<Page>
Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Quaker Fabric Corporation
..................................................................
(Name of Registrant as Specified In Its Charter)
..................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
<Page>
QUAKER FABRIC CORPORATION
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 2003
-------------------
To: The Stockholders of QUAKER FABRIC CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of QUAKER
FABRIC CORPORATION (the 'Company') will be held at the corporate offices of
Quaker Fabric Corporation, 1082 Davol Street, Fall River, MA 02720, on May 23,
2003 at 10:00 a.m. for the following purposes:
1. To elect four directors to serve until the next Annual Meeting of
Stockholders and until their successors shall have been elected and
qualified; and
2. To transact such other business as may properly be brought before the
meeting and all adjournments thereof.
The Board of Directors has fixed the close of business on April 4, 2003 as
the record date for the determination of stockholders entitled to notice of and
to vote at this meeting. The stock transfer books will not be closed.
By Order of the Board of Directors,
CYNTHIA L. GORDAN
Vice President, Secretary and
General Counsel
Fall River, Massachusetts
April 18, 2003
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN,
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE.
EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND
THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO ATTEND AND VOTE AT THE MEETING,
YOU MUST OBTAIN FROM SUCH BROKER, BANK OR OTHER NOMINEE, A PROXY ISSUED IN YOUR
NAME.
<Page>
QUAKER FABRIC CORPORATION
941 GRINNELL STREET
FALL RIVER, MASSACHUSETTS 02721
--------------------------
PROXY STATEMENT
--------------------------
ANNUAL MEETING OF STOCKHOLDERS -- MAY 23, 2003
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Quaker Fabric Corporation (the 'Company' or
'Quaker') for the Annual Meeting of Stockholders to be held on May 23, 2003 at
10:00 a.m., local time, at the corporate offices of Quaker Fabric Corporation,
1082 Davol Street, Fall River, MA 02720. This Proxy Statement and the enclosed
form of proxy were first sent to stockholders commencing on or about April 18,
2003. A copy of the Company's Annual Report for the fiscal year ended January 4,
2003 ('Fiscal 2002') is being sent to stockholders together with this Proxy
Statement.
The cost of this solicitation will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally, or by telephone or
telegram, by directors, officers and employees of the Company who will receive
no additional compensation therefor. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
materials to beneficial owners of shares held of record by such persons, and the
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred by them in so doing.
A stockholder who executes the accompanying form of proxy may revoke it
(i) by written notice of revocation or a later dated proxy sent to the Company
at 941 Grinnell Street, Fall River, Massachusetts 02721, Attn: Cynthia L.
Gordan, Vice President, Secretary and General Counsel, and received by the
Company prior to the vote, or (ii) by personal attendance and withdrawal of the
proxy at the Annual Meeting of Stockholders. All shares represented by valid
proxies received pursuant to the solicitation and prior to the meeting and not
revoked before they are exercised will be voted, and, if a choice is specified
with respect to any matter to be acted upon, the shares will be voted in
accordance with such specification.
VOTING SECURITIES OUTSTANDING
Only stockholders of record at the close of business on April 4, 2003 will
be entitled to vote at the Annual Meeting of Stockholders. As of March 24, 2003,
the Company had outstanding 16,680,398 shares of Common Stock, par value $0.01
per share (the 'Common Stock'), which are the only outstanding voting securities
of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table describes, as of March 24, 2003, shares of the Company's
Common Stock held by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of the Company's Common
Stock (and the respective addresses of such beneficial owners), (ii) each
director and nominee for director of the Company, (iii) each of the executive
officers named in the Summary Compensation Table, and (iv) all current directors
and officers of the Company as a group, based on information furnished by the
respective entities and individuals.
<Page>
<Table>
<Caption>
NAME SHARES PERCENT
---- ------ -------
Larry A. Liebenow(1)(2)..................................... 3,186,094 18.7%
Duncan Whitehead(1)(3)...................................... 2,896,494 17.2%
Nortex Holdings, Inc.(4).................................... 2,824,094 16.9%
Deutsche Bank AG(5)......................................... 1,220,300 7.6%
Dimensional Fund Advisors, Inc.(6).......................... 1,201,300 7.4%
Benson Associates, LLC(7)................................... 992,741 6.1%
Sangwoo Ahn(8).............................................. 564,081 3.4%
M. Beatrice Spires(1)(9).................................... 131,800 *
Jerry I. Porras(10)......................................... 111,200 *
Thomas Muzekari(1)(11)...................................... 82,550 *
Mark Hellwig(1)(12)......................................... 68,810 *
Eriberto R. Scocimara(13)................................... 67,500 *
All executive officers and directors as a group
(13 persons).............................................. 4,665,492 26.2%
</Table>
- ---------
* Less than 1%
(1) The address for the named individual is c/o Quaker Fabric
Corporation, 941 Grinnell Street, Fall River, Massachusetts
02721.
(2) Consists of (i) 95,000 shares of Common Stock owned directly
by Mr. Liebenow, (ii) 267,000 shares of Common Stock which
Mr. Liebenow will have the right to acquire within the next
60 days pursuant to the 1997 Stock Option Plan (as
hereinafter defined) and (iii) the shares of Common Stock
beneficially owned by Mr. Liebenow through Nortex Holdings,
Inc. ('Nortex Holdings.') Mr. Liebenow owns 80.11% of the
outstanding shares of Nortex Holdings and is also the
President and a director of Nortex Holdings and, as such,
may be deemed to beneficially own the shares owned by Nortex
Holdings.
(3) Consists of (i) 9,800 shares of Common Stock owned directly
by Mr. Whitehead, (ii) 62,000 shares of Common Stock which
Mr. Whitehead will have the right to acquire within the next
60 days pursuant to the 1997 Stock Option Plan (as
hereinafter defined), (iii) 600 shares of Common Stock held
by Mr. Whitehead's children, and (iv) the shares of Common
Stock beneficially owned by Mr. Whitehead through Nortex
Holdings. Mr. Whitehead owns 19.89% of the outstanding
shares of Nortex Holdings and is also an officer and
director of Nortex Holdings and, as such, may be deemed to
beneficially own the shares owned by Nortex Holdings.
(4) Consists of (i) 2,757,429 shares of Common Stock owned
directly by Nortex Holdings, and (ii) 66,665 shares which
Nortex Holdings has the right to acquire upon exercise of
the Nortex Option (as hereinafter defined). The address of
Nortex Holdings is 941 Grinnell Street, Fall River,
Massachusetts 02721.
(5) Based solely upon information obtained from a Schedule 13G
filed with the Securities and Exchange Commission on
February 12, 2003. The address for Deutsche Bank AG is
Taunusanlage 12, D-60325, Frankfurt am Main, Federal
Republic of Germany.
(6) Based solely upon information obtained from a Schedule 13G
filed with the Securities and Exchange Commission on
February 3, 2003. The address for Dimensional Fund Advisors,
Inc. is 1299 Ocean Ave., 11th Floor, Santa Monica, CA 90401.
(7) Based solely upon information obtained from a Schedule 13G
filed with the Securities and Exchange Commission on
February 5, 2003. The address for Benson Associates, LLC is
111 SW 5th, Suite 2130, Portland, OR 97204.
(8) Includes (i) 306,281 shares of Common Stock owned directly
by Mr. Ahn, (ii) 67,500 shares which Mr. Ahn has the right
to acquire within the next 60 days under stock option
agreements between Mr. Ahn and the Company, (iii) 23,000
shares of Common Stock held by his children, (iv) 157,300
shares of Common Stock held by his spouse, and (v) 10,000
shares of Common Stock held by the Ahn Family Foundation.
Mr. Ahn disclaims beneficial ownership of the shares owned
by his children, his spouse, and the Ahn Family Foundation.
The address for Mr. Ahn is c/o Morgan Lewis Githens & Ahn,
Two Greenwich Plaza, Greenwich, Connecticut 06830.
(footnotes continued on next page)
2
<Page>
(footnotes continued from previous page)
(9) Consists of (i) 12,300 shares of Common Stock owned directly
by Ms. Spires, (ii) 30,500 shares of Common Stock which Ms.
Spires has the right to acquire upon the exercise of options
granted under the 1993 Stock Option Plan (as hereinafter
defined), and (iii) 89,000 shares which she has the right to
acquire within the next 60 days pursuant to the 1997 Stock
Option Plan (as hereinafter defined).
(10) Consists of (i) 43,700 shares of Common Stock held in a
family trust for which Dr. Porras acts as a trustee and
(ii) 67,500 shares of Common Stock which Dr. Porras has the
right to acquire within the next 60 days upon the exercise
of options granted under stock option agreements between Dr.
Porras and the Company. The address for Dr. Porras is c/o
Stanford University Graduate School of Business, Stanford,
California 94305.
(11) Consists of (i) 12,550 shares of Common Stock owned directly
by Mr. Muzekari, (ii) 22,500 shares of Common Stock which
Mr. Muzekari has the right to acquire upon the exercise of
options granted under the 1993 Stock Option Plan (as
hereinafter defined), and (iii) 47,500 shares which he has
the right to acquire within the next 60 days pursuant to the
1997 Stock Option Plan (as hereinafter defined).
(12) Consists of (i) 10,810 shares of Common Stock owned directly
by Mr. Hellwig and (ii) 58,000 shares of Common Stock which
Mr. Hellwig has the right to acquire within the next 60 days
pursuant to the 1997 Stock Option Plan (as hereinafter
defined).
(13) Consists solely of shares of Common Stock which
Mr. Scocimara has the right to acquire within the next 60
days pursuant to stock option agreements between
Mr. Scocimara and the Company. The address for Mr. Scocimara
is c/o Hungarian-American Enterprise Fund, 1 East Putnam
Avenue, Greenwich, Connecticut 06830.
-------------------
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.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who beneficially own more than 10%
of the Company's Common Stock, to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission ('SEC').
Executive officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during Fiscal 2002 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
10% beneficial owners were met.
VOTING OF PROXIES
Each stockholder is entitled to cast, in person or by proxy, one vote for
each share of Common Stock held by such stockholder at the close of business on
April 4, 2003. Stockholders do not have cumulative voting rights in the election
of directors.
On all matters submitted to the vote of the stockholders as described
herein, a plurality (as to the election of the directors) and a simple majority
(as to other matters) of the votes cast at the Annual Meeting will be
determinative. All proxies in the form enclosed received by management,
including those as to which no preference is indicated, will be voted, in the
absence of instructions to the contrary, (i) for election of the nominees listed
under the next heading as directors of the Company to hold office until the next
Annual Meeting of Stockholders and until their successors shall be duly elected
and qualified, and (ii) with respect to such other business as may properly come
before the meeting (or any
3
<Page>
adjournment thereof) in accordance with the judgment of the persons designated
in the proxy. In the unanticipated event that any of the persons nominated as
director cannot be a candidate at the Annual Meeting, all such proxies received
will be voted in favor of such substituted nominee as shall be designated by the
Board of Directors.
With regard to the election of directors, votes may be cast in favor of or
withheld from each nominee; votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on all
proposals except the election of directors and will be counted as present for
purposes of determining the existence of a quorum regarding the item on which
the abstention is noted. Pursuant to the NASD Rules of Fair Practice, brokers
who hold shares in street name have the authority, in limited circumstances, to
vote on certain items when they have not received instructions from beneficial
owners. A broker will only have such authority if (i) the broker holds the
shares as executor, administrator, guardian, trustee, or in similar
representative or fiduciary capacity with authority to vote, or (ii) the broker
is acting pursuant to the rules of any national securities exchange to which the
broker is also a member. Under applicable Delaware law, a broker non-vote will
have no effect on the outcome of the election of directors.
PROPOSAL 1.
ELECTION OF DIRECTORS
A Board of four directors is to be elected at the Annual Meeting. The Board
of Directors proposes the election of the following four nominees to serve until
the next Annual Meeting and until their successors are duly elected and
qualified:
<Table>
<Caption>
BEGINNING
YEAR OF SERVICE
NAME AGE POSITIONS/OFFICE AS DIRECTOR
---- --- ---------------- -----------
Sangwoo Ahn....................... 64 Chairman of the Board of Directors 1993
Larry A. Liebenow................. 59 Director, President, and Chief Executive
Officer 1989
Jerry I. Porras................... 64 Director 1997
Eriberto R. Scocimara............. 67 Director 1993
</Table>
All of the nominees are at present members of the Board of Directors. The
Board has no reason to believe that any of the foregoing nominees will not serve
if elected, but if any of them should become unavailable to serve as a director
or are withdrawn from nomination, and if the Board of Directors shall designate
a substitute nominee, the persons named as proxy holders will vote for the
substitute.
Sangwoo Ahn. Mr. Ahn has served as a director of the Company since March 12,
1993 and as Chairman of the Board since May 19, 1993. Mr. Ahn has served as a
general partner of Morgan Lewis Githens & Ahn, an investment banking firm, since
1982. Mr. Ahn also serves as a director of Kaneb Services, L.L.C., Kaneb
Pipeline Partners, L.P., Xanser Corp., and PAR Technology Corp.
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. ('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.
Jerry Ignacio Porras. Dr. Porras has served as a director of the Company
since May 21, 1997. Dr. Porras is the Lane Professor of Organizational Behavior
and Change, Emeritus at Stanford University's Graduate School of Business, where
he has taught various courses on organizational behavior and change for the last
thirty years. Since 1970, Dr. Porras has been the president of Jerry I. Porras
Associates, Inc., a consulting firm which advises a wide variety of public and
private organizations. Dr. Porras is also a co-owner of Stream Analytics, Inc.,
a software firm which develops applications for organizational diagnosis and
change management. Dr. Porras also serves on the boards of directors of State
Farm Auto Insurance Company, 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
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<Page>
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,
Euronet Services, Inc. and Roper Industries, Inc.
During Fiscal 2002, the Board of Directors held five meetings. Each
continuing director nominated by management for re-election attended at least
75% of the aggregate of such meetings and the meetings of all committees of
which each is a member.
COMMITTEES
The Board has established an Audit Committee, a Compensation Committee, a
Nominating Committee and a Stock Option Committee. The Compensation Committee,
currently composed of Messrs. Ahn, Porras, and Scocimara, 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, Porras and Scocimara, administers the Company's stock option plans.
The Nominating Committee, currently composed of Messrs. Ahn, Porras and
Scocimara, is responsible for identifying individuals qualified to serve as
members of the Board.
AUDIT COMMITTEE REPORT
The Audit Committee acts pursuant to a written charter, amended and restated
as of March 3, 2003, a copy of which is annexed hereto as Appendix A. In
fulfilling its duties, the Audit Committee has: (a) reviewed and discussed the
Company's audited financial statements for Fiscal 2002 with management;
(b) discussed with the Company's independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61; (c) received certain
written disclosures and the letter from the Company's independent auditors
required by Independence Standards Board Standard No. 1 and discussed with the
independent auditors the independent auditors' independence; and (d) based upon
its review of the above, recommended to the Board that the Company's audited
financial statements for Fiscal 2002 be included in the Company's Fiscal 2002
annual report on Form 10-K. The Audit Committee currently consists of Messrs.
Ahn, Porras, and Scocimara, none of whom has any relationship to the Company
that may interfere with the exercise of his independence from management or the
Company. Mr. Scocimara has been determined by the Board to be an 'audit
committee financial expert', as that term is defined by the Securities and
Exchange Commission. The Audit Committee members are 'independent' as defined
under listing standards of NASDAQ. The Audit Committee met five times during the
fiscal year ended January 4, 2003 and each member attended all meetings, with
the exception of Mr. Scocimara, who attended four meetings.
AUDITORS
On June 14, 2002, the Audit Committee of the Board of Directors of the
Company dismissed its independent accountants, Arthur Andersen LLP and, on
June 14, 2002, the Company retained PricewaterhouseCoopers LLP as its new
independent accountants. The Company's Audit Committee is responsible for the
selection and replacement of the Company's independent accountants.
PricewaterhouseCoopers LLP reviewed the Company's financial statements for its
second and third quarters of Fiscal 2002, and audited the Company's financial
statements for Fiscal 2002, which ended January 4, 2003.
Set forth below is certain information relating to the aggregate fees billed
by the Company's auditors for professional services rendered during Fiscal 2001
and Fiscal 2002. The information is being reported in accordance with the new
SEC disclosure rules that will become effective on May 6, 2003.
5
<Page>
AUDIT FEES
Arthur Andersen LLP billed the Company aggregate fees of $183,000 for
professional services rendered in connection with (i) the audits of the annual
financial statements of the Company; (ii) the reviews of the financial
statements included in the Quarterly Reports of the Company; and (iii) SEC
filings and accounting consultations arising as part of the audit for Fiscal
2001.
Arthur Andersen LLP billed the Company aggregate fees of $8,500 in
connection with the review of the financial statements included in the Company's
Quarterly Report on Form 10-Q for the first quarter of Fiscal 2002.
PricewaterhouseCoopers LLP billed the Company aggregate fees of $160,000 for
professional services rendered in connection with (i) the audits of the annual
financial statements of the Company; (ii) the reviews of the financial
statements included in the Quarterly Reports on Form 10-Q for the second and
third quarters of Fiscal 2002; and (iii) SEC filings and accounting
consultations arising as part of the audit for Fiscal 2002.
AUDIT-RELATED FEES
Arthur Andersen LLP billed the Company aggregate fees of $8,500 for
audit-related services for Fiscal 2001 in connection with audits of employee
benefit plans. Additionally, Arthur Andersen LLP billed the Company fees of
$486,983 for services rendered to the Company in Fiscal 2001 associated with a
terminated acquisition effort.
PricewaterhouseCoopers LLP billed the Company aggregate fees of $10,000 for
audit-related services rendered to the Company for Fiscal 2002. The services
comprising the fees billed in this category related to audits of employee
benefit plans.
TAX FEES
Arthur Andersen LLP billed the Company aggregate fees of $181,075 for tax
services rendered to the Company for Fiscal 2001. The services comprising the
fees billed in this category included those related to tax planning, compliance
and advisory services.
Arthur Andersen LLP and PricewaterhouseCoopers LLP billed the Company
aggregate fees of $117,000 and $119,800, respectively, for tax services rendered
to the Company for Fiscal 2002. The services comprising the fees billed in this
category included those related to tax planning, compliance and advisory
services.
ALL OTHER FEES
Neither Arthur Andersen LLP nor PricewaterhouseCoopers LLP rendered any
services to the Company other than the services described above under Audit
Fees, Audit-Related Fees and Tax Fees for either Fiscal 2001 or Fiscal 2002.
Representatives of the Company's independent auditors are expected to be
present at the Annual Meeting and will have an opportunity to make a statement
if they so desire and will be available to respond to appropriate questions.
DIRECTORS' REMUNERATION
For their services as directors of the Company, each of Messrs. Ahn, Porras,
and Scocimara is paid a $25,000 annual retainer and is entitled to receive a
$1,000 fee for each Board and Committee meeting attended.
Effective December 13, 2002, the Company granted to each of Messrs. Ahn,
Porras and Scocimara an option, fully exercisable at any time prior to December
12, 2012, to purchase 10,000 shares of Common Stock at an exercise price of
$7.04 per share. For a period of three months following the termination of
directorship for any reason except for cause (as defined in each option
agreement), the optionholder may exercise that portion of the options which were
otherwise exercisable on the date of termination. Upon termination of the
directorship for cause, all unexercised options would be forfeited.
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<Page>
All directors are reimbursed for all out-of-pocket expenses incurred by them
in connection with their attendance at Board and Committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Ahn, Porras and Scocimara.
Mr. Liebenow, who is President, Chief Executive Officer and a director of the
Company, participates in all discussions and decisions regarding salaries,
benefits and incentive compensation for all employees of the Company, except
discussions and decisions relating to his own salary, benefits and incentive
compensation.
7
<Page>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by the
Company for services rendered during 2000, 2001 and 2002 to the Chief Executive
Officer of the Company and to each of the four other most highly compensated
executive officers of the Company whose total cash compensation for 2002
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- --------- -------- ---------- ---------------
Larry A. Liebenow ...................... 2002 660,000 -- 90,000(2) 50,063(6)
President and Chief Executive Officer 2001 640,000 -- 90,000(3) 48,863(7)
2000 618,000 210,120(1) 135,000(4) 48,138(8)
M. Beatrice Spires ..................... 2002 320,000 -- 30,000(2) 21,786(6)
Vice President -- Design and 2001 295,000 -- 30,000(3) 21,822(7)
Merchandising 2000 258,000 87,720(1) 45,000(5) 20,718(8)
Mark Hellwig ........................... 2002 285,000 -- 30,000(2) 17,500(6)
Vice President -- Supply Chain 2001 256,000 -- 30,000(3) 15,760(7)
Management 2000 247,000 83,980(1) 45,000(5) 14,660(8)
Duncan Whitehead ....................... 2002 240,000 -- 30,000(2) 28,577(6)
Vice President -- Research and 2001 225,000 -- 30,000(3) 27,709(7)
Development 2000 206,000 70,040(1) 45,000(5) 27,113(8)
Thomas Muzekari ........................ 2002 227,000 -- 30,000(2) 14,020(6)
Vice President -- Sales 2001 220,000 -- 30,000(3) 13,600(7)
2000 206,000 70,040(1) 45,000(5) 12,374(8)
</Table>
- ---------
(1) Consists of a bonus paid in 2001 attributable to 2000
operations.
(2) Represents an option to purchase shares of Common Stock
granted by the Company to such officer pursuant to the 1997
Stock Option Plan (as hereinafter defined). All such options
vest over a five-year period which began on December 13,
2002, the date of grant.
(3) Represents an option to purchase shares of Common Stock
granted by the Company to such officer pursuant to the 1997
Stock Option Plan (as hereinafter defined). All such options
vest over a five-year period which began on December 14,
2001, the date of grant.
(4) Represents options to purchase shares of Common Stock
granted by the Company to such officer pursuant to the 1997
Stock Option Plan (as hereinafter defined). All such options
vest over five years beginning on (i) May 18, 2000, with
respect to the grant of an option to purchase 60,000 shares,
and (ii) December 14, 2000, with respect to the grant of an
option to purchase 75,000 shares.
(5) Represents options to purchase shares of Common Stock
granted by the Company to such officer pursuant to the 1997
Stock Option Plan (as hereinafter defined). All such options
vest over five years beginning on (i) May 18, 2000, with
respect to the grant of an option to purchase 20,000 shares,
and (ii) December 14, 2000, with respect to the grant of an
option to purchase 25,000 shares.
(6) Includes the Company's payment of $39,600, $19,200, $17,100,
$14,400 and $13,620 to cover insurance premiums on the split
dollar insurance policies being used to informally fund the
Company's obligations to Mr. Liebenow, Ms. Spires,
Mr. Hellwig, Mr. Whitehead and Mr. Muzekari, respectively,
under the Company's Retirement Plan (as hereinafter
defined); the Company's contribution of $400 to each of
Mr. Liebenow's, Ms. Spires', Mr. Hellwig's, Mr. Whitehead's
and Mr. Muzekari's accounts under the Company's 401(k) plan;
the Company's payment of $10,063 and $13,777 in insurance
premiums due with respect to certain personal life and
disability insurance policies owned by Messrs. Liebenow and
Whitehead, respectively; and $2,186 of imputed interest
(footnotes continued on next page)
8
<Page>
(footnotes continued from previous page)
with respect to a $75,000 loan, with a five year repayment
period, made by the Company to Ms. Spires in 1998, repayable
in 60 equal monthly installments beginning January 1, 2001.
(7) Includes the Company's payment of $38,400, $17,700, $15,760,
$13,500 and $13,200 to cover insurance premiums on the split
dollar insurance policies being used to informally fund the
Company's obligations to Mr. Liebenow, Ms. Spires,
Mr. Hellwig, Mr. Whitehead and Mr. Muzekari, respectively,
under the Company's Retirement Plan (as hereinafter
defined); the Company's contribution of $400 to each of
Mr. Liebenow's, Ms. Spires', Mr. Hellwig's, Mr. Whitehead's
and Mr. Muzekari's accounts under the Company's 401(k) plan;
the Company's payment of $10,063 and $13,809 in insurance
premiums due with respect to certain personal life and
disability insurance policies owned by Messrs. Liebenow and
Whitehead, respectively; and $3,722 of imputed interest with
respect to a $75,000 loan, with a five year repayment
period, made by the Company to Ms. Spires in 1998.
(8) Includes the Company's payment of $37,656, $15,560, $14,260,
$12,847 and $11,974 to cover insurance premiums on the split
dollar insurance policies being used to informally fund the
Company's obligations to Mr. Liebenow, Ms. Spires,
Mr. Hellwig, Mr. Whitehead and Mr. Muzekari, respectively,
under the Company's Retirement Plan (as hereinafter
defined); the Company's contribution of $400 to each of
Mr. Liebenow's, Ms. Spires' Mr. Hellwig's, Mr. Whitehead's
and Mr. Muzekari's accounts under the Company's 401(k) plan;
the Company's payment of $10,082 and $13,866 in insurance
premiums due with respect to certain personal life and
disability insurance policies owned by Messrs. Liebenow and
Whitehead, respectively; and $4,758 of imputed interest with
respect to a $75,000 loan, with a five year repayment
period, made by the Company to Ms. Spires in 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATE OF
NUMBER OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING % OF TOTAL OPTION TERMS(3)(4)
OPTIONS/SARs OPTIONS/SARs EXERCISE BASE EXPIRATION ---------------------
NAME GRANTED(#)(1) GRANTED(2) PRICE($/Sh) DATE 5%($) 10%($)
---- ------------- ---------- ----------- ---- ----- ------
Larry A. Liebenow............... 90,000 17.6 7.04 12/12/12 398,471 1,009,768
M. Beatrice Spires.............. 30,000 5.9 7.04 12/12/12 132,824 336,589
Mark Hellwig.................... 30,000 5.9 7.04 12/12/12 132,824 336,589
Duncan Whitehead................ 30,000 5.9 7.04 12/12/12 132,824 336,589
Thomas Muzekari................. 30,000 5.9 7.04 12/12/12 132,824 336,589
</Table>
- ---------
(1) All such options were granted on December 13, 2002 and
become exerciseable in five equal annual installments, the
first installment becoming exerciseable one year after the
date of grant.
(2) During Fiscal 2002, stock options representing an aggregate
of 511,000 shares of Common Stock were granted by the
Company to all employees as a group. Additionally, stock
options representing 160,000 shares of Common Stock were
granted by the Company to its officers on December 14, 2001
subject to shareholder approval, which was received on
May 16, 2002.
(3) Represents gain before income taxes. The fair market value
of the Common Stock on December 13, 2002 was $7.04 per
share.
(4) The dollar amounts under these columns are the result of
calculations at 5% and 10% rates set by the SEC and,
therefore, are not intended to forecast possible future
appreciation, if any, of the Company's Common Stock.
9
<Page>
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the fiscal
year-end value of unexercised options held by the executives named in the
Summary Compensation Table.
FISCAL YEAR-END OPTION/SAR VALUES
<Table>
<Caption>
NUMBER OF NUMBER OF VALUE OF THE VALUE OF THE
SECURITIES SECURITIES UNEXERCISED UNEXERCISED
UNDERLYING UNDERLYING IN-THE-MONEY IN-THE-MONEY
SHARES OPTIONS/SARs OPTIONS/SARs OPTIONS/SARs OPTIONS/SARs
ACQUIRED AT FY-END(#) AT FY-END(#) AT FY-END($)(1) AT FY-END($)(1)
ON VALUE ------------ -------------- ---------------- ----------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ----------- ----------- ------------- ----------- -------------
Larry A. Liebenow.......... -- -- 445,041(4) -- 2,710,300 --
-- -- 135,000(5) -- -- --
-- -- 48,000(8) 12,000(8) -- --
-- -- 24,000(9) 36,000(9) 35,520 53,280
-- -- 30,000(10) 45,000(10) 86,700 130,050
-- -- 18,000(11) 72,000(11) -- --
-- -- -- 90,000(12) -- --
M. Beatrice Spires......... 40,000(2) 401,897 30,500(6) -- 165,186 --
-- -- 45,000(5) -- -- --
-- -- 16,000(8) 4,000(8) -- --
-- -- 8,000(9) 12,000(9) 11,840 17,760
-- -- 10,000(10) 15,000(10) 28,900 43,350
-- -- 6,000(11) 24,000(11) -- --
-- -- -- 30,000(12) -- --
Mark Hellwig............... 10,000(3) 51,520 30,000(7) 10,000(5) 79,200 26,400
-- -- 8,000(9) 12,000(9) 11,840 17,760
-- -- 10,000(10) 15,000(10) 28,900 43,350
-- -- 6,000(11) 24,000(11) -- --
-- -- -- 30,000(12) -- --
Duncan Whitehead........... -- -- 110,497(4) -- 672,926 --
18,000(3) 57,735 27,000(5) -- -- --
-- -- 16,000(8) 4,000(8) -- --
4,000(3) 31,790 4,000(9) 12,000(9) 5,920 17,760
5,000(3) 46,787 5,000(10) 15,000(10) 14,450 43,350
-- -- 6,000(11) 24,000(11) -- --
-- -- -- 30,000(12) -- --
Thomas Muzekari............ 22,500(2) 242,736 22,500(6) -- 124,200 --
22,500(3) 68,766 22,500(5) -- -- --
10,000(3) 59,387 6,000(8) 4,000(8) -- --
4,000(3) 31,622 4,000(9) 12,000(9) 5,920 17,760
5,000(3) 65,943 5,000(10) 15,000(10) 14,450 43,350
-- -- 6,000(11) 24,000(11) -- --
-- -- -- 30,000(12) -- --
</Table>
- ---------
(1) Based on a closing sales price of $6.89 per share as quoted
on the Nasdaq National Market on January 3, 2003, the last
trading date in Fiscal 2002.
(2) Represents shares exercised and subsequently sold under the
1993 Stock Option Plan (as hereinafter defined).
(3) Represents shares exercised and subsequently sold under the
1997 Stock Option Plan (as hereinafter defined).
(4) Represents the indicated person's proportionate interest
(based upon ownership of Nortex Holdings shares) in options
granted by the Company to Nortex Holdings (the 'Nortex
Option'). The exercise price of the shares covered by each
option is $0.80 per share and the Nortex Option currently
covers a total of 66,665 shares of Common Stock.
(5) Represents options granted by the Company on May 21, 1997 to
certain executive officers of the Company (the '1997 Stock
Option Plan'). The exercise price of the shares covered by
each option is $10.17 per share. The 1997 Stock Option Plan
currently covers a total of 1,981,500 shares of Common
Stock.
(6) Represents options granted by the Company on April 13, 1993
to certain executive officers of the Company (the '1993
Stock Option Plan'). Such options were granted to
Ms. Spires on March 18, 1996, and to Mr. Muzekari on
March 4, 1996. The exercise price of the shares covered by
each option is $2.75 per share as to 60% of the shares
purchasable upon exercise of the option and $1.37 per share
as to 40% of the shares purchasable upon exercise of the
option. The 1993 Stock Option Plan currently covers a total
of 92,630 shares of Common Stock.
(7) Represents options granted by the Company on October 19,
1998 to Mr. Hellwig pursuant to the 1997 Stock Option Plan.
The exercise price of the shares covered by each option is
$4.25 per share.
(8) Represents options granted by the Company on November 2,
1998 to certain executive officers of the Company pursuant
to the 1997 Stock Option Plan. The exercise price of the
shares covered by each option is $7.25 per share.
(9) Represents options granted by the Company on May 18, 2000 to
certain executive officers of the Company pursuant to the
1997 Stock Option Plan. The exercise price of the shares
covered by each option is $5.40625 per share.
(10) Represents options granted by the Company on December 14,
2000 to certain executive officers of the Company pursuant
to the 1997 Stock Option Plan. The exercise price of the
shares covered by each option is $4.00 per share.
(footnotes continued on next page)
10
<Page>
(footnotes continued from previous page)
(11) Represents options granted by the Company on December 14,
2001 to certain executive officers of the Company pursuant
to the 1997 Stock Option Plan. The exercise price of the
shares covered by each option is $8.30 per share.
(12) Represents options granted by the Company on December 13,
2002 to certain executive officers of the Company pursuant
to the 1997 Stock Option Plan. The exercise price of the
shares covered by each option is $7.04 per share.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
The Company is a party to an Employment Agreement, amended as of
February 24, 1997, and further amended as of December 17, 1999 (the 'Employment
Agreement'), with Larry A. Liebenow pursuant to which Mr. Liebenow serves as
President and Chief Executive Officer of the Company on a full-time basis for
the period ending March 12, 2005, subject to an automatic three-year extension
unless terminated by the Company upon one year's prior notice.
Mr. Liebenow may terminate the Employment Agreement at any time upon three
months' prior notice. The Employment Agreement provides for a base salary of
$600,000 (effective January 1, 1997), subject to annual increases as may be
determined by the Board, as well as certain benefits and reimbursement of
expenses. The Employment Agreement provides for annual bonuses in such amounts
as the Board shall determine. Pursuant to the Employment Agreement, the Company
has the right to terminate Mr. Liebenow's employment only for cause (as defined
in the Employment Agreement). Upon voluntary termination of employment by
Mr. Liebenow, termination of his employment for cause (other than conviction of
a crime involving moral turpitude) or termination of his employment for any
other reason (other than conviction of a crime involving moral turpitude),
Mr. Liebenow will receive a lump sum payment equal to three times his prior
year's base salary plus any bonus paid or payable with respect to the prior
year. If the Employment Agreement had terminated as of January 1, 2003,
Mr. Liebenow would have been entitled to receive $1,980,000. Payments and
benefits payable to Mr. Liebenow as a result of a change-in-control are grossed
up to offset applicable Federal excise taxes. The Employment Agreement also
provides for the continuation of his salary through March 12, 2005 in the event
Mr. Liebenow dies or becomes disabled or incapacitated. In addition, the
Employment Agreement prohibits Mr. Liebenow from disclosing or using any
confidential information of the Company or competing with the Company during the
period of his employment and for one year thereafter.
Effective December 17, 1999, the Company entered into change-in-control
agreements (the 'CIC Agreements') with each of its vice presidents. The CIC
Agreements provide that in the event of the termination of employment of a vice
president in connection with a change-in-control of the Company, as that term is
defined in the CIC Agreements, then such vice president would be entitled to a
lump sum payment equal to one and one-half times the base salary and any bonus
payable for the year preceding the change-in-the-control, plus certain other
benefits. If the employment relationships of Ms. Spires, Mr. Hellwig,
Mr. Whitehead and Mr. Muzekari had terminated on January 1, 2003 as a result of
a change-in-control, they would have received $480,000, $427,500, $360,000 and
$340,500, respectively, under the CIC Agreements.
INCENTIVE COMPENSATION PLAN
The Company's annual executive incentive compensation plans (the 'EIC
Plans'), in which all the Company's Vice Presidents participate, are designed to
encourage the executives to work effectively together as a team and to establish
a clear relationship between the Company's financial performance and overall
executive compensation levels. The Company's EIC Plan is designed to encourage
teamwork while also providing recognition of individual contributions. Pursuant
to the terms of the 2002 EIC Plan, the Company's President and each Vice
President would have been entitled to receive a cash bonus equal to 30% of
his/her base salary if the Company had achieved its 2002 financial objectives
and the Company officer had met his/her individual goals and objectives, with
80% of the executive's bonus based upon achieving the Company's 2002 operating
income and return on capital employed goals, and 20% based on his or her
individual performance. Individual bonuses of up to 40% of base salary would
have been payable in the event the Company exceeded its 2002 financial goals by
30% or more and the executive met all of his or her individual performance
objectives.
11
<Page>
The formulas resulted in total bonuses paid of $782,568 for EIC Plan year
2000, and no bonuses paid with respect to EIC Plan years 2001 and 2002. No
payments are permitted under the EIC Plan to participants who resigned or were
terminated for cause during the applicable EIC Plan year. Pro rata distributions
would have been made with respect to any participant who died, retired, or whose
employment was terminated without cause during the applicable EIC Plan year.
The Company has adopted an EIC Plan for fiscal 2003 that is substantially
similar to the 2002 EIC Plan.
DEFERRED COMPENSATION PLAN
On July 16, 1992, the Company established a Deferred Compensation Plan (the
'Retirement Plan'), for the benefit of all of the Company's executive officers.
Pursuant to the provisions of the Retirement Plan, the Company has agreed to
provide certain benefits to each plan participant based on the value of
accumulated contributions made under the Retirement Plan on their behalf and
split-dollar variable life insurance contracts insuring the lives of each plan
participant have been purchased to informally fund the Company's obligations
under the Retirement Plan. The Company has established an irrevocable 'grantor'
trust for the purpose of accumulating the amounts needed to pay benefits under
the Retirement Plan and to hold the variable life insurance contracts. The
Company has agreed to make annual contributions to the trust in an amount equal
to 6% of the base salaries of all plan participants (or such higher amount as
the Board of Directors may determine). The assets of the trust will be
considered to be assets of the Company for purposes of satisfying the claims of
the Company's general creditors.
Among the benefits provided to each plan participant are a pre-retirement
death benefit, a monthly retirement benefit payable over a 15-year period for a
participant who terminates employment after attaining age 55 and completing at
least five years of plan participation, and certain other amounts payable
pursuant to the provisions of the Retirement Plan in the event a plan
participant's employment with the Company is terminated as a result of a
change-in-control, or the plan participant's employment with the Company is
terminated prior to attaining age 55 and completing five years of plan
participation. All balances due are immediately payable in the form of a single
lump sum payment in the event of a change-in-control of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The report of the Compensation Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
The Company's executive compensation program is based on the philosophy that
a performance-based program that encourages ownership in the Company and
provides management with meaningful economic incentives to improve the Company's
financial performance will ensure both an annual and a long-term perspective by
the management team. With this in mind, the program objectives are:
To provide a competitive compensation program in order to
attract, motivate, reward, and retain qualified personnel
for positions of substantial responsibility.
To serve as a management tool in focusing and directing the
energies and efforts of key executives toward achieving
individual and corporate objectives.
To provide a long-term incentive for the executive to
continue providing service to the Company by linking the
success and prosperity of the individual to the success and
prosperity of the Company.
The Compensation Committee achieves these objectives through periodic
performance reviews and related adjustments to the base salaries of the
Company's executives, through cash bonuses awarded pursuant to the Company's
annual incentive compensation plans, and through the Retirement Plan and stock
option plans.
12
<Page>
Generally, when new executives are recruited by the Company, salary offers
are based upon a review of the current salaries of the candidates, an assessment
of their relative qualifications and a judgment of what salary would be required
to hire a selected candidate. Thereafter, annual increases in each executive's
salary are based upon the Company's overall performance, as well as upon an
evaluation of the executive's individual performance. The performance measures
used for performance evaluation purposes include both subjective measures, such
as the attainment of agreed-upon departmental or corporate objectives, and
various quantitative measures, such as the attainment of sales, productivity, or
expense goals.
In addition, while the performance measures used to evaluate each
executive's performance vary from executive to executive, depending upon the
executive's specific corporate responsibilities, they are, in every case, a
function of the Company's strategy, business plan, and operating objectives for
the year. For example, the performance criteria used to measure the performance
of the Company's vice president of sales include, but are not limited to, sales
and order rates in relationship to the Company's operating objectives for the
period, expansion of the Company's international business pursuant to the
Company's export strategy, market reaction to the introduction of new Company
products, and maintaining department staffing levels at or below the Company's
employment level objectives.
The annual salary increases awarded to the Company's executives are
generally higher, on a percentage basis, in years when the Company's overall
performance has been good, and lower in those years when the Company's overall
performance has not been as good. In addition, the Compensation Committee takes
various external factors into consideration when reviewing the annual increases
to be awarded to the Company's executives. These external factors include an
evaluation of general economic conditions, the rate of inflation, and market
demand for executives with skills comparable to those of the Company's senior
managers.
The Company's annual executive incentive compensation plans are designed to
encourage the Company's executives to work effectively together as a team to
maximize the Company's profitability. No bonus payments were made to any
corporate officers with respect to the Company's fiscal 2001 and 2002
operations. The 2000 Executive Incentive Compensation Plan (the '2000 EIC Plan')
set 30% of base salary as a targeted incentive opportunity for all executives,
with 80% of the target award (24% of salary) based on achieving the Company's
2000 net income plan (before extraordinary adjustments), 20% of the target award
(6% of salary) based on the attainment of agreed upon individual performance
objectives, and a maximum award of 35% of base salary payable only in the event
the Company's 2000 net income equaled or exceeded 120% of the Company's 2000
business plan objective and the executive had met all of his or her individual
performance objectives. Proportionate bonuses of between 30 and 35% of base
salary would have been payable in the event the Company's 2000 net income fell
between 100 and 120% of the Company's business plan objective, and there would
have been no individual awards if 2000 net income had been less than 100% of the
Company's 2000 business plan objective. Pursuant to the terms of the 2000 EIC
Plan, each 2000 EIC Plan participant's actual payout under the Plan was
determined by Quaker's President and reviewed by the Compensation Committee of
the Board of Directors, and bonuses of $782,568, in the aggregate, were paid to
the Company's executives.
The Retirement Plan provides a benefit which vests over five years and is
based on accumulated contributions to the Plan over the executive's entire
period of service. The level of contributions for any year is determined by a
formula based on the executive's base salary for that year. This Plan is
intended to provide each executive with an incentive to remain with the Company
and to perform in a manner which will result in continuing salary increases.
The stock option plans offer the Company's executives an incentive to
perform in a manner which will result in an increasing price for the Company's
stock, since the value of the options granted pursuant to these plans is
directly related to the value of the Company's common stock. Options vest over a
period of five years and, therefore, provide each executive with an incentive to
remain with the Company. In determining the persons who are to receive options,
the Compensation Committee considers the person's position, responsibilities,
years of service, and accomplishments, as well as the individual's present and
future value to the Company, the anticipated length of his future service, and
other relevant factors. Options were granted to the Company's executives under
the 1993 Stock Option
13
<Page>
Plan and the 1997 Stock Option Plan (as herein defined) to provide each with a
direct stake in the success of the Company and to support the Company's efforts
to attract and retain qualified employees.
Pursuant to the terms of the Employment Agreement, the Company's
Compensation Committee reviews Mr. Liebenow's salary annually and concurrently
determines what cash bonus, if any, should be paid to him with respect to the
Company's performance during the fiscal year immediately preceding the review
date. These reviews take place shortly after the Company's audited financial
statements for the prior fiscal year become available and the salary increases
and bonuses awarded to Mr. Liebenow are based on the Compensation Committee's
evaluation of the Company's operating and financial performance under
Mr. Liebenow's leadership during the review period, as measured by revenues and
net income for the review period compared to (i) the business plan for the
review period and, (ii) revenues and net income for the period immediately prior
to the review period. For Fiscal 2000, Mr. Liebenow's base salary was increased
in accordance with the criteria set forth above and his bonus for Fiscal 2000
was determined by the Compensation Committee and deemed to be appropriate, from
a total compensation standpoint, in light of the Company's financial performance
during the period. No bonus payments were made to Mr. Liebenow with respect to
the Company's Fiscal 2001 or 2002 operations.
Compensation Committee
SANGWOO AHN
JERRY I. PORRAS
ERIBERTO R. SCOCIMARA
14
<Page>
PERFORMANCE GRAPH
The Performance Graph below shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG QUAKER FABRIC CORPORATION,
NASDAQ MARKET INDEX, INDUSTRY INDEX AND PEER ISSUER
[PERFORMANCE CHART]
<Table>
<Caption>
COMPANY/INDEX/MARKET 1/02/1998 12/31/1998 12/31/1999 12/29/2000 12/28/2001 1/03/2003
-------------------- --------- ---------- ---------- ---------- ---------- ---------
Quaker Fabric..................... $100.00 49.32 33.54 31.56 67.47 54.37
Peer Issuer....................... 100.00 40.40 33.03 10.89 21.24 47.16
Textile Manufacturing............. 100.00 95.46 61.70 54.28 67.41 65.48
NASDAQ Market Index............... 100.00 141.04 248.76 156.35 124.64 86.94
</Table>
The above graph compares the cumulative total stockholder return for the
Company's Common Stock for the period beginning January 2, 1998 and ending
January 3, 2003 with the comparable returns of two indexes and a peer issuer.
The first index is the NASDAQ Market Index (NMS Industrials) and the second is a
group consisting of the thirty-three textile manufacturing companies that
currently compose the Media General Financial Services Textile Manufacturing
Industry Group. Additional information concerning this group, including a
listing of the companies included, is available at www.mgfs.com. The above graph
also includes a comparison with a peer issuer, Culp Inc. (NYSE symbol 'CFI').
Culp Inc. has historically been included in a peer group index selected by the
Company for its performance graphs. Over time, however, the other companies in
that group have either concluded business operations, exited the Company's
industry or are no longer publicly traded. As a
15
<Page>
result, and to provide stockholders with enhanced performance information
relative to the Company's industry and peers, the Company has added the Media
General Textile Manufacturing Group to its graph.
For purposes of this comparison, the cumulative total stockholder return of
each issuer within the Media General Textile Manufacturing Group has been
weighted according to the respective issuer's stock market capitalization at the
beginning of the period (January 2, 1998). This comparison assumes $100 invested
on January 2, 1998 in the Company's Common Stock and $100 invested in each of
the indexes. This comparison also assumes that all dividends have been
reinvested.
CERTAIN TRANSACTIONS
In 1998, the Company made a $75,000 loan to Ms. Spires in connection with
her purchase of a home. Under the terms of the promissory note evidencing the
loan, Ms. Spires must repay the full principal amount in sixty equal
installments, which commenced on January 1, 2001. Interest is imputed on the
loan at the applicable short-term federal rate.
OTHER MATTERS
As of the date of this Proxy Statement, the Company is not aware of any
other matters to be brought before the Annual Meeting. However, if other matters
do come before the meeting, it is the intention of the persons named in the
accompanying form of proxy to vote such proxy in accordance with their judgment
on such matters.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any stockholder of the Company who desires to present a proposal at the 2004
Annual Meeting of Stockholders for inclusion in the proxy statement and form of
proxy relating to that meeting must submit the proposal to the Company at its
principal executive offices on or before December 18, 2003.
By Order of the Board of Directors
CYNTHIA L. GORDAN
Vice President, Secretary and
General Counsel
April 18, 2003
16
<Page>
APPENDIX A
QUAKER FABRIC CORPORATION
AUDIT COMMITTEE CHARTER
AMENDED AND RESTATED AS OF MARCH 3, 2003
The Audit Committee is appointed by the Board to assist the Board in
monitoring (1) the quality and integrity of the financial statements of the
Company, (2) the compliance by the Company with legal and regulatory
requirements that may have a material effect on the financial statements of the
Company, and (3) the independence and performance of the Company's independent
auditors.
The members of the Audit Committee shall meet the requirements applicable to
companies listed on the NASDAQ National Market including, but not limited to,
those requirements pertaining to independence and experience. The members of the
Audit Committee shall be appointed by the Board, and the Board shall determine
that each member is 'financially literate,' and whether any members of the Audit
Committee are 'audit committee financial experts' as that term is defined by the
Securities and Exchange Commission (the 'SEC').
The Audit Committee shall meet once every fiscal quarter, or more frequently
if circumstances dictate, to discuss with management the annual audited
financial statements and quarterly financial statements, as applicable. The
Audit Committee shall also meet separately at least quarterly with the
independent auditors to discuss any matters that the Audit Committee or the
independent auditors believe should be discussed privately. The Audit Committee
may request any officer or employee of the Company or the Company's outside
counsel or independent auditors to attend a meeting of the Audit Committee or to
meet with any members of, or consultants to, the Audit Committee. The Audit
Committee shall make regular reports to the Board.
In meeting its responsibilities, the Audit Committee is expected to:
1. Provide an open avenue of communication between the Board
and the Company's independent auditors, which firm shall
report directly to the Audit Committee and be ultimately
accountable to the Audit Committee and the Board, as
representatives of the Company's shareholders.
2. Review and update the Committee's charter annually.
3. Select and appoint the independent auditors, approve all
audit engagement fees and terms, determine the funding,
evaluate the performance of the independent auditors and
review and approve the discharge of the independent
auditors.
4. Confirm and assure the independence of the independent
auditors, including a review of such information as the
independent auditors shall be required to provide in writing
to the Audit Committee for this purpose.
5. Approve, in advance, the provision by the auditor of all
permissible non-audit services.
6. Inquire of management and the independent auditors about
significant risks or exposures and assess the steps
management has taken to minimize such risks to the Company.
7. Consider, in consultation with management and the
independent auditors, the scope and plan of the independent
auditors with respect to each annual audit of the Company's
financial statements and, at the conclusion thereof, review,
with management and the independent auditors, (i) the
resulting annual audited financial statements, (ii) any
audit difficulties and management's responses, (iii) any
difficulties the auditor encountered, restrictions on the
audit scope or activities, significant disagreements with
management and, where applicable, accounting adjustments not
accepted, communications with the auditor's national office
and any 'management' letters issued.
8. Review and discuss with management and the independent
auditors the Company's Forms 10-Q and 10-K, including the
financial statements and the Company's disclosures under
'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' contained therein. Specifically,
the Audit Committee shall review, with
A-1
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management and the independent auditors, (i) the major
accounting principles and presentations, including changes
in principles, (ii) management analysis regarding
significant financial reporting issues and judgments,
including alternative GAAP methods, and (iii) the effect of
regulatory and accounting initiatives and off-balance sheet
structures.
9. Resolve any disagreement between management and the
independent auditors with respect to financial reporting.
10. Establish, review and update periodically a code of ethical
conduct for the Company and its employees and ensure that
management has established a system to communicate the code.
11. Review with the Company's counsel legal compliance matters,
including corporate securities trading policies. Also,
review any legal, regulatory or NASDAQ requirements that
could have a significant impact on the Company's financial
statements or otherwise require disclosure.
12. Annually review the Company's general insurance and risk
management programs to ensure that appropriate coverage is
available and exposures understood.
13. Discuss with management and the independent auditors, as
appropriate, earnings press releases, as well as the
Company's policies with respect to communications with
analysts, rating agencies and shareholders.
14. Establish policies to govern the hiring of employees or
former employees of the Company's independent auditors.
15. Review with management and the independent auditors the
adequacy of the Company's internal system of audit,
financial and disclosure controls, as well as any steps
taken regarding deficiencies.
16. Review and obtain at least annually a formal written report
from the independent auditors delineating (i) the auditing
firm's internal quality-control procedures, and (ii) any
material issues raised within the preceding five (5) years
by the auditing firm's internal quality-control reviews, by
peer reviews of the firm, or by any governmental or other
inquiry or investigation relating to any audit conducted by
the firm.
17. Establish procedures for the receipt, retention and
treatment of complaints about accounting, internal controls
or auditing matters, including procedures for the anonymous
submission of employee concerns about questionable
accounting or auditing practices.
18. Review and approve all related-party transactions.
19. Perform such other functions as may be assigned by law, the
Company's by-laws or the Board.
The Audit Committee shall have full authority to engage its own auditors,
lawyers and other advisors as it may deem necessary and appropriate in meeting
its responsibilities. The Audit Committee shall have sole authority to approve
all related retention terms and fees, and the Company shall pay all such fees
approved by the Committee.
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1234-PS-03
<Page>
DETACH HERE ZQKR92
PROXY
QUAKER FABRIC CORPORATION
Proxy Solicited by the Board of Directors
for Annual Meeting of Stockholders
May 23, 2003
The undersigned stockholder of QUAKER FABRIC CORPORATION (the "Company")
hereby appoints Larry A. Liebenow and Cynthia L. Gordan, and either of them the
attorneys and proxies of the undersigned, with full power of substitution, to
vote on behalf of the undersigned all the shares of Common Stock of the Company
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of the Company, to be held at the corporate offices of Quaker Fabric
Corporation, 1082 Davol Street, Fall River, MA 02720 on May 23, 2003 at 10:00
A.M. and at all adjournments thereof, hereby revoking any proxy heretofore given
with respect to such stock; and the undersigned authorizes and instructs said
proxies to vote as follows on the reverse side.
NOTE: PROXIES THAT ARE MARKED ABSTAIN WILL BE COUNTED AS PRESENT AT THE MEETING.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<Page>
QUAKER FABRIC CORPORATION
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
DETACH HERE ZQKR91
[X] Please mark |
votes as in |____
this example
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED AS
DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE
DIRECTORS NAMED IN PROPOSAL 1, AND IN ACCORDANCE WITH THE DISCRETION OF THE
PROXY HOLDERS RESPECTING SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
1. ELECTION OF DIRECTORS:
Nominees: (01) Sangwoo Ahn, (02) Larry A. Liebenow,
(03) Jerry I. Porras, (04) Eriberto R. Scocimara.
FOR [ ] [ ] WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[ ]
--------------------------------------
For all nominees except as noted above
In their discretion, the holders of this proxy are authorized to vote upon such
other matters as may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please date and sign exactly as your name(s) appear(s) hereon. If shares are
held jointly, each joint owner must sign. Executors, administrators, trustees,
etc., should so indicate when signing and when more than one executor, etc. is
named, a majority must sign. If signing for a corporation, please sign full
corporate name by duly authorized officer.
Signature: Date:
----------------------------------------- ----------------------
Signature: Date:
----------------------------------------- ----------------------