----------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- -------------- --------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
(IN THOUSANDS, EXCEPT PER YARD DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross fabric sales
(dollars):
Promotional-end
fabrics.............. $ 57,023 36.0% $ 54,716 31.0% $ 57,395 30.2% $12,992 27.7% $14,222 25.7%
Middle to better-end
fabrics.............. 101,201 64.0 121,702 69.0 132,788 69.8 33,874 72.3 41,047 74.3
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Gross fabric
sales............ $158,224 100.0% $176,418 100.0% $190,183 100.0% 46,871 100.0% $55,269 100.0%
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Gross fabric sales (yards):
Promotional-end
fabrics.............. 17,042 41.8% 16,074 36.9% 16,822 37.4% 3,809 34.6% 4,080 33.4%
Middle to better-end
fabrics.............. 23,719 58.2 27,478 63.1 28,154 62.6 7,204 65.4 8,144 66.6
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Gross fabric
sales............ 40,761 100.0% 43,552 100.0% 44,976 100.0% 11,013 100.0% 12,224 100.0%
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Average gross sales price
per yard:
Promotional-end
fabrics.............. $ 3.35 $ 3.40 $ 3.41 $ 3.81 $ 3.49
Middle to better-end
fabrics.............. 4.27 4.43 4.72 4.70 5.04
Average per yard -- all
fabrics.............. 3.88 4.05 4.23 4.26 4.52
</TABLE>

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 copyrighted Jacquard fabrics
manufactured using special Jacquard equipment. All of Quaker's looms are
equipped with Jacquard heads that can also be used to produce striped, plaid and
plain woven fabrics. The use of Jacquard heads makes it possible to produce
complex woven designs by varying the pattern, color and texture of both the
filling and warp yarns in the fabric. The Company's copyrighted Jacquard designs
allow Quaker to compete effectively with printed flat-woven and textured
fabrics. Fabrics manufactured on looms without Jacquard heads have a much more
limited range of styling and design options.

Quaker's fabrics 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 its line of
chenille fabrics under its Ankyra label. Through a licensing agreement with
Solutia, Inc., formerly 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.

On request, Quaker will create custom patterns for customers seeking to
differentiate their products for distribution purposes, hit a certain retail
price point 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.'

Specialty Yarn. Quaker is a leading developer and manufacturer of specialty
yarns, including a variety of chenille and spun yarns. Management believes the
Company is the world's largest producer of chenille yarns, 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 1997, net sales of Quaker's specialty yarns were
$31.7 million.

PRODUCT DESIGN AND DEVELOPMENT

Upholstery Fabric. Management believes that Quaker's design staff has an
established reputation for design excellence and product leadership. The
Company's 52-person design staff has overall responsibility for developing the
Company's new upholstery patterns. Substantially all of the Company's fabric
designs and construction specifications are created using state-of-the-art
computer aided design ('CAD') equipment to reduce the new product development
cycle.

Quaker's designers monitor new product directions in the domestic and
international home furnishings and apparel industries to identify consumer
fashion and styling trends. Designers shop international fashion centers,
including New York, San Francisco, London, Paris and Milan, to identify emerging
color, furniture silhouette and shape, fabric construction and other styling
trends at the consumer level. The Company's designers then interpret these
fashion and styling trends to develop current and innovative upholstery fabrics
to satisfy consumer preferences in the promotional-end and middle to better-end
furniture categories. The development of each new fabric line requires four to
five months and begins with the preparation of a merchandising plan for the
line. Merchandising plans are based on extensive input from Quaker's design
staff, sales representatives, senior managers and major customers and provide
the Company's designers with detailed guidelines to follow as they develop the
new products the Company plans to introduce in each major styling category and
at each major price point.

In addition, Quaker's vertically integrated manufacturing operations enable
the design of products featuring the Company's unique yarns and advanced fabric
finishing practices. After each new fabric merchandising plan is developed,
members of the Company's fabric design and yarn development staff meet to
identify the Company's yarn requirements for its next fabric line. Many of
Quaker's proprietary yarns trace their origins to this design-driven process.
Quaker's process engineering and manufacturing staffs evaluate each proposed new
fabric for its effect on raw material costs, equipment utilization rates and
quality performance. Although some plain, striped and plaid fabrics remain in
the Company's product line for ten years or more, a successful product typically
has a life of two to three years.

Specialty Yarn. Management believes that 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, in 1997, the
United States Patent and Trademark Office awarded patent protection to Quaker
for its Ankyra process.

SALES AND MARKETING

Upholstery Fabrics. 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 38.6% of 1997 net sales compared
with 40.8% of 1996 net sales. None of the Company's customers accounted for more
than 5% of net sales during 1997.

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 1995:

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

(1) Foreign sales consists of both direct exports from the United States as well
as sales from the Company's Mexico City distribution center.

Quaker's domestic fabric customers include manufacturers focused on the
higher volume, promotional-end of the market and those focused on the lower
volume, middle to better-end of the market. These two customer groups have
different styling, design, volume, pricing and service requirements, and Quaker
is organized to be responsive to their differing needs. Quaker's promotional-end
customers typically place large orders with the Company for a particular fabric
or family of fabrics at one time and they place a high value on Quaker's ability
to meet their volume requirements and pricing needs. Quaker's middle to
better-end fabric customers are generally less price sensitive but focused on
the Company's product styling, design and quality performance. The orders placed
by Quaker's middle to better-end customers are generally smaller and more
diverse than those placed by promotional-end manufacturers.

The Company employs a direct marketing force of 23 sales representatives,
four of whom are based in Quaker's Mexico City distribution center, to market
its fabrics in the United States and Mexico. All sales representatives are paid
on a commission basis. The Company maintains showrooms and sales offices in Fall
River, Massachusetts; Mexico City, Mexico; Hickory and High Point, North
Carolina; Chicago, Illinois; Tupelo, Mississippi; and Los Angeles, California.

Quaker's United States customers market their products through the
International Home Furnishings Market (the 'High Point Market') held each year
in April and October in High Point, North Carolina, and several regional shows.
Quaker's design and marketing process is closely linked to these trade shows.
The Company introduces its two major lines, each with over 350 new patterns, at
the 'Showtime Fabric Fair' ('Showtime') held in High Point in January and July
of each year. Almost all major U.S. furniture manufacturers attend Showtime to
begin selecting fabric styles for the new lines of upholstered furniture they
intend to introduce at the next High Point Market. The Company also introduces
two less extensive product lines in April and October of each year to respond to
competitive opportunities identified at the January and July Showtime trade
shows.

The Company distributes its products from facilities in Fall River,
Massachusetts; Los Angeles, California; Mexico City, Mexico; High Point, North
Carolina; and Verona, Mississippi. The Company also maintains inventory in
Roosendaal, Holland.

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. Quaker also markets its fabrics at a number of trade shows regularly
attended by its export customers, including shows in Belgium, Dubai, Germany,
Italy, and Mexico, as well as certain trade shows in the United States aimed at
the international market. 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 and sales from its Mexico City, Mexico
distribution center.

Specialty Yarns. Net yarn sales during 1997 were $31.7 million, or
approximately 14.5% of the Company's net sales. 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 to manufacturers of sweaters and other apparel. The Company
is widely

known for its chenille yarns and substantially all of its yarn revenues are
attributable to sales of this particular yarn type.

Among the special services offered by Quaker to its yarn customers is the
preparation of color forecasts reflecting emerging color trends within the
industry. The Company's customers use these color forecasts when selecting the
yarns they intend to feature in their product offerings. The Company's technical
expertise in the yarn development and yarn manufacturing areas is highly valued
by its yarn customers, and Quaker frequently develops custom yarns for
particular uses by its larger customers.

In 1997, Quaker began supplying its Ankyra chenille yarns for use in the
interiors of General Motors' GEO Prism line, and the Company was recently
selected to supply the yarn requirements for the 1999 GEO Prism model year.
Management believes that this ongoing relationship has provided Quaker with the
expertise required to sell additional yarn, and potentially fabric, into the
automotive market.

MANUFACTURING

Quaker's manufacturing operations are vertically integrated from the
production of specialty yarns through the weaving and finishing of upholstery
fabrics. Substantially all of the Company's fabrics and yarns are produced in
Quaker's four manufacturing facilities in Fall River, Massachusetts, and in July
1998, the Company began manufacturing yarn in a fifth manufacturing facility. In
addition, the Company is planning to build or acquire a new modular
manufacturing facility to further increase its production capacity. Management
believes that adding capacity through a separate facility will allow the Company
to expand production capacity in the future, with minimal disruption to its
existing operations.

Production Planning and Control. To reduce the Company's manufacturing
costs and inventory risks and to improve productivity and quality, Quaker uses a
fully automated management information system for production planning and
control purposes. Quaker's detailed daily and weekly production schedules are
fully integrated, from raw materials sourcing through the receipt of finished
fabrics and yarns in the Company's finished goods warehouses and, with the
exception of fabrics produced for sale through the Company's four distribution
centers, each schedule is based on actual customer orders. The Company is in the
process of upgrading its management information system to an Enterprise Resource
Planning system to (i) take advantage of the more sophisticated technology and
capacity planning software currently available, and (ii) further the Company's
quality, customer service and productivity objectives. The Company recently
converted to a new Enterprise Resource Planning system and anticipates that full
implementation of the system will be completed by the end of 1998.

Raw Materials Sourcing. 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 sources 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.

Yarn Production. The Company manufactures most of the specialty filling
yarns used in its upholstery fabric, including chenille yarns, Taslan yarns and
spun yarns. The production of each yarn type requires the use of specialized
yarn manufacturing equipment and methods and Quaker's current yarn manufacturing
capacity is sufficient to meet approximately 70% of its specialty yarn needs.

Weaving. The Company produces Jacquard, plain, striped and plaid woven
fabrics. The Company weaves substantially all of its fabrics using its 450
looms, all of which are equipped with Jacquard heads. The Company has
increasingly emphasized the use of electronic Jacquard heads featuring
microprocessors that reduce the amount of time required for equipment
changeovers as the Company switches from the manufacture of one fabric pattern
to the next. To provide better service to its customers and to take full
advantage of the reduced equipment set-up times achievable through the use of
the Company's electronic Jacquard heads, Quaker schedules most of its shorter
production runs on this equipment, including those which typically result from
the smaller orders placed by its middle to better-end customers. The Company has
organized a 'mini-mill' operation, with special staffing levels and operating
procedures, for this purpose. In addition, Quaker is currently making a
transition from a

traditional 'batch and queue' manufacturing process to a cell manufacturing
approach in certain of its production areas. Management believes that the use of
these cell manufacturing techniques will further the Company's productivity,
quality and operating efficiency.

Finishing. Quaker's vertically integrated manufacturing base includes a
comprehensive fabric finishing operation. During the finishing process, a latex
backing is applied to most of the Company's fabrics to enhance their durability
and performance characteristics, and on customer request, a stainproofing agent
is also used. The Company's Quaker Plush products benefit from an additional
chemical and mechanical finishing process designed to enhance their appearance
and softness.

QUALITY ASSURANCE

The Company believes that product quality is a significant competitive
factor in both the domestic and international fabric markets. Quaker's quality
initiatives include: (i) a group incentive program in certain of its production
departments to factor quality into the overall compensation programs in these
areas; (ii) 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;
(iii) the assignment of quality control staff to each of the Company's weaving
areas and various other quality-critical production departments to identify
defects early in the manufacturing process; (iv) a final quality inspection of
the Company's yarn and fabric products before they are released for shipment;
(v) continuous monitoring of the Company's performance against industry and its
own internal quality standards; and (vi) ISO 9001 certification of all of its
operations.

As a result of these quality initiatives, the Company's quality-related
customer return rate, as a percentage of total yards shipped, improved from 0.8%
in 1995 to 0.6% in 1996 and 0.4% in 1997, and the Company's sales of
second-quality fabric as a percentage of total sales decreased from 2.2% in 1995
to 1.1% in 1996 and 0.6% in 1997.

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 management information system to provide
computerized support to the Company's manufacturing operations; (ii) the use of
CAD equipment to reduce the new product development cycle time required to bring
its new products to market, including the design of 'Specials'; (iii) the use of
bar-coding systems to improve the efficiency of its manufacturing operations and
customer 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 production costs.

During 1996, the Company and a leading consulting firm 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 technology solutions to the
Company's customers. As a result of this study, the Company recently converted
to a new Enterprise Resource Planning system and anticipates that full
implementation of the system will be completed by the end of 1998. Management
believes that the installation of the Company's new Enterprise Resource Planning
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; (iii) providing computerized support to the
Company's quality control system; and (iv) assisting the Company in maintaining
its ISO 9001 certification.

The Company's CAD equipment is used to develop new fabric designs and 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.

The Company first began introducing bar-coding technology in certain of its
operations in 1993. In 1998, 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.

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 heavily toward fabric
styling and design considerations. The Company's principal competitors include
Burlington Industries Inc., Culp, Inc., Joan Fabrics Corporation (including the
Mastercraft Division purchased from Collins & Aikman Corporation in 1997) and
Valdese Weavers, Inc. Several of the companies with which the Company competes
have greater financial resources than the Company. The Company's woven fabrics
products compete with other upholstery fabrics and furniture coverings,
including prints, flocks, tufts, velvets and leather. 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.

BACKLOG

At April 4, 1998, the Company had orders pending for approximately $69.9
million of fabric and yarn compared to $30.3 million at April 3, 1997. At
January 3, 1998, the Company had orders pending for approximately $53.4 million
of fabric and yarn compared to $29.1 million at January 4, 1997. 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 that 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. In 1997, the United States Patent and Trademark Office awarded
the Company a patent for the proprietary manufacturing process the Company
developed to produce these yarns. Quaker owns a federal registration issued by
the U.S. Patent and Trademark Office for its 'W' logo mark for upholstery
fabrics and for its 'WHITAKER' mark for textiles for use in the manufacture of
upholstery fabrics. The Company has also filed applications with the U.S. Patent
and Trademark Office to register its 'QUAKER PLUSH' and 'QUAKER FABRIC & Design'
marks. In addition, the Company has filed applications to register the mark
'QUAKER' in Canada, the European Union, Mexico and Turkey.

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 largest private sector
employer, in Fall River, Massachusetts. As of July 24, 1998, Quaker employed
2,259 people, including 1,855 production employees, 153 technical and clerical
employees, and 251 exempt employees and commissioned sales representatives.
Management believes that employee relations are good. None of the Company's
employees are represented by a collective bargaining agreement.

PROPERTIES

Quaker is headquartered in Fall River, Massachusetts, where it currently
has eight facilities, four used primarily for manufacturing purposes and three
for warehouse space. The eighth facility houses

the Company's executive, administrative and design areas as well as certain
manufacturing operations. Quaker is in the process of setting up a ninth
facility in the Fall River area for yarn manufacturing. 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
Graham Road, Fall River................... Manufacturing 52,000 Leased(1)
Airport Road, Fall River.................. Warehouse 28,000 Leased(2)
Fr. DeValles Blvd., Fall River............ Warehouse 23,408 Leased(3)
Lewiston Street, Fall River............... Warehouse 61,762 Leased(4)
County Street, Somerset, MA............... Manufacturing 52,500 Leased(5)
Verona, MS................................ Distribution Center 20,000 Owned
City of Industry, CA...................... Distribution Center 17,286 Leased(6)
Mexico City, Mexico....................... Distribution Center 9,000 Leased(7)
High Point, NC............................ Distribution Center 8,500 Leased(8)
</TABLE>

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

(1) Lease expires July 31, 2002

(2) Lease expires October 22, 1999.

(3) Lease expires December 15, 1998.

(4) Lease expires March 29, 2000.

(5) Lease expires May 20, 2000.

(6) Lease expires October 1, 2001.

(7) Lease expires February 5, 2000.

(8) 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
environmental or otherwise relating to the protection of the environment. The
Company is aware of soil and groundwater contamination relating to the use of
certain underground fuel oil storage tanks at certain of its present and former
facilities and 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.

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)............... 54 President, Chief Executive Officer and Director
Anthony Degomes.................... 58 Vice President -- New Business Development
James A. Dulude.................... 42 Vice President -- Manufacturing
Thomas J. Finneran................. 58 Vice President -- Sales
Cynthia L. Gordan.................. 51 Vice President, Secretary and General Counsel
Paul J. Kelly...................... 53 Vice President -- Finance, Treasurer and Chief Financial
Officer
Thomas H. Muzekari................. 57 Vice President -- Marketing
M. Beatrice Spires................. 36 Vice President -- Styling and Design
J. Duncan Whitehead................ 56 Vice President -- Technology and Development, and Yarn Sales
Sangwoo Ahn(1)(2)(3)............... 59 Chairman of the Board
Jerry I. Porras(1)(3).............. 59 Director
Eriberto R. Scocimara(2)........... 62 Director
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

(3) Member of the Stock Option 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 1989 ('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 from July 1988 to March 1996 and
Vice President -- Sales from January 1982 to July 1988. From 1973 to

January 1982, Mr. Finneran was responsible for sales and marketing of velvets,
Jacquard and dobbie product lines at Joan Fabrics Corporation.

Cynthia L. Gordan. Ms. Gordan has been employed by the Company since March
1988 and has served as Vice President, Secretary and General Counsel of the
Company since March 1989. Ms. Gordan is also responsible for the Company's Risk
Management, Investor Relations and Human Resources functions. From April 1986 to
November 1987, Ms. Gordan served as a Senior Associate in the Corporate
Department of the Chicago law firm of Katten Muchin & Zavis. From November 1981
to April 1986, Ms. Gordan was employed by The General Electric Company where she
served first as the Vice President and General Counsel of General Electric's
life, property and casualty insurance affiliates in Providence, Rhode Island,
and later as the strategic planner and acquisition specialist for a division of
General Electric Capital Corporation.

Paul J. Kelly. Mr. Kelly has served as Vice President -- Finance, Treasurer
and Chief Financial Officer of the Company since December 1989 and, since
November 1993, has also had responsibility for working with industry and
institutional equity research analysts. From January 1988 to December 1989, Mr.
Kelly was the co-founder and President of International Business Brokers and
Consultants Ltd., a business broker and consulting firm. From December 1977 to
December 1987, Mr. Kelly served as Chief Financial Officer of Ferranti Ocean
Research Equipment, Inc., an international manufacturing concern. From February
1973 to December 1977, he was a certified public accountant with Arthur Andersen
& Co.

Thomas Muzekari. Mr. Muzekari has served as Vice President -- Marketing
since March 1996. From September 1989 until February 1996, Mr. Muzekari was the
Vice President -- Marketing for the Velvet Division of Collins & Aikman Group,
Inc. ('C&A').

M. Beatrice Spires. Ms. Spires has been employed by the Company since
September 1995 and has served as Vice President -- Styling and Design since
March 1996. From September 1995 to March 1996, Ms. Spires served as Quaker's
Director of Design. From July 1992 to September 1995, Ms. Spires was Vice
President -- Merchandising for the Velvet Division of C&A. From September 1991
to July 1992, Ms. Spires was Merchandising Manager of C&A.

J. Duncan Whitehead. Mr. Whitehead has served as Vice
President -- Technology and Development, and Yarn Sales since December 1996. Mr.
Whitehead served as Vice President -- Research and Technology, and Yarn Sales
from August 1995 to December 1996. Mr. Whitehead served as Vice President, Yarn
Sales and Development from May 1990 to August 1995. From September 1989 to May
1990, Mr. Whitehead was the Vice President -- Sales and Marketing for the
Company's Nortex Division. From July 1983 to September 1989, Mr. Whitehead
served as Vice President of Sales and Marketing for Nortex International.

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

Jerry I. Porras. Mr. Porras has served as a director of the Company since
May 21, 1997. Mr. Porras is the Lane Professor of Organizational Behavior and
Change at Stanford University's Graduate School of Business, where he has taught
varied courses on organizational behavior and change for the last 25 years.
Since 1970, Mr. Porras has been the President of Jerry I. Porras Associates,
Inc., a consulting firm which advises a wide variety of public and private
organizations. Mr. Porras is also a co-owner of Stream Analytics, Inc., a
software firm which develops applications for organizational diagnosis and
change management. Mr. Porras also serves on the boards of directors of State
Farm Life Insurance Company and State Farm General Insurance Company.

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, since 1984. Mr. Scocimara also serves as a director of Carlisle
Companies Incorporated, Cofinec N.V., Euronet Services, Inc., Harrow Industries,
Inc. and Roper Industries, Inc.

All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
The Company's President, Secretary and Treasurer are elected annually by the
Board at its first meeting following the annual meeting of stockholders. All
other executive officers hold office until their successors are chosen and
qualified.

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

COMMITTEES

The Board of Directors has established an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee, currently composed
of Messrs. Ahn and Scocimara, 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, Liebenow and Porras, 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 Stock Option Committee, currently composed of
Messrs. Ahn and Porras, administers the Company's stock option plans.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of July 29, 1998 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 (including the
Selling Stockholder). All share information reflects a three-for-two stock split
paid on June 19, 1998.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED
OFFERING AFTER THE OFFERING
-------------------- SHARES --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Nortex Holdings, Inc.(1).................................. 3,024,094 22.9 200,000 2,824,094 17.4
Larry A. Liebenow(2)(3)................................... 3,051,094 23.1 200,000 2,851,094 17.6
Anthony Degomes(3)(4)..................................... 3,033,094 23.0 200,000 2,833,094 17.5
J. Duncan Whitehead(3)(5)................................. 3,033,694 23.0 200,000 2,833,694 17.5
FMR Corp.(6).............................................. 1,484,100 11.7 0 1,484,100 9.5
Neumeier Investment Counsel LLC(7)........................ 717,300 5.7 0 717,300 4.6
Dimensional Fund Advisors Inc.(8)......................... 695,250 5.5 0 695,250 4.4
Sangwoo Ahn(9)............................................ 93,781 * 0 93,781 *
Jerry I. Porras(10)....................................... 2,500 * 0 2,500 *
Eriberto R. Scocimara(10)................................. 7,500 * 0 7,500 *
James A. Dulude(3)(11).................................... 100,164 * 0 100,164 *
Thomas J. Finneran(3)(10)................................. 9,000 * 0 9,000 *
Cynthia L. Gordan(3)(10).................................. 99,864 * 0 99,864 *
Paul J. Kelly(3)(10)...................................... 63,864 * 0 63,864 *
Thomas H. Muzekari(3)(10)................................. 54,000 * 0 54,000 *
M. Beatrice Spires(3)(10)................................. 79,500 * 0 79,500 *
All executive officers and directors as a group (12
persons)................................................ 3,579,867 26.2 200,000 3,379,867 20.3
</TABLE>

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

* Less than 1%

(1) Consists of (a) 2,468,556 shares of Common Stock owned directly by Nortex
Holdings and (b) 555,538 shares which Nortex Holdings has the right to
acquire upon exercise of an option granted by the Company in 1993 at an
exercise price of $0.80 per share. The address of Nortex Holdings is 941
Grinnell Street, Fall River, Massachusetts 02721. If the over-allotment
option is exercised in full, the number of shares being offered would be
300,000 and the number and percent of shares beneficially owned after the
offering would be 2,724,094 and 16.8%, respectively.

(2) Consists of (a) 27,000 shares of Common Stock issuable upon exercise of
options and (b) the shares of Common Stock beneficially owned by Nortex
Holdings. See footnote (1). Mr. Liebenow owns 70.5% of the outstanding
shares of Nortex Holdings and is the President and a director of Nortex
Holdings and, as such, may be deemed to beneficially own the shares owned
by Nortex Holdings.

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

(4) Consists of (a) 9,000 shares of Common Stock issuable upon exercise of
options and (b) the shares of Common Stock beneficially owned by Nortex
Holdings. See footnote (1). Mr. Degomes owns 12.0% of the outstanding
shares of Nortex Holdings and is an officer and director of Nortex Holdings
and, as such, may be deemed to beneficially own the shares owned by Nortex
Holdings.

(5) Consists of (a) 9,000 shares of Common Stock issuable upon exercise of
options, (b) the shares of Common Stock beneficially owned by Nortex
Holdings and (c) 600 shares of Common Stock held by Mr. Whitehead's
children. See footnote (1). Mr. Whitehead owns 17.5% of the outstanding
shares of Nortex Holdings and is an officer and director of Nortex Holdings
and, as such, may be deemed to beneficially own the shares owned by Nortex
Holdings.

(6) Based solely upon information obtained from a Schedule 13G filed with the
Commission on February 10, 1998, as amended. The address for FMR Corp. is
82 Devonshire Street, Boston, Massachusetts 02109.

(7) Based solely upon information obtained from a Schedule 13G filed with the
Commission on February 6, 1998. The address for Neumeier Investment Counsel
LLC is 26435 Carmel Rancho Blvd., Carmel, California 93923.

(8) Based solely upon information obtained from a Schedule 13G filed with the
Commission on February 10, 1998. Consists of shares deemed beneficially
owned by Dimensional Fund Advisors Inc. ('Dimensional'), a registered
investment advisor. Such shares are held in portfolios of advisory clients
of Dimensional. Dimensional disclaims beneficial ownership of such shares.
The address for Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.

(footnotes continued on next page)

(footnotes continued from previous page)

(9) Consists of (a) 76,281 shares of Common Stock owned directly by Mr. Ahn,
(b) 2,500 shares of Common Stock issuable upon exercise of options and (c)
15,000 shares of Common Stock held by Mr. Ahn's children. Mr. Ahn disclaims
beneficial ownership of the shares owned by his children.

(10) Consists of shares of Common Stock which the named individual has the right
to acquire upon the exercise of options.

(11) Consists of 99,864 shares of Common Stock which Mr. Dulude has the right to
acquire upon the exercise of options and 300 shares of Common Stock held by
his children. Mr. Dulude disclaims beneficial ownership of the shares owned
by his children.

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.

UNDERWRITING

The Underwriters named below, Prudential Securities Incorporated, The
Robinson-Humphrey Company, LLC and Wheat First Union, a division of Wheat First
Securities, Inc. (the 'Underwriters'), severally agreed, subject to the terms
and conditions contained in the Underwriting Agreement, to purchase from the
Company and the Selling Stockholder 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................................................... 1,280,000
The Robinson-Humphrey Company, LLC................................................... 960,000
Wheat First Securities, Inc. ........................................................ 960,000
---------
Total........................................................................... 3,200,000
---------
---------
</TABLE>

The Company and the Selling Stockholder 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 have advised the Company and the Selling Stockholder that
they propose to offer the Common Stock initially at the public offering price
set forth on the cover page of this Prospectus; that the Underwriters may allow
to selected dealers a concession of $0.40 per share; and that such dealers may
reallow a concession of $0.10 per share to certain other dealers. After the
public offering, the public offering price and the concessions may be changed by
the Underwriters.

The Company and the Selling Stockholder have granted the Underwriters
options, exercisable for 30 days from the date of this Prospectus, to purchase
up to 480,000 additional shares of Common Stock at the public offering price,
less underwriting discounts and commissions, as set forth on the cover page of
this Prospectus. Of this amount, the first 100,000 shares would be sold by the
Selling Stockholder and the remaining 380,000 shares would be sold by the
Company. The Underwriters may exercise such options solely for the purpose of
covering over-allotments incurred in the sale of the shares of Common Stock
offered hereby. To the extent such options to purchase are 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 3,200,000.

The Company and the Selling Stockholder 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 the Selling
Stockholder have agreed (except as to an aggregate of 150,000 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, 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 Stockholder 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 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 outstanding stock options,
which shares will be subject to similar restrictions on transferability.
Prudential Securities Incorporated may, in its sole discretion, at any time and
without 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 who are qualified market makers on the Nasdaq National Market have
engaged in passive market making transactions in the Common Stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act, as amended, during the business day prior to the pricing of the offering
before the

commencement of offers of sales of the Common Stock. Passive market makers must
comply with applicable volume and price limitations and must be identified as
such. In general, a passive market maker must display its bid at a price not in
excess of the highest independent bid for such security; if all independent bids
are lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.

In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Exchange Act, 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
than they are committed to purchase from the Company and the Selling
Stockholder, 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 480,000 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.

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 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 LLP have acted as counsel to Nortex Holdings
and its affiliates in certain matters.

EXPERTS

The consolidated financial statements and financial statement schedules
included in or made a part of 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.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets -- January 4, 1997 and January 3, 1998 (audited) and
April 4, 1998 (unaudited)................................................................................ F-3
Consolidated Statements of Income -- For the years ended December 30, 1995,
January 4, 1997 and January 3, 1998 (audited) and the three months ended April 5, 1997 and April 4, 1998
(unaudited).............................................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity -- For the years ended December 30, 1995,
January 4, 1997 and January 3, 1998 (audited) and the three months ended April 4, 1998 (unaudited)....... F-5
Consolidated Statements of Cash Flows -- For the years ended December 30, 1995, January 4, 1997 and
January 3, 1998 (audited) and the three months ended April 5, 1997 and April 4, 1998 (unaudited)......... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>

F-1

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 January 3, 1998, and the related statements of income, changes in
stockholders' equity and cash flows for each of the three years ended January 3,
1998. 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 January 3, 1998,
and the results of their operations and their cash flows for each of the three
years ended January 3, 1998, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 10, 1998 (except for the matter
discussed in Note 11, as to which the
date is July 29, 1998)

F-2

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, APRIL 4,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................... $ 385 $ 234 $ 567
Accounts receivable, less allowances of $2,052, $1,479 and $1,659 at
January 4, 1997, January 3, 1998 and April 4, 1998, respectively, for
doubtful accounts and sales returns and allowances................... 26,261 32,996 34,504
Inventories............................................................ 26,957 32,176 37,944
Prepaid income taxes................................................... 694 25 33
Prepaid expenses and other current assets.............................. 3,617 4,688 4,044
---------- ---------- -----------
Total current assets.............................................. 57,914 70,119 77,092
Property, plant and equipment, net of depreciation and amortization.... 84,045 101,307 111,158
Other assets:
Goodwill, net of amortization.......................................... 6,397 6,204 6,154
Deferred financing costs............................................... 322 251 227
Other assets........................................................... 154 207 221
---------- ---------- -----------
Total assets...................................................... $ 148,832 $ 178,088 $ 194,852
---------- ---------- -----------
---------- ---------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of debt................................................ $ 951 $ 995 $ 994
Current portion of capital lease obligations........................... 1,532 1,167 1,185
Accounts payable....................................................... 14,384 18,203 17,679
Accrued expenses and taxes............................................. 8,427 7,120 9,583
---------- ---------- -----------
Total current liabilities......................................... 25,294 27,485 29,441
Long-term debt, less current portion........................................ 35,731 47,436 60,287
Capital lease obligations, less current portion............................. 6,504 5,336 5,034
Deferred income taxes....................................................... 11,649 13,771 14,041
Other long-term liabilities................................................. 3,082 1,747 1,788
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:
12,031,645, 12,601,026 and 12,602,110 shares issued and outstanding
as of January 4, 1997, January 3, 1998 and April 4, 1998,
respectively......................................................... 120 126 126
Additional paid-in capital............................................. 41,908 46,530 46,542
Retained earnings...................................................... 25,959 37,072 39,008
Cumulative translation adjustment...................................... (1,415) (1,415) (1,415)
---------- ---------- -----------
Total stockholders' equity........................................ 66,572 82,313 84,261
---------- ---------- -----------
Total liabilities and stockholders' equity........................ $ 148,832 $ 178,088 $ 194,852
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

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

F-3

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------- ----------------------
DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1995 1997 1998 1997 1998
------------ ---------- ---------- --------- ---------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $173,487 $ 198,856 $ 219,174 $53,198 $62,730
Cost of products sold.............................. 137,083 152,787 167,401 40,099 49,139
------------ ---------- ---------- --------- ---------
Gross margin....................................... 36,404 46,069 51,773 13,099 13,591
Selling, general and administrative expenses....... 26,176 29,121 32,311 8,468 9,398
------------ ---------- ---------- --------- ---------
Operating income................................... 10,228 16,948 19,462 4,631 4,193
Other expenses:
Interest expense, net......................... 3,898 4,092 3,700 875 1,200
Other, net.................................... 98 77 65 9 15
------------ ---------- ---------- --------- ---------
Income before provision for income taxes........... 6,232 12,779 15,697 3,747 2,978
Provision for income taxes......................... 712 4,217 4,584 1,237 1,042
------------ ---------- ---------- --------- ---------
Net income......................................... $ 5,520 $ 8,562 $ 11,113 $ 2,510 $ 1,936
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------

Earnings per common share -- basic................. $ 0.46 $ 0.71 $ 0.90 $ 0.21 $ 0.15
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------

Earnings per common share -- diluted............... $ 0.44 $ 0.69 $ 0.85 $ 0.20 $ 0.15
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------

Weighted average shares outstanding -- basic....... 12,032 12,032 12,412 12,096 12,602
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------

Weighted average shares outstanding -- diluted..... 12,440 12,498 13,022 12,706 13,273
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
</TABLE>

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

F-4

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ---------- -------- ------------ -------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... $120 $ 41,340 $ 11,877 (748) $52,589
Stock option compensation
expense..................... -- 229 -- -- 229
Net income.................... -- -- 5,520 -- 5,520
Issuance of 15,927 shares of
common stock under stock
option plan................. -- 78 -- -- 78
Foreign currency translation
adjustment.................. -- -- -- (566) (566)
------ ---------- -------- ------------ -------------
Balance, December 30, 1995......... $120 $ 41,647 $ 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........... $120 $ 41,908 $ 25,959 $ (1,415) $66,572
Stock option compensation
expense..................... -- 571 -- -- 571
Net income.................... -- -- 11,113 -- 11,113
Proceeds from sale of 450,000
shares of common stock, net
of expenses................. 5 3,262 -- -- 3,267
Proceeds from stock options
exercised, including tax
benefits.................... 1 789 -- -- 790
------ ---------- -------- ------------ -------------
Balance, January 3, 1998........... $126 $ 46,530 $ 37,072 $ (1,415) $82,313
------ ---------- -------- ------------ -------------
Net income (unaudited)........ -- -- 1,936 -- 1,936
Proceeds from stock options
exercised, including tax
benefits (unaudited)........ -- 12 -- -- 12
------ ---------- -------- ------------ -------------
Balance, April 4, 1998
(unaudited)...................... $126 $ 46,542 $ 39,008 $ (1,415) $84,261
------ ---------- -------- ------------ -------------
------ ---------- -------- ------------ -------------
</TABLE>

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

F-5

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
---------------------------------------- --------------------------
DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1995 1997 1998 1997 1998
------------ ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $ 5,520 $ 8,562 $ 11,113 $ 2,510 $ 1,936
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization........... 6,462 7,437 8,511 1,969 2,535
Stock option compensation
expense................ 229 261 571 571 --
Deferred income taxes.... (200) 1,134 1,570 371 270
Changes in operating assets
and liabilities:
Accounts receivable...... 1,398 (2,050) (6,735) (874) (1,508)
Inventories.............. (871) (4,581) (5,219) (774) (5,768)
Prepaid expenses and
other current assets... (1,374) 657 (455) 839 622
Accounts payable and
accrued expenses....... 1,158 4,078 2,512 (862) 1,939
Deferred income taxes.... (53) (8) 552 -- --
Other long-term
liabilities............ (245) (684) (1,335) (155) 41
------------ ---------- ---------- ----------- -----------
Net cash provided by
operating
activities........ 12,024 14,806 11,085 3,595 67
------------ ---------- ---------- ----------- -----------
Cash flows from investing
activities:
Purchases of property, plant
and equipment............... (13,165) (11,979) (25,484) (2,440) (12,312)
Sale of equipment............. 212 -- -- -- --
------------ ---------- ---------- ----------- -----------
Net cash used for
investing
activities........ (12,953) (11,979) (25,484) (2,440) (12,312)
------------ ---------- ---------- ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance of
short-term and long-term
debt........................ 34,500 -- 45,000 -- 13,100
Repayments of debt............ (31,912) (1,278) (33,251) (4,223) (250)
Repayments of capital
leases...................... (1,171) (1,249) (1,533) (325) (284)
Capitalization of financing
costs....................... (135) (14) (25) -- --
Proceeds from issuance of
common stock, net of
offering expenses........... -- -- 3,267 3,267 --
Proceeds from exercise of
common stock options........ 78 -- 790 -- 12
------------ ---------- ---------- ----------- -----------
Net cash provided
(used) by
financing
activities........ 1,360 (2,541) 14,248 (1,281) 12,578
Effect of exchange rates on cash... (566) (101) -- -- --
Net increase (decrease) in cash and
cash equivalents................. (135) 185 (151) (126) 333
Cash and cash equivalents,
beginning of period.............. 335 200 385 385 234
------------ ---------- ---------- ----------- -----------
Cash and cash equivalents, end of
period........................... $ 200 $ 385 $ 234 $ 259 $ 567
------------ ---------- ---------- ----------- -----------
------------ ---------- ---------- ----------- -----------
Supplemental disclosure of cash
flow information:
Cash paid for:
Interest................. $ 4,043 $ 3,916 $ 3,108 $ 370 $ 279
Income taxes............. $ 1,881 $ 829 $ 3,648 $ 1,419 $ 939
</TABLE>

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

F-6

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS 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 January 3, 1998 and December 30, 1995 contained 52
weeks while the fiscal year ended January 4, 1997 contained 53 weeks. The
consolidated statements of income for the three month periods ended April 5,
1997 and April 4, 1998 contain 13 weeks each.

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 January 4, 1997, January
3, 1998 and April 4, 1998:

<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, APRIL 4,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................................... $ 11,127 $ 14,430 $15,779
Work-in-process......................................... 8,421 9,917 12,393
Finished goods.......................................... 7,500 8,092 10,035
---------- ---------- -----------
Inventory at FIFO.................................. 27,048 32,439 38,207
LIFO reserve............................................ 91 263 263
---------- ---------- -----------
Inventory at LIFO.................................. $ 26,957 $ 32,176 $37,944
---------- ---------- -----------
---------- ---------- -----------
</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>
<CAPTION>
<S> <C>
Buildings and improvements........................................... 32-39 years
Machinery and equipment.............................................. 3-20 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

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS 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 $1,314 and $1,507 at January 4, 1997
and January 3, 1998, 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 $313 and $409 as of January 4, 1997 and
January 3, 1998, respectively.

(H) EARNINGS PER COMMON SHARE

The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, 'Earnings per Share,' effective December 15, 1997. Basic income per
common share is computed by dividing net income by the weighted average number
of common shares outstanding during the period. For diluted income per share,
the denominator also includes dilutive outstanding stock options determined
using the treasury stock method. The following table reconciles weighted average
common shares outstanding to weighted average common shares outstanding and
dilutive potential common shares.

<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, JANUARY 3, APRIL 5, APRIL 4,
1995 1997 1998 1997 1998
------------ ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding.... 12,032 12,032 12,412 12,096 12,602
Dilutive potential common shares.............. 408 466 610 610 671
------------ ---------- ---------- ----------- -----------
Weighted average common shares outstanding and
dilutive potential common shares............ 12,440 12,498 13,022 12,706 13,273
------------ ---------- ---------- ----------- -----------
</TABLE>

(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. Prior to 1997, 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 was designated a 'highly inflationary
country' and accordingly, the Company recorded translation gains and losses in
the income statement rather than as a separate component of equity. In
accordance with SFAS No. 52,

F-8

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Foreign Currency Translation, the translation adjustments for periods prior to
Fiscal 1997 remain 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 SFAS 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 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 3, 1998 and April 4, 1998 approximates fair value due to the short
term nature and terms of these instruments.

(M) RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' financial
statements to conform with the presentation of the Fiscal 1997 Financial
Statements.

(N) INTERIM FINANCIAL STATEMENTS

The financial information as of and for the three months ended April 4,
1998 and for the three months ended April 5, 1997 has been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission and is not subject to audit by independent public accountants.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
information furnished reflects all adjustments (consisting of only normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair statement of results for the interim periods. It should also be noted that
results for the interim periods are not necessarily indicative of the results
expected for any other interim period or the full year.

F-9

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3,
1997 1998
---------- ----------
<S> <C> <C>
Land.................................................................. $ 236 $ 236
Buildings and improvements............................................ 17,559 18,408
Leasehold improvements................................................ 309 485
Machinery and equipment............................................... 94,541 112,927
Furniture and fixtures................................................ 1,292 1,428
Motor vehicles........................................................ 330 331
Construction in progress.............................................. 1,899 5,201
---------- ----------
116,166 139,016
Less -- Accumulated depreciation and amortization..................... 32,121 37,709
---------- ----------
$ 84,045 $ 101,307
---------- ----------
---------- ----------
</TABLE>

Included in machinery and equipment is equipment under capital lease of
$12,644 as of January 4, 1997 and $11,419 as of January 3, 1998. The Company is
depreciating the equipment over 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>
JANUARY 4, JANUARY 3,
1997 1998
---------- ----------
<S> <C> <C>
Accrued workers' compensation......................................... $1,500 $1,300
Accrued medical insurance............................................. 1,766 1,492
Accrued other, including taxes........................................ 5,161 4,328
---------- ----------
$8,427 $7,120
---------- ----------
---------- ----------
</TABLE>

F-10

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

5. DEBT

Debt consisted of the following:

<TABLE>
<CAPTION>
JANUARY 4, JANUARY 3, APRIL 4,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
7.18% Senior Notes due October 10, 2007................. $ -- $ 30,000 $30,000
7.09% Senior Notes due October 10, 2005................. -- 15,000 15,000
6.81% Series A Notes due December 15, 2002.............. 30,000 -- --
Unsecured credit facility payable to several banks...... 4,000 1,700 14,800
9.73% Note payable in monthly principal and interest
installments of $81 through August 1999, secured by
certain equipment..................................... 2,287 1,498 1,288
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% (9.25% at January 4, 1997 and 9.50% at January 3,
1998), secured by certain equipment................... 395 233 193
---------- ---------- -----------
36,682 48,431 61,281
Less -- Current portion................................. 951 995 994
---------- ---------- -----------
$ 35,731 $ 47,436 $60,287
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

On October 10, 1997, the Company issued $30,000 of 7.18% Senior Notes and
$15,000 of 7.09% Senior Notes (the 'Senior Notes'). The Senior Notes were issued
as part of a revision to the 6.81% Series A Note Agreement that increased the
Company's borrowings by $15,000 and replaced the 6.81% Series A Notes with the
Senior Notes. The Senior Notes are unsecured and bear interest at a fixed rate
of 7.18% and 7.09%, payable semiannually. The Senior 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 Senior Notes
are as follows:

<TABLE>
<CAPTION>
7.18% NOTE 7.09% NOTE
---------- ----------
<S> <C> <C>
October 10, 2003................................................... $ -- $ 5,000
October 10, 2004................................................... -- 5,000
October 10, 2005................................................... -- 5,000
October 10, 2006................................................... 15,000 --
October 10, 2007................................................... 15,000 --
---------- ----------
$ 30,000 $ 15,000
---------- ----------
---------- ----------
</TABLE>

F-11

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Under the terms of the unsecured credit facility (the 'Credit Agreement'),
the Company may borrow up to $50,000 through December 31, 2002. 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 3, 1998, the commitment fee is 0.375% of the unused portion
of the Credit Agreement which was $48,027, net of $273 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 January 3, 1998,
the Company had $1,700 outstanding under the Credit Agreement at an effective
interest rate of 8.5%.

The Company is required to comply with a number of affirmative and negative
covenants under the Credit Agreement and the Senior Notes. Among other things,
the Credit Agreement and the Senior 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 Senior Notes also
impose limitations on the Company's ability to incur additional indebtedness,
create certain liens, incur capital lease obligations, declare and pay
dividends, make certain investments, make capital expenditures, and purchase,
merge or consolidate with or into any other corporation. As of January 3, 1998,
the Company is in compliance with all debt covenants.

As of January 3, 1998, debt principal payments for each of the next five
fiscal years and thereafter are as follows:

<TABLE>
<CAPTION>
<S> <C>
1998..................................................................... $ 995
1999..................................................................... 700
2000..................................................................... 1,736
2001..................................................................... --
2002..................................................................... --
Thereafter............................................................... 45,000
-------
$48,431
-------
-------
</TABLE>

6. INCOME TAXES

Income before provision for income taxes consists of:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Domestic........................................................ $6,184 $ 12,200 $ 14,471
Foreign......................................................... 48 579 1,226
------------ ---------- ----------
$6,232 $ 12,779 $ 15,697
------------ ---------- ----------
------------ ---------- ----------
</TABLE>

F-12

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Federal
Current.............................................................. $ 725 $2,510 $2,544
Deferred............................................................. 1,703 1,300 1,341
------------ ---------- ----------
$ 2,428 $3,810 $3,885
------------ ---------- ----------
State
Current.............................................................. $ 187 $ 573 $ 410
Deferred............................................................. (1,903) (166) (195)
------------ ---------- ----------
$ (1,716) $ 407 $ 215
------------ ---------- ----------
Foreign
Current.............................................................. $ -- $-- $ 60
Deferred............................................................. -- -- 424
------------ ---------- ----------
$ -- $-- $ 484
------------ ---------- ----------
$ 712 $4,217 $4,584
------------ ---------- ----------
------------ ---------- ----------
</TABLE>

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Computed expected tax provision........................................... $ 2,119 $4,345 $ 5,494
Increase in taxes resulting from:
Amortization of goodwill........................................ 67 67 67
State and foreign income taxes, net of federal benefit.......... 385 583 893
Decrease in taxes resulting from:
State investment tax credits, net of federal provision.......... (452) (319) (1,075)
Reversal of state deferred taxes due to change in tax law, net
of federal provision.......................................... (1,050) -- --
Reversal of tax reserves no longer required..................... (48) (308) (1,081)
Foreign sales corporation benefit............................... (270) (245) (485)
Valuation allowance............................................. -- -- 750
Other........................................................... (39) 94 21
------------ ---------- ----------
$ 712 $4,217 $ 4,584
------------ ---------- ----------
------------ ---------- ----------
</TABLE>

At January 3, 1998, the Company had net operating loss carryforwards of
approximately $1,712 for federal income tax purposes available to offset future
taxable income which have been benefitted for financial reporting purposes.
These carryforwards expire from 2001 to 2005. Additionally, the Company has
available for use $951 of federal 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 addition, the Company has approximately $2,000 of
state investment tax credits. These tax credits have no expiration date;
however, the timing and use of these credits is limited under the applicable
state 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-13

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

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

<TABLE>
<CAPTION>
JANUARY 4, 1997 JANUARY 3, 1998
-------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Assets:
Net operating loss carryforwards............................... $ 259 $ 599 $ 270 $ 355
Tax credit carryforwards....................................... 191 951 192 2,817
Receivable reserves............................................ 718 -- 197 --
Other..................................................... 1,311 1,123 1,112 1,245
------- --------- ------- ---------
Total assets.............................................. $ 2,479 $ 2,673 $ 1,771 $ 4,417
Valuation allowance....................................... -- -- -- (750 )
------- --------- ------- ---------
Total assets, net of valuation allowance....................... $ 2,479 $ 2,673 $ 1,771 $ 3,667
------- --------- ------- ---------
Liabilities:
Property basis differences..................................... $ -- $(14,832 ) $ -- $(17,582 )
Inventory basis differences.................................... (1,292) -- (1,177) --
------- --------- ------- ---------
Total liabilities......................................... $(1,292) $(14,832 ) $(1,177) $(17,582 )
------- --------- ------- ---------
Net assets (liabilities)............................. $ 1,187 $(12,159 ) $ 594 $(13,915 )
------- --------- ------- ---------
------- --------- ------- ---------
</TABLE>

The Company has provided a valuation allowance for a portion of certain
state tax credits that may not be realized.

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

7. COMMITMENTS AND CONTINGENCIES

(A) LITIGATION AND ENVIRONMENTAL CLEANUP MATTERS

The Company is engaged in certain routine environmental cleanup matters. In
the opinion of management, the costs associated with these cleanup matters are
not expected to materially affect the Company's financial condition, results of
operations or liquidity.

(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 3, 1998, the aggregate minimum
future commitments under leases are as follows:

F-14

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
LEASES LEASES LEASES
------- --------- -------
<S> <C> <C> <C>
1998.......................................................... $ 1,651 $ 937 $ 2,588
1999.......................................................... 2,240 703 2,943
2000.......................................................... 1,094 443 1,537
2001.......................................................... 2,080 343 2,423
2002.......................................................... 725 155 880
Thereafter.................................................... -- 39 39
------- --------- -------
$ 7,790 $ 2,620 $10,410
--------- -------
Less -- Amount representing interest.......................... 1,287
-------
$ 6,503
Less -- Current portion....................................... 1,167
-------
$ 5,336
-------
</TABLE>

Rent expense for operating leases for the years ended December 30, 1995,
January 4, 1997 and January 3, 1998 was $1,561, $1,276 and $953, 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 January 4,
1997 and January 3, 1998, the Company has issued or agreed to issue letters of
credit totaling $472 and $273, respectively.

(D) EMPLOYMENT CONTRACT

In 1997, the Company's Board of Directors approved an amendment to the
President and Chief Executive Officer's Employment Agreement (the 'Employment
Agreement'). The Employment Agreement provides for Mr. Liebenow to continue to
serve as President and Chief Executive Officer of the Company on a full-time
basis through March 12, 2002, 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 $600, 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 3, 1998, Mr. Liebenow would have been entitled to
receive $1,980 (in the event of a voluntary termination, termination for cause
or for any other reason).

8. STOCK OPTIONS

In 1993, the Company adopted the 1993 Stock Option Plan for Company
officers, and options to purchase a total of 953,693 shares of common stock were
granted to certain officers that year. The difference of $1,186 between the fair
market value at the grant date and the exercise price of these options was
charged to compensation expense over five years. During 1996, additional options
to purchase 141,000 shares of common stock were granted to certain officers
under the 1993 Stock Option Plan. The difference of $348 between the fair market
value at the grant date and the exercise price of these options was charged to
compensation expense over five years. The 1993 Stock Option Plan provided that
all options granted under the plan would vest over five years and be exercisable
for ten years except in the event of a change in control, in which case all
outstanding options granted pursuant to the plan would vest immediately. Upon
the consummation of the Company's public offering of common stock in 1997, all
previously unvested options granted under the 1993 Stock Option Plan

F-15

became immediately exercisable in full, and the amount of unamortized
compensation expense of $480 was recorded as a charge to the statement of income
at that time.

During 1995, options to purchase 7,500 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 1997, options to purchase an aggregate of
15,000 shares of common stock were granted to two directors of the Company.
These options vest over three years and are exercisable for ten years.

During 1996, the Company adopted the 1996 Stock Option Plan for key middle
managment employees. Options are granted at not less than fair market value,
vest over a five year period, and are exercisable for ten years. A total of
150,000 shares are reserved under this plan, and options to purchase 130,950
shares have been granted.

During 1997, the Company adopted the 1997 Stock Option Plan. Options to
purchase 495,000 shares of common stock were granted to certain officers under
the 1997 Stock Option Plan. These options vest over five years, and are
exercisable for ten years. A total of 750,000 shares are reserved under this
plan.

During 1997, the Company recorded $571 as stock option compensation
expense.

PRO FORMA STOCK-BASED COMPENSATION EXPENSE

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-Based Compensation,' which sets forth a
fair-value-based method of recognizing stock-based compensation expense. As
permitted under SFAS No. 123, the Company has elected to continue to apply APB
No. 25 to account for its stock-based compensation plans. Had compensation cost
for awards granted in 1995, 1996 and 1997 under the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method set forth in SFAS No. 123, the effect on the
Company's net income and earnings per common share would have been as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Net income
As reported.......................................................... $5,520 $8,562 $11,113
Pro forma............................................................ $5,513 $8,500 $10,787
Earnings per common share -- diluted
As reported.......................................................... $ 0.44 $ 0.69 $ 0.85
Pro forma............................................................ $ 0.44 $ 0.68 $ 0.83
</TABLE>

Compensation expense for options is reflected over the vesting period;
therefore, future compensation expense may be greater as additional options are
granted.

The fair value of each option grant was estimated on the grant date using
the Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Volatility........................................................ 60.13% 60.13% 44.83%
Risk-free interest rate........................................... 7.25% 6.44% 6.69%
Expected life of options.......................................... 10 years 10 years 6.48 years
</TABLE>

The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions used can materially affect the fair

F-16

value estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.

STOCK OPTION ACTIVITY

A summary of the Company's stock option activity is as follows:

<TABLE>
<CAPTION>
1995 1996 1997
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVG. EXERCISE NUMBER AVG. EXERCISE NUMBER AVG. EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year...................... 889,988 $1.33 881,561 $1.36 1,092,311 $1.73
Granted........................ 7,500 $7.33 213,000 $3.31 586,500 $9.97
Exercised...................... (15,927) $2.75 -- -- (119,381) $2.83
Forfeited...................... -- -- (2,250) $5.50 (11,550) $5.91
Options outstanding, end of
year......................... 881,561 $1.36 1,092,311 $1.73 1,547,880 $4.74
Options exercisable............ 349,625 $1.31 526,926 $1.34 912,705 $1.33
Options available for grant.... 141,000 -- 80,100 -- 270,300 --
Weighted average fair value per
share of options granted..... -- $4.16 -- $4.05 -- $5.50
</TABLE>

A summary of the status of the Company's stock options as of January 3,
1998 is as follows:

<TABLE>
<CAPTION>
RANGE OF WEIGHTED AVG. WEIGHTED AVG.
EXERCISE NUMBER OF REMAINING EXERCISE
PRICES SHARES CONTRACTUAL LIFE PRICE
------------ --------- ---------------- -------------
<S> <C> <C> <C> <C>
1993 Plan.......................................... $0.80-$ 2.75 899,430 5.70 $ 1.26
1996 Plan.......................................... $5.50-$ 8.67 130,950 8.90 $ 7.31
1997 Plan.......................................... $10.17 495,000 9.40 $ 10.17
Directors.......................................... $7.33-$10.17 22,500 8.80 $ 9.22
</TABLE>

9. EXPORT SALES

Export sales from the United States to unaffiliated customers by major
geographical area were as follows:

<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, JANUARY 3,
1995 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
North America (excluding USA)............................................. $ 8,500 $ 9,900 $ 11,900
Middle East............................................................... 5,800 13,000 11,300
South America............................................................. 200 700 1,800
Europe.................................................................... 1,800 2,500 2,900
All other areas........................................................... 3,200 4,000 4,600
------------ ---------- ----------
$ 19,500 $ 30,100 $ 32,500
------------ ---------- ----------
------------ ---------- ----------
</TABLE>

10. 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

F-17

QUAKER FABRIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Company contributes on behalf of each participating employee an amount equal to
100% of the first $200 contributed by each 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.

11. EVENT SUBSEQUENT TO DATE OF AUDITOR'S REPORT

On May 28, 1998, the Board of Directors declared a three-for-two stock
split effected by means of a stock dividend payable on June 19, 1998 to
stockholders of record on June 8, 1998. All share and per share amounts give
effect to such stock split.

F-18

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

__________________________________ _________________________________

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH 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 HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 9
Use of Proceeds............................................................................................ 14
Price Range of Common Stock................................................................................ 15
Dividend Policy............................................................................................ 15
Capitalization............................................................................................. 16
Selected Consolidated Financial and Operating Data......................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 19
Business................................................................................................... 25
Management................................................................................................. 36
Principal and Selling Stockholders......................................................................... 39
Underwriting............................................................................................... 41
Legal Matters.............................................................................................. 42
Experts.................................................................................................... 42
Index to Financial Statements.............................................................................. F-1
</TABLE>

__________________________________ _________________________________

3,200,000 Shares

[Logo]

Common Stock

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

PRUDENTIAL SECURITIES INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
WHEAT FIRST UNION

July 29, 1998

__________________________________ _________________________________

STATEMENT OF DIFFERENCES
------------------------

The trademark symbol shall be expressed as............................ 'tm'