-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LOsYK+OlBSNT0ChNvmN22aB4Uwbd5VdXWsFBCmcgeGXUR4VQTecUKuni/LvKsSnO 0je4BD7IawL8HZIt3FpSyQ== 0000950117-05-001244.txt : 20050401 0000950117-05-001244.hdr.sgml : 20050401 20050401163421 ACCESSION NUMBER: 0000950117-05-001244 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050331 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050401 DATE AS OF CHANGE: 20050401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUAKER FABRIC CORP /DE/ CENTRAL INDEX KEY: 0000103341 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221] IRS NUMBER: 041933106 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07023 FILM NUMBER: 05725851 BUSINESS ADDRESS: STREET 1: 941 GRINNELL ST. CITY: FALL RIVER STATE: MA ZIP: 02721 BUSINESS PHONE: 5086781951 MAIL ADDRESS: STREET 1: 941 GRINNELL ST CITY: FALL RIVER STATE: MA ZIP: 02721 FORMER COMPANY: FORMER CONFORMED NAME: VERTIPILE INC DATE OF NAME CHANGE: 19870811 8-K 1 a39530.txt QUAKER FABRIC CORPORATION - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 March 31, 2005 Date of Report (Date of earliest event reported) QUAKER FABRIC CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-7023 04-1933106 (State of incorporation) (Commission File Number) (I.R.S. Employer Identification No.) 941 Grinnell Street, Fall River, Massachusetts 02721 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 678-1951 (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 1.01 Entry into a Material Definitive Agreement Quaker Fabric Corporation of Fall River ("Quaker"), a wholly-owned subsidiary of Quaker Fabric Corporation (the "Company"), two other subsidiaries of the Company (together with Quaker, the "Borrowers") and the Company, as guarantor, are parties to a Second Amended and Restated Credit Agreement, dated as of February 14, 2002, with a bank (the "Bank") which expires January 31, 2007 (as amended, the "Credit Agreement"). The Credit Agreement provides for a revolving credit facility and a letter of credit facility. See Note 5 of Notes to Consolidated Financial Statements included in the Company's 2004 Annual Report on Form 10-K. Quaker issued $45.0 million of Senior Notes due October 2005 and 2007 (the "Senior Notes") during 1997 under a Note Agreement (as amended, the "Senior Note Agreement") with an insurance company (the "Insurance Company" and together with the Bank, the "Lenders"). The Senior Notes are unsecured and bear interest at a fixed rate of 7.09% on $15.0 million and 7.18% on $30.0 million. The Senior Notes may be prepaid in whole or in part prior to maturity, at Quaker's option, subject to a yield maintenance premium, as defined. Annual principal payments began on October 10, 2003 with a final payment due October 10, 2007. Annual principal payment amounts are three payments of $5.0 million beginning in October 2003 (of which only the October 2005 payment is unpaid as of March 11, 2005), followed by two payments of $15.0 million beginning in 2006. On February 14, 2002, Quaker issued $5.0 million of 7.56% Series A Notes due February 2009 (the "Series A Notes" and together with the Senior Notes, the "Term Notes") under a Note Purchase Agreement (as amended, the "Series A Note Agreement" and together with the Senior Note Agreement, the "Note Agreements") with the Insurance Company. The Series A Notes are unsecured and bear interest at a fixed rate of 7.56%, payable semiannually. The Series A Notes may be prepaid in whole or in part prior to maturity, at Quaker's option, subject to a yield maintenance premium, as defined. The Company and/or Quaker are required to comply with a number of affirmative and negative convenants under the Credit Agreement and the Note Agreements, 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 and Quaker; restrictions on the Company's and/or Quaker'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. On March 11, 2005, the Borrowers and the Company, as guarantor, entered into a Forbearance and Amendment to the Second Amended and Restated Credit Agreement (the "Bank Forbearance Agreement"). Pursuant to the terms of the Bank Forbearance Agreement, the Borrowers and the Company acknowledged that in the absence of a waiver from the Bank, they would be in breach of both the debt service coverage ratio covenant and the profitable operations covenant in the Credit Agreement for the last quarter of 2004 and possibly in violation of those covenants and the leverage ratio covenant for each of the first and second quarters of 2005 and 2 that these breaches would constitute Events of Default, as defined in the Credit Agreement (the "Specified Bank Defaults"). In the Bank Forbearance Agreement, the Bank agreed to waive the Specified Bank Defaults through the period ending July 15, 2005 (the "Limited Bank Waiver Period"), subject to certain conditions including the Bank's receipt of fully executed copies of a similar waiver from the Insurance Company with respect to the fixed charge coverage ratio and the total debt ratio set forth in the Note Agreements. The Bank Forbearance Agreement also provides for, among other things, (i) the reduction of the maximum amount of loans and letters of credit the Bank has agreed to make under the Credit Agreement to $15,000,000, and (ii) as a condition to any further borrowing under the Credit Agreement, the grant, not later than March 31, 2005, of a perfected, first priority security interest (subject to certain exceptions, including pari passu liens to be granted to the holders of the Term Notes) in all personal property assets of the Borrowers and the Company then owned or thereafter acquired and the contemporaneous execution of an intercreditor agreement, in form and substance satisfactory to the Bank, among the Bank, the holders of the Term Notes, the Borrowers and the Company. On March 11, 2005, Quaker and the Company, as guarantor, entered into a Forbearance to Note Agreements with respect to the Note Agreements with the Insurance Company (the "Insurance Company Forbearance Agreement"). Pursuant to the terms of the Insurance Company Forbearance Agreement, Quaker and the Company acknowledged that in the absence of a waiver from the Insurance Company, Quaker and the Company would be in breach of the fixed charge coverage ratio set forth in the Note Agreements for the last quarter of 2004 and possibly for each of the first and second quarters of 2005 and possibly in breach of the total debt ratio set forth in the Note Agreements for each of the first and second quarters of 2005 and that this breach would constitute an Event of Default, as defined in the Note Agreements (the "Specificied Insurance Company Defaults"). In the Insurance Company Forbearance Agreement, the Insurance Company agreed to waive the Specified Insurance Company Defaults through the period ending July 15, 2005 (the "Limited Insurance Company Waiver Period"), subject to certain conditions including, but not limited to, the Insurance Company's receipt of fully executed copies of a similar waiver from the Bank with respect to the debt service coverage ratio covenant, the profitable operations covenant and the leverage ratio covenant set forth in the Credit Agreement. The Insurance Company Forbearance Agreement also provides, among other things, (i) that on or prior to July 10, 2005, the Company shall enter into a refinancing credit facility and using the proceeds thereof shall repay in full all of the Obligations (as defined in the Insurance Company Forbearance Agreement), and (ii) for the grant, not later than March 31, 2005, of a perfected, first priority security interest (subject to certain exceptions, including pari passu liens to be granted to the Bank) in all personal property assets of the Borrowers and the Company then owned or thereafter acquired and the contemporaneous execution of an intercreditor agreement, in form and substance satisfactory to the Insurance Company, among the Bank, the Insurance Company, the Borrowers and the Company. On March 31, 2005, the Borrowers and the Company (i) consented to an Intercreditor and Collateral Agency Agreement by and among the Bank, as Collateral Agent, and the Bank and the Insurance Company, as Lenders, (the "Intercreditor Agreement," (ii) executed a security agreement pursuant to which the Borrowers and the Company granted to the Lenders a perfected, first priority security interest (subject to certain exceptions, including pari passu liens to be granted to the holders of the Term Notes) in all personal property assets of the Borrowers and the 3 Company then owned or thereafter acquired, (the "Security Agreement," and (iii) entered into various other agreements with the Lenders which provide, among other things, that the Bank has no obligation to make further Advances or to issue, extend or renew Letters of Credit for the Companies' accounts to the extent that any such Advances or Letter of Credit Obligations would increase the Companies' obligations to the Bank by more than $10.0 million (the "Other Agreements.") As a result, all of the conditions to the continued effectiveness of the Bank Forbearance Agreement and the Insurance Company Forbearance Agreement have been satisfied, and the Borrowers and the Company have the right to borrow under the Credit Agreement, as amended. In the Bank Forbearance Agreement, the Borrowers and the Company agreed that they will repay all amounts outstanding, and cash collateralize all letters of credit issued, under the Credit Agreement on July 16, 2005 and that at such time the Bank will have all of its rights and remedies under and in respect of the Credit Agreement and applicable law, including those arising by virtue of the occurrence of the Specfied Bank Defaults. Pursuant to the Insurance Company Forbearance Agreement, on July 15, 2005, the Company has agreed to immediately repay to the Insurance Company all of the outstanding Obligations, and the Company has acknowledged that the Insurance Company shall be free in its sole and absolute discretion to proceed to enforce any or all of its rights and remedies under or in respect of the Note Agreements and applicable law, including without limitation, those of termination, acceleration, enforcement and other rights and remedies arising by virtue of the maturity of the Obligations and of the occurrence of the Specified Defaults. As of March 31, 2005, there were no loans outstanding under the Credit Agreement, approximately $5.2 million of letters of credit and unused availability (after a reduction of the Bank's Commitment, as defined in the Credit Agreement) of $9.8 million. As of March 11, 2005, Quaker owed $40.0 million principal plus accrued interest under the Note Agreements. The Company is in discussions with a commercial bank (the "Prospective Lender") regarding a proposed new credit facility to replace, and repay borrowings under, the Note Agreements and the Credit Agreement. Any such facility is expected to include terms which may be unfavorable to the Company including, but not limited to, the grant of security interests to the Prospective Lender to secure the payment and performance of Quaker's and the Company's obligations under the proposed credit facility and restrictions on Quaker's and the Company's capital expenditures going forward. There can be no assurance that the Company will reach agreement with the Prospective Lender on terms acceptable to the Company, or at all. The Company may be required to seek alternate financing sources, the terms of which financing, if obtainable, may be disadvantageous to the Company. Based upon the anticipated performance of the Company for the foreseeable future, and absent appropriate additional waivers or agreements to forbear from the Lenders, the failure to obtain new financing would likely result in an Event of Default under the Note Agreements and the Credit Agreement and the inability to borrow under the Credit Agreement no later than July 16, 2005. In 2004 and 2003, the Company paid cash dividends of $1.5 million or $0.09 per common share and $1.7 million or $0.10 per common share, respectively. The Company previously agreed with its Lenders not to declare or pay any dividends or distributions at any time when a Default has 4 occurred and is continuing. It is anticipated that any further amendments to the Note Agreements or the Credit Agreement, or any agreements for alternate financing, may prohibit the declaration or payment of dividends. The foregoing descriptions of the Intercreditor Agreement, the Security Agreement and the Other Agreements are qualified in their entirety by reference to the Intercreditor Agreement, the Security Agreement and the Other Agreements which are filed as Exhibits 10.18 through and 10.22 to this Form 8-K and are incorporated by reference herein. 5 Item 9.01 Financial Statements and Exhibits (c) Exhibits 10.18 Intercreditor and Collateral Agency Agreement (dated as of March 31, 2005) by and among Fleet National Bank, (the "Bank"), Pruco Life Insurance Company and The Prudential Insurance Company of America (the "Noteholders" and, together with the Bank, the "Lenders") and Fleet National Bank, as Collateral Agent on behalf of the Lenders. 10.19 Security Agreement (dated as of March 31, 2005) between Quaker Fabric Corporation of Fall River, Quaker Textile Corporation and Quaker Fabric Mexico, S.A. de C.V., as Borrowers, Quaker Fabric Corporation, as the Parent, and Fleet National Bank, as Collateral Agent. 10.20 Second Amended and Restated Pledge Agreement (dated as of March 31, 2005) among Quaker Fabric Corporation of Fall River, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de C.V., and Quaker Fabric Corporation, (the "Companies"), and Fleet National Bank, (the "Bank"), Pruco Life Insurance Company and The Prudential Insurance Company of America (the "Noteholders" and, together with the Bank, the "Lenders") and Fleet National Bank, as Collateral Agent on behalf of the Lenders. 10.21 Guaranty Agreement (dated as of March 31, 2005) by Quaker Textile Corporation and Quaker Fabric Mexico, S.A. de C.V., as Guarantors, in favor of Pruco Life Insurance Company and The Prudential Insurance Company of America with respect to the Senior Note Agreement. 10.22 Guaranty Agreement (dated as of March 31, 2005) by Quaker Textile Corporation and Quaker Fabric Mexico, S.A. de C.V., as Guarantors, in favor of Pruco Life Insurance Company and The Prudential Insurance Company of America with respect to the Series A Note Agreement. 6 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QUAKER FABRIC CORPORATION (Registrant) Date: April 1, 2005 /s/ Paul J. Kelly --------------------------- Paul J. Kelly Vice President - Finance and Treasurer 7 EXHIBIT INDEX 10.18 Intercreditor and Collateral Agency Agreement (dated as of March 31, 2005) by and among Fleet National Bank, (the "Bank"), Pruco Life Insurance Company and The Prudential Insurance Company of America (the "Noteholders" and, together with the Bank, the "Lenders") and Fleet National Bank, as Collateral Agent on behalf of the Lenders. 10.19 Security Agreement (dated as of March 31, 2005) between Quaker Fabric Corporation of Fall River, Quaker Textile Corporation and Quaker Fabric Mexico, S.A. de C.V., as Borrowers, Quaker Fabric Corporation, as the Parent, and Fleet National Bank, as Collateral Agent. 10.20 Second Amended and Restated Pledge Agreement (dated as of March 31, 2005) among Quaker Fabric Corporation of Fall River, Quaker Textile Corporation, Quaker Fabric Mexico, S.A. de C.V., and Quaker Fabric Corporation, (the "Companies"), and Fleet National Bank, (the "Bank"), Pruco Life Insurance Company and The Prudential Insurance Company of America (the "Noteholders" and, together with the Bank, the "Lenders") and Fleet National Bank, as Collateral Agent on behalf of the Lenders. 10.21 Guaranty Agreement (dated as of March 31, 2005) by Quaker Textile Corporation and Quaker Fabric Mexico, S.A. de C.V., as Guarantors, in favor of Pruco Life Insurance Company and The Prudential Insurance Company of America with respect to the Senior Note Agreement. 10.22 Guaranty Agreement (dated as of March 31, 2005) by Quaker Textile Corporation and Quaker Fabric Mexico, S.A. de C.V., as Guarantors, in favor of Pruco Life Insurance Company and The Prudential Insurance Company of America with respect to the Series A Note Agreement. 8 STATEMENT OF DIFFERENCES The section symbol shall be expressed as .................................. 'SS' EX-10 2 ex10-18.txt EXHIBIT 10.18 EXECUTION COPY INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT THIS INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT is dated as of March 31, 2005, by and among Fleet National Bank (formerly known as The First National Bank of Boston, and together with its successors and assigns, other than the Company and its subsidiaries and affiliates, collectively the "Banks"), the holder of the Senior Notes listed on the signature pages hereof (together with their respective successors and assigns, other than the Company and its subsidiaries and affiliates, the "Noteholders" and, together with the Banks, the "Lenders") and Fleet National Bank, as Collateral Agent on behalf of the Lenders (together with its successors and permitted replacements, the "Collateral Agent"). Capitalized terms used herein have the respective meanings ascribed thereto in Section 1.1 of this Agreement. PRELIMINARY STATEMENTS 1. Quaker Fabric Corporation of Fall River, a Massachusetts corporation (the "Company"), Quaker Textile Corporation, a Massachusetts corporation ("Quaker Textile"), Quaker Fabric Mexico, S.A. de C.V., a Mexican corporation ("Quaker Mexico"), and Quaker Fabric Corporation, a Delaware corporation (the "Parent"), are parties to that certain Second Amended and Restated Credit Agreement, dated as of February 14, 2002 (as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time, the "Credit Agreement"), with the Banks, pursuant to which the Banks are providing a revolving credit facility to the Obligors in an amount up to $20,000,000; 2. Pursuant to the terms and conditions of that certain Note Purchase Agreement, dated as of October 10, 1997 (as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time, the "1997 Note Agreement"), the Noteholders purchased from the Company those certain 7.09% Senior Notes due October 10, 2005 in an aggregate original principal amount equal to $15,000,000 and 7.18% Senior Notes due October 10, 2007 in an aggregate original principal amount equal to $30,000,000 (as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time, the "1997 Notes"); 3. Pursuant to the terms and conditions of that certain Note Agreement and Private Shelf Facility dated as of February 14, 2002 (as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time, the "2002 Note Agreement", and together with the 1997 Note Agreement, the "Note Agreements"), the Noteholders purchased from the Company those certain 7.56% Senior Notes due February 14, 2009 in an aggregate original principal amount equal to $5,000,000 (as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time, the "2002 Notes", and together with the 1997 Notes, the "Senior Notes"); 4. The Parent has guaranteed the Noteholder Guaranteed Obligations to the Noteholders pursuant to the Noteholder Parent Guaranty, and Quaker Mexico and Quaker Textile have guaranteed the Noteholder Guaranteed Obligations to the Noteholders pursuant to the terms of the Noteholder Subsidiary Guaranty. 5. Pursuant to the Collateral Documents (as defined below), the Obligors have pledged substantially all of their personal property to the Collateral Agent for the benefit of the Lenders. 6. The Banks and the Noteholders wish to define their rights and obligations with respect to each other such that any payments received by the Collateral Agent, any Bank or any Noteholder, as the case may be, through any Enforcement, and payments by the Obligors under the Credit Documents or the Noteholder Documents after any Sharing Event, as the case may be, shall be shared among the Lenders equally and ratably in accordance with the respective amounts of the Senior Indebtedness then held by each of them, all as set forth in this Agreement. ARTICLE I INTERPRETATION OF THIS AGREEMENT Section 1.01. Defined Terms. As used in this Agreement, capitalized terms have the respective meanings specified below or set forth in the Section of this Agreement referred to immediately following such term (such definitions, unless otherwise expressly provided, to be equally applicable to both the singular and plural forms of the terms defined): "Agreement" means this Intercreditor and Collateral Agency Agreement, as amended, restated, supplemented, replaced, or otherwise modified from time to time. "Bank Guaranteed Obligations" means, collectively, all amounts payable by the Parent to the Banks pursuant to Article IIA of the Credit Agreement and all amounts payable by the Company to the Banks pursuant to Article IIB of the Credit Agreement. "Bank Obligations" means all obligations of the Obligors to the Banks under the Credit Agreement, including without limitation, the Existing L/C Reimbursement Obligations, the New L/C Reimbursement Obligations, and the obligation to pay the principal of and interest on the Revolving Loans. "Bank Product Obligations" means all of the obligations of the Obligors to reimburse the Banks on account of any service or facility extended by any Bank including, without limitation, credit cards, credit card processing services, debit cards, purchase cards, automated clearing house transactions, cash management, including controlled disbursement, accounts or services, currency exchange contracts and interest rate protection agreements. "Banks" has the meaning set forth in the first paragraph of this Agreement. "Collateral" means all property and assets, and interest in property and assets, upon or in which any Obligor has granted a lien or security interest to the Collateral Agent to secure any Senior Indebtedness and all balances held by the Collateral Agent or any Lender for the account of any Obligor or any other property held or owing by the Collateral Agent or any Lender to or 2 for the credit or for the account of any Obligor with respect to which the Collateral Agent or any Lender has rights to setoff or appropriate or a common law lien. "Collateral Agent" has the meaning set forth in the first paragraph of this Agreement. "Collateral Agent Expenses" means, without limitation, all costs and expenses incurred by the Collateral Agent, its employees or agents in connection with the performance of its duties under this Agreement, including the realization upon or protection of the Collateral or enforcing or defending any lien upon or security interest in the Collateral or any other action taken in accordance with the provisions of this Agreement, expenses incurred for legal counsel in connection with the foregoing, and any other costs, expenses or liabilities incurred by the Collateral Agent for which the Collateral Agent is entitled to be reimbursed or indemnified by a Obligor pursuant to any Collateral Document or any other Secured Debt Agreement or by the Lenders pursuant to this Agreement. "Collateral Agent Obligations" means all obligations of any Obligor or any Lender to pay, reimburse or indemnify the Collateral Agent for any Collateral Agent Expenses. "Collateral Documents" means (i) the Security Agreement, (ii) the Pledge Agreement, (iii) the Trademark Security Agreement, (iv) the Patent Security Agreement, (v) the Copyright Security Agreement, (vi) any other agreement, document or instrument executed and delivered by any Obligor or a direct or indirect subsidiary of any Obligor pursuant to this Agreement, the Note Agreements or the Credit Agreement after the date hereof, (vii) any other agreement, document or instrument executed and delivered by any Obligor after the date hereof under which such Obligor has granted a lien upon or security interest in any property or assets to the Collateral Agent to secure all or any part of the Senior Indebtedness and (viii) all financing statements, certificates, documents and instruments relating thereto or executed or provided in connection therewith, each as amended, restated, supplemented or otherwise modified from time to time. "Company" has the meaning set forth in the Preliminary Statement of this Agreement. "Copyright Security Agreement" means that certain Memorandum of Grant of Security Interest in Copyrights, dated as of the date hereof, executed by the Obligors in favor of the Collateral Agent, as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time. "Credit Agreement" has the meaning set forth in the Preliminary Statement of this Agreement. "Enforcement" means (a) for one or more of any Lender to make demand for payment or accelerate the time for payment prior to the scheduled payment date of any Revolving Loan or any Senior Note, (b) for any Bank to terminate its commitment to make Revolving Loans or issue Letters of Credit pursuant to the Credit Agreement, (c) for one or more of any Lender to commence the judicial enforcement of any rights or remedies under or with respect to any Secured Debt Agreement or any Senior Indebtedness, or to set off, freeze or appropriate any balances held by it for the account of any Obligor or any other property at any time held or 3 owing by it to or for the credit or for the account of any Obligor, (d) for any Bank to call for funding of a Letter of Credit prior to its due date, (e) for the Collateral Agent to commence the judicial enforcement of any rights or remedies under any Collateral Document (other than an action solely for the purpose of establishing or defending the lien or security interest intended to be created by any Collateral Document upon or in any Collateral as against or from claims of third parties on or in such Collateral), to set off, freeze or otherwise appropriate any balances held by it for the account of any Obligor or any other property at any time held or owing by it to or for the credit or for the account of any Obligor or to otherwise take any action, including the exercise of self-help, to realize upon the Collateral, (f) the commencement by, against or with respect to any Obligor of any proceeding under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law or for the appointment or a receiver for such Obligor or its assets, (g) for any Bank to make a demand for payment under the Article IIA or Article IIB of the Credit Agreement, (h) for any Noteholder to make a demand for payment under the Noteholder Parent Guaranty or the Noteholder Subsidiary Guaranty, and (i) the payment by the Parent of any Bank Guaranteed Obligations or the payment by any Obligor (other than the Company) of any Noteholder Guaranteed Obligations, as the case may be. "Event of Default" means (i) an "Event of Default", as defined in the Credit Agreement, (ii) an "Event of Default", as defined in any Note Agreement or (iii) an "Event of Default", as defined in any Collateral Document. "Existing L/C Cash Collateral Account" has the meaning set forth in Section 3.01(c). "Existing L/C Reimbursement Obligations" means, without duplication, all of the obligations of the Obligors under Section 2.03 of the Credit Agreement to reimburse the Banks for draws on any Existing Letters of Credit. "Existing L/C True-Up Amount" means, as of any date, an amount equal to the product of (1) the amount then on deposit in the Existing L/C Cash Collateral Account and (2) a fraction (A) the numerator of which is the aggregate reduction in the Existing Letter of Credit Exposure (excluding any reduction on account of drawings made under the Existing Letters of Credit) since the later of (x) the Sharing Date and (y) the last day of the most recently ended calendar quarter, and (B) the denominator of which is the amount of the Existing Letter of Credit Exposure on the later of (x) the Sharing Date and (y) the last day of the most recently ended calendar quarter. "Existing Letters of Credit" means all Letters of Credit described on Schedule I attached hereto, as such Letters of Credit Agreement may be amended, modified, extended or renewed from time to time. "Existing Letter of Credit Exposure" at any time means the undrawn face amount of all Existing Letters of Credit outstanding at such time. "Existing Senior Indebtedness" means all Senior Indebtedness other than New Senior Indebtedness. 4 "Guaranteed Obligations" means, collectively, the Bank Guaranteed Obligations and the Noteholder Guaranteed Obligations. "Lenders" has the meaning set forth in the first paragraph of this Agreement. "Letter of Credit" means any irrevocable commercial or standby letter of credit issued pursuant to the Credit Agreement. "1997 Note Agreement" has the meaning set forth in the Preliminary Statement of this Agreement. "1997 Notes" has the meaning set forth in the Preliminary Statement of this Agreement. "New L/C Cash Collateral Account" has the meaning set forth in Section 3.01(b). "New L/C Reimbursement Obligations" means, without duplication, all of the obligations of the Obligors under Section 2.03 of the Credit Agreement to reimburse the Banks for draws on any New Letters of Credit. "New Letters of Credit" means all Letters of Credit issued after the date of this Agreement. "New Letter of Credit Exposure" at any time means 105% of the sum of (a) the undrawn face amount of all New Letters of Credit outstanding at such time and (b) the aggregate amount by which the face amount of Existing Letters of Credit are increased after the date of this Agreement. "New Senior Indebtedness" means all Revolving Loans and New Letter of Credit Exposure incurred by the Banks after the date hereof in an aggregate amount at any time outstanding not to exceed $10,000,000, together with accrued interest and letter of credit fees with respect thereto. "Note Agreements" has the meaning set forth in the Preliminary Statement of this Agreement. "Noteholder Guaranteed Obligations" means, collectively, all amounts payable by the Obligors other than the Company to the Noteholders pursuant to the terms of the Noteholder Parent Guaranty and the Noteholder Subsidiary Guaranty. "Noteholder Obligations" means all obligations of the Obligors to the Noteholders arising under the Note Agreements, the Senior Notes, the Noteholder Parent Guaranty and the Noteholder Subsidiary Guaranty, including without limitation the obligation to pay principal, interest, fees, Yield-Maintenance Amount and other amounts to the Noteholders. "Noteholder Parent Guaranty" means (i) that certain Guaranty Agreement, dated as of October 10, 1997, executed by the Parent in favor of the Noteholders holding the 1997 Notes, and (ii) that certain Guaranty Agreement, dated as of February 14, 2002, executed by the Parent 5 in favor of the Noteholders holding the 2002 Notes, in each case as amended, restated, reaffirmed, supplemented, replaced, refinanced, refunded or otherwise modified from time to time. "Noteholders" has the meaning specified in the first paragraph of this Agreement. "Noteholder Subsidiary Guaranty" means (i) that certain Guaranty Agreement, dated as of the date hereof, executed by Quaker Textile and Quaker Mexico in favor of the Noteholders holding the 1997 Notes and (ii) that certain Guaranty Agreement, dated as of the date hereof, executed by Quaker Textile and Quaker Mexico in favor of the Noteholders holding the 2002 Notes, in each case as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time. "Notice to Enforce" means a notice by the Required Senior Lenders delivered to the Collateral Agent, stating that an Event of Default has occurred and that the Collateral Agent should commence the exercise of remedies outlined in such Notice to Enforce. A Notice to Enforce shall be deemed to have been given when the notice referred to in the preceding sentence has actually been received by the Collateral Agent and shall be deemed to have been rescinded when the Collateral Agent have actually received from the notifying party a notice withdrawing such notice. A Notice to Enforce shall be deemed to be outstanding at all times after such notice has been given until such time, if any, as such notice has been rescinded. "Obligor" means the Company, the Parent, Textile, Quaker Mexico, and each other Person that joins the Noteholder Subsidiary Guaranty or that becomes a co-borrower under the Credit Agreement. "Patent Security Agreement" means that certain Patent Collateral Security and Pledged Agreement, dated as of the date hereof, executed by the Obligors in favor of the Collateral Agent, as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time. "Person" means an individual, partnership, corporation (including a business trust), limited liability company or partnership, joint stock company, trust unincorporated association, joint venture, governmental agency or other authority. "Pledge Agreement" means that certain Second Amended and Restated Pledge Agreement, dated as of the date hereof, executed by certain Obligors in favor of the Collateral Agent, as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time. "Required Holders" shall mean the holder or holders of at least 51% of the aggregate principal amount of the Senior Notes from time to time outstanding. "Required Banks" shall mean Banks holding at least 51% of the aggregate principal amount of all outstanding Revolving Loans and all unused commitments to advance additional Revolving Loans. 6 "Required Senior Lenders" means the Required Holders and the Required Banks. "Revolving Loans" mean all Advances, as defined in the Credit Agreement. "Secured Debt Agreements" shall mean, collectively, the Credit Agreement, the Note Agreements, the Senior Notes, the Noteholder Parent Guaranty, the Noteholder Subsidiary Guaranty, the Collateral Documents, the documents governing the Bank Product Obligations and each other document executed in connection with the foregoing. "Security Agreement" means that certain Security Agreement, dated as of the date hereof, executed by the Obligors in favor of the Collateral Agent, as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time. "Senior Indebtedness" means the Collateral Agent Obligations, the Bank Obligations, the Noteholder Obligations, the Bank Product Obligations and all of the other present or future indebtedness, liabilities and obligations of all and each of the Obligors now or hereafter owed to any or all of the Collateral Agent or the Lenders, evidenced by or arising under, by virtue of or pursuant to any Secured Debt Agreements, or any document executed in connection with the foregoing or any Bank Guaranteed Obligation or Noteholder Guaranteed Obligation, whether such indebtedness, liabilities and obligations are direct or indirect, joint, several or joint and several, or now exist or hereafter arise, all renewals and extensions thereof, and all interest on the Revolving Loans and the Senior Notes and all Yield-Maintenance Amounts. The term "Senior Indebtedness" shall include all of the foregoing indebtedness, liabilities and obligations whether or not allowed as a claim in any bankruptcy, insolvency, receivership or similar proceeding. "Senior Notes" has the meaning set forth in the Preliminary Statement of this Agreement. "Sharing Date" means the first date on which a Sharing Event shall occur. "Sharing Event" means (a) an Enforcement, (b) the occurrence of any Event of Default under the Credit Agreement or the Note Agreements and the receipt by the Collateral Agent of a Notice to Enforce or (c) any refusal by any Bank to advance or continue any Revolving Loans or issue any Letter of Credit requested by any Obligor (other than the Parent) (irrespective of whether the conditions precedent thereto specified in the Credit Agreement have been satisfied) where such Revolving Loans or issuance would not cause the limitations set forth in Section 2.01 of the Credit Agreement to be exceeded. "Special Cash Collateral Account" has the meaning set forth in Section 3.01(c). "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or 7 more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Third-Party Guarantee" has the meaning set forth in Section 3.03. "Trademark Security Agreement" means that certain Trademark Collateral Security and Pledged Agreement, dated as of the date hereof, executed by the Obligors in favor of the Collateral Agent, as amended, restated, supplemented, replaced, refinanced, refunded or otherwise modified from time to time. "Transferee" has the meaning set forth in Section 5.07. "2002 Note Agreement" has the meaning set forth in the Preliminary Statement of this Agreement. "2002 Notes" has the meaning set forth in the Preliminary Statement of this Agreement. "Yield-Maintenance Amount" shall mean the "Yield-Maintenance Amount", as defined in the Note Agreements. Section 1.02. Certain Other Terms. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not in any particular provision of this Agreement. Section references are to this Agreement unless otherwise specified. All terms defined in this Agreement in the singular shall have comparable meanings when used in the plural and vice versa, unless otherwise specified. ARTICLE II APPOINTMENT OF FLEET NATIONAL BANK AS COLLATERAL AGENT FOR THE LENDERS Section 2.01. Appointment of Collateral Agent. Subject in all respects to the terms and provisions of this Agreement, each of the Lenders hereby appoint Fleet National Bank to act as agent for the benefit of each of the Lenders with respect to the liens upon and the security interests in the Collateral and the rights and remedies granted under and pursuant to the Collateral Documents, and Fleet National Bank hereby accepts such appointment and agrees to act as such agent. The Collateral Agent is authorized to take such action on behalf of each of the Lenders and to exercise all such powers as are hereunder and under any of the other Collateral Documents and any related documents delegated to the Collateral Agent, together with such powers as are reasonably incident thereto, including the authority, without the necessity of any notice to or further consent of the Lenders, from time to time to take any action with respect to any Collateral or the Collateral Documents which may be necessary to perfect, maintain perfected or insure the priority of the security interest in and liens upon the Collateral granted pursuant to the Collateral Documents, provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Collateral Agent. The relationship between the Collateral Agent and each of the Lenders is that of an independent contractor. The use of the term "Collateral Agent" is for convenience only and is used to 8 describe, as a form of convention, the independent contractual relationship between the Collateral Agent and each of the Lenders. Nothing contained in this Agreement nor the other Secured Debt Agreements shall be construed to create an agency, trust or other fiduciary relationship between the Collateral Agent and any of the Lenders. As an independent contractor empowered by the Lenders to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Secured Debt Agreements, the Collateral Agent is nevertheless a "representative" of the Lenders, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Lenders and the Collateral Agent with respect to all collateral security and guaranties contemplated by the Secured Debt Agreements. Such actions include the designation of the Collateral Agent as "secured party", "mortgagee" or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Obligations, all for the benefit of the Lenders and the Collateral Agent. The appointment of the Collateral Agent pursuant to this Agreement shall be effective with respect to all financing statements filed in any filing office with respect to any Obligor, if any, prior to the date of this Agreement on and as of the date filed. The Collateral Agent in its individual capacity and its affiliates may accept deposits from, lend to, and generally engage in any kind of lending, banking, or trust business with, the Obligors and any of their affiliates as if it were not acting as the Collateral Agent. With respect to its commitment and in its capacity as a Bank, the Collateral Agent shall have and may exercise the same rights and powers under this Agreement and is subject to the same obligations and liabilities as applicable to any other Lender. To the extent legally necessary to enable the Collateral Agent to enforce or otherwise foreclose and realize upon any of the liens or security interests in the Collateral in any legal proceeding which the Collateral Agent either commences or joins as a party in accordance with the terms hereof, each of the Lenders agree to join as a party in such proceeding and take such action therein concurrently to enforce and obtain a judgment for the payment of the Senior Indebtedness held by it. Section 2.02. Notices to the Lenders and the Company. The Collateral Agent shall promptly and in any event no later than five (5) days following receipt thereof furnish to each of the Banks and the Noteholders: (a) a copy of each Notice to Enforce received by the Collateral Agent; (b) a copy of each certificate received by the Collateral Agent rescinding a Notice to Enforce; (c) a copy of any direction, notice, consent, waiver or any other document delivered to the Collateral Agent by any Lender; and (d) such other notices required by the terms of this Agreement to be furnished by the Collateral Agent. The Collateral Agent shall promptly and in any event no later than five (5) days following receipt thereof furnish to the Company a copy of the documents listed in (a) and (b) above, and to the extent requested by a Lender, the items in (c) and (d) as well. 9 Section 2.03. Duties of Collateral Agent. The Collateral Agent shall not be obligated to take any action under this Agreement except for the performance of such duties as are specifically set forth herein or therein. Subject to the provisions of Section 2.06, the Collateral Agent shall take any action under or with respect to this Agreement which is requested by the Required Senior Lenders and which is not inconsistent with or contrary to the provisions of this Agreement; provided that the Collateral Agent shall not amend or waive any provision of the Collateral Documents except with the consent of the Required Senior Lenders. At any time when a Notice to Enforce shall have been given and shall be outstanding, the Collateral Agent shall, subject in all cases to the provisions of Sections 2.04 and 2.06, exercise or refrain from exercising all such rights, powers and remedies as shall be available to it hereunder in accordance with any written instructions received from the Required Senior Lenders. The Collateral Agent shall have the right to decline to follow any such direction if the Collateral Agent, being advised by counsel, determines that the directed action is not permitted by the terms of this Agreement, may not lawfully be taken or would involve it in personal liability, and the Collateral Agent shall not be required to take any such action unless any indemnity which is required hereunder in respect of such action has been provided. Subject to Section 2.06 hereof, the Collateral Agent may rely on any such direction given to it by the Required Senior Lenders and shall be fully protected, and shall under no circumstances (absent the gross negligence and willful misconduct of the Collateral Agent) be liable to the Company, any holder of any Senior Indebtedness or any other Person for taking or refraining from taking action in accordance therewith. Absent written instructions from the Required Senior Lenders (i) at a time when a Notice to Enforce shall be outstanding or (ii) in the case of an emergency in order to protect any of the Collateral, the Collateral Agent may take, but shall have no obligation to take, any and all such actions hereunder or any of them or otherwise as it shall deem to be in the best interests of the Lenders. Except as provided in the preceding sentence, in the absence of written instruction (which may relate to the exercise of specific remedies or to the exercise of remedies in general) from the Required Senior Lenders, the Collateral Agent shall not exercise remedies available to it hereunder with respect to the Collateral or any part thereof. The Collateral Agent shall not, without the written consent of all of the Lenders, release, reconvey, subordinate or terminate by affirmative action or consent to any lien upon or security interest in any Collateral granted under any Collateral Documents (except upon disposition of such Collateral after an Event of Default pursuant to direction given by the Required Senior Lenders), and the Collateral Agent shall not accept any Senior Indebtedness in whole or partial consideration for the disposition of any Collateral without the written consent of all of the Lenders. Section 2.04. Instructions to the Collateral Agent. To the extent the Collateral Agent receives conflicting instructions from the Lenders, the Collateral Agent shall be entitled to rely on the instructions of the Required Senior Lenders, and it shall take Required Senior Lenders to rescind a Notice to Enforce. Section 2.05. Limitations on Responsibility of Collateral Agent. The Collateral Agent shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained herein, except for those made by it herein. The Collateral Agent makes no representation as to the value or condition of the Collateral or any part thereof, as to the title of the Obligors to the Collateral, as to the security afforded by this 10 Agreement or any Collateral Document or as to the validity, execution, enforceability, legality or sufficiency of this Agreement, and the Collateral Agent shall incur no liability or responsibility in respect of any such matters. The Collateral Agent shall not be responsible for insuring the Collateral, for the payment of taxes, charges, assessments or liens upon the Collateral or otherwise as to the maintenance of the Collateral, except as provided in the immediately following sentence when the Collateral Agent has possession of the Collateral. The Collateral Agent shall have no duty to the Company or to the holders of any of the Senior Indebtedness as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Collateral Agent or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except the duty to accord such of the Collateral as may be in its possession substantially the same care as it accords its own assets and the duty to account for monies received by it. The Collateral Agent shall not be responsible for any loss suffered with respect to any investment permitted to be made under this Agreement and shall not be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Collateral Agent shall be liable for losses due to its willful misconduct or gross negligence. The Collateral Agent shall not be required to ascertain or inquire as to the performance by the Company of any of the covenants or agreements contained herein or any of the Credit Documents. Neither the Collateral Agent nor any officer, agent or representative thereof shall be personally liable for any action taken or omitted to be taken by any such person in connection with this Agreement except for such person's own gross negligence or willful misconduct. Neither the Collateral Agent nor any officer, agent or representative thereof shall be personally liable for any action taken by any such person in accordance with any notice given by the Required Senior Lenders pursuant to the terms of this Agreement even if, at the time such action is taken by any such person, the Required Senior Lenders or Persons purporting to be the Required Senior Lenders are not entitled to give such notice, except where the account officer of the Collateral Agent active upon the Company's account has actual knowledge that the Required Senior Lenders or Persons purporting to be the Required Senior Lenders are not entitled to give such notice. The Collateral Agent may execute any of the powers granted under this Agreement and perform any duty hereunder or thereunder either directly or by or through employees or agents, and shall not be responsible for the negligence or misconduct of any employees or agents selected by it without gross negligence or willful misconduct. The Collateral Agent may utilize the services of such employees or agents as the Collateral Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such employees or agents shall be paid by the Obligors. Section 2.06. Reliance by Collateral Agent; etc. Whenever in the performance of its duties under this Agreement the Collateral Agent shall deem it necessary or desirable that a matter be proved or established with respect to any Person in connection with the taking, suffering or omitting of any action hereunder by the Collateral Agent such matter may be conclusively deemed to be proved or established by a certificate executed by an officer of such Person and the Collateral Agent shall have no liability with respect to any action taken, suffered or omitted in reliance thereon. The Collateral Agent may consult with counsel and shall be fully protected in taking any action hereunder in accordance with any advice of such counsel. The Collateral Agent shall have the right but not the obligation at any time to seek instructions from any court of competent jurisdiction concerning the administration of this Agreement, the duties created hereunder, or any of the Collateral. 11 (a) Resolutions, etc. The Collateral Agent shall be fully protected in relying upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order or other paper or document which it believes to be genuine and to have been signed or presented by the proper party or parties. In the absence of its gross negligence or willful misconduct, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificate or opinions furnished to the Collateral Agent in connection with this Agreement. (b) Events of Defaults. The Collateral Agent shall not be deemed to have actual, constructive, direct or indirect notice of knowledge of the occurrence of any Event of Default unless and until the Collateral Agent shall have received a Notice to Enforce. The Collateral Agent shall have no obligations whatsoever either prior to or after receiving such a Notice to Enforce to inquire whether an Event of Default has, in fact, occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any certificate so furnished to it and shall have no obligation, absent written instructions from the Required Senior Lenders, to take or omit to take any action with respect to such Notice to Enforce. (c) No Obligation to Act. If the Collateral Agent has been requested by the Required Senior Lenders to take any specific action pursuant to any provision of this Agreement, the Collateral Agent shall not be under any obligation to exercise any of the rights or powers vested in it by this Agreement in the manner so requested unless, if so requested by the Collateral Agent, it shall have been provided with an indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred by it in compliance with such request or direction. (d) Disputes. If any dispute or disagreement shall arise as to the allocation of any sum of money received by the Collateral Agent hereunder, the Collateral Agent shall have the right to deliver such sum to a court of competent jurisdiction and therein commence an action for interpleader. Section 2.07. Document Amendments. An amendment, supplement, modification, restatement or waiver of any provision of any Collateral Document, any consent to any departure by any Obligor therefrom, or the execution or acceptance by the Collateral Agent of any Collateral Document not in effect on the date hereof shall be effective if and only if, consented to in writing by the Required Senior Lenders; provided, however, that, (i) no such amendment, supplement, modification, restatement, waiver, consent or such Collateral Document not in effect on the date hereof which imposes any additional responsibilities upon the Collateral Agent shall be effective without the written consent of the Collateral Agent and (ii) no such amendment, supplement, modification, waiver or consent shall release, reconvey or terminate the security interest in or lien on any Collateral from the lien or security interest created by any Collateral Document not subject to the exception in Section 2.03(ii) hereof or narrow the scope of the property or assets in which a lien or security interest is granted pursuant to any Collateral Document without the written consent of all Lenders. 12 Section 2.08. Administrative Actions. The Collateral Agent shall have the right, but not the obligation, to take such actions hereunder and under the Collateral Documents, not inconsistent with the instructions of the Required Senior Lenders or the terms of the Collateral Documents and this Agreement, as the Collateral Agent in good faith deems necessary or appropriate to perfect or continue the perfection of the liens on the Collateral for the benefit of the Lenders. Section 2.09. Resignation and Removal of Collateral Agent. (a) The Collateral Agent (i) may resign at any time upon 60 days prior written notice to the Lenders and the Company and (ii) may be removed at any time upon the written request of the Required Senior Lenders sent to the Collateral Agent and the other Lenders. (b) If the Collateral Agent shall resign or be removed, the Required Senior Lenders shall have the right to appoint a replacement Collateral Agent by notice to the Collateral Agent and the other Lenders. (c) No resignation or removal of the Collateral Agent shall become effective until a replacement Collateral Agent shall have been selected as provided herein and shall have executed and delivered to each Lender a joinder agreement in the form attached hereto as Exhibit A. In the event that a replacement Collateral Agent shall not have been selected as provided herein or shall not have assumed such obligations within 60 days after the resignation or removal of the Collateral Agent, then the Lender holding the largest outstanding amount of Senior Indebtedness may appoint the replacement Collateral Agent. (d) Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent and the retiring Collateral Agent shall be discharged from its duties and obligations hereunder. The retiring or removed Collateral Agent shall execute such assignments and amendments of UCC financing statements and perform such other acts as are necessary or appropriate to maintain the due perfection of the security interests in and liens on the Collateral. (e) Any replacement Collateral Agent shall be a Lender or a bank, trust company, or insurance company having capital, surplus and undivided profits of at least $500 million and a long-term bank deposit rating of not less than "A" if rated by Standard & Poor's Ratings Group or Moody's Investors Service. Section 2.10. Expenses and Indemnification by the Company. The Company agrees (i) to reimburse the Collateral Agent, on demand, for any expenses incurred by the Collateral Agent, including reasonable counsel fees and disbursements and compensation of agents, arising out of, in any way connected with, or as a result of, the execution or delivery of this Agreement or any agreement or instrument contemplated hereby or thereby or the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder or in connection with the enforcement or protection of the rights of the Collateral Agent and the Lenders hereunder, (ii) to indemnify and hold harmless the Collateral Agent and its directors, officers, employees and agents, on demand, from and against any and all liabilities, obligations, losses, damages, 13 penalties, actions, judgments, suits, costs, expenses or disbursements of any kind of nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in its capacity as the Collateral Agent or any of them in any way relating to or arising out of this Agreement or any action taken or omitted by them under this Agreement; provided that the Company shall not be liable to the Collateral Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Collateral Agent or any of its directors, officers, employees or agents, (iii) to indemnify and hold harmless the Collateral Agent, on demand, from and against any and all liabilities which may be imposed on or incurred by the Collateral Agent (in its capacity as Collateral Agent) for the net amount of taxes (after taking into account any deduction, credit or other tax reduction or benefit available by reason of the imposition of any such tax) in any jurisdiction in which the Collateral Agent would not otherwise be subject to tax except by reason of its acting under this Agreement (directly or through agents); provided that such indemnification for taxes (A) shall apply only in respect of taxes attributable to the performance of the Collateral Agent's obligations hereunder and (B) shall in no event cover any federal, state, local or other taxes imposed upon the Collateral Agent with respect to or measured by its gross or net income or profits. A detailed statement by the Collateral Agent that is submitted to the Company with respect to the amount of such expenses and containing a basic description thereof and the amount of its indemnification obligation shall be prima facie evidence of the amount thereof owing to the Collateral Agent. Section 2.11. Expenses and Indemnification by Lenders. Each of the Lenders severally agrees (i) to reimburse the Collateral Agent, on demand, in the amount of its pro rata share, for any expenses referred to in Section 2.10 which shall not have been reimbursed or paid by the Company or paid from the proceeds of Collateral as provided herein and (ii) to indemnify and hold harmless the Collateral Agent and its directors, officers, employees and agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements referred to in Section 2.10, to the extent the same shall not have been reimbursed by the Company or paid from the proceeds of Collateral as provided herein; provided that no Lender shall be liable to the Collateral Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Collateral Agent or any of its directors, officers, employees or agents as determined by a final non-appealable order of a court of competent jurisdiction. For the purposes of this Section 2.11, pro rata shares at any time shall be determined based upon the principal amount of loans, letters of credit or other credits outstanding at the time such expenses were incurred. Section 2.12. Limited Agency. The Collateral Agent and the Lenders agree that it is the intent of the Lenders to limit the scope of the powers of the Collateral Agent to the specific powers delegated hereunder, together with such powers as are reasonably incidental thereto, and the Collateral Agent does not and shall not have any right or authority to bind any Lender in any other manner or thing whatsoever. Section 2.13. Collateral Agent's Fees. The Company agrees to pay to the Collateral Agent the collateral agency fees separately agreed upon between the Company and the Collateral 14 Agent (the "Collateral Agent's Fee") with respect to this Agreement and the other Collateral Documents. In the event that the Collateral Agent shall resign or be removed as Collateral Agent hereunder, the Obligors agree to pay the successor Collateral Agent such collateral agency fees as such successor Collateral Agent shall from time to time charge (in accordance with its normal practice) for performance of services of the type required of it hereunder and under the Collateral Documents. Any such fees shall be fully earned when due and payable and shall not be subject to rebate, reduction, or refund for any reason, nor shall the Collateral Agent be obligated to apply any amount of such fee to expenses incurred by it that are otherwise reimbursable by any Obligor pursuant to any other provision of this Agreement or any Collateral Document. Section 2.14. Non-Reliance on Collateral Agent or any Other Lenders. Each Lender agrees that it has, independently and without reliance upon the Collateral Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition, and creditworthiness of each Obligor and as to the adequacy of the Collateral, and has made its own decision to extend credit to the Obligors under the Secured Debt Agreements and to enter into this Agreement and the Collateral Documents to which it is a party, and that each Lender has been represented by its own counsel in connection with the negotiation of the Secured Debt Agreements, the initial perfection of the liens created by the Collateral Documents, and the consummation of the closing of the transactions contemplated by the Secured Debt Agreements. Each Lender also agrees that it will, independently and without reliance upon the Collateral Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals, and decisions in taking or not taking action under this Agreement and the Secured Debt Agreements, and to make such investigation, as it deems necessary to inform itself as to the business, operations, property, financial and other condition, and creditworthiness of each Obligor. Except for notices, reports, and other documents expressly required to be furnished to the Lenders by the Collateral Agent hereunder or by the other Secured Debt Agreement, the Collateral Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition, or creditworthiness of each Obligor which may come into the possession of the Collateral Agent or any of its officers, directors, employees, agents, attorneys-in-fact, or affiliates. ARTICLE III SHARING PROVISIONS Section 3.01. Sharing of Payments and Proceeds After Sharing Event. (a) On and after the occurrence of any Sharing Event, all proceeds of Collateral held or received by the Collateral Agent or any Lender (including, without limitation, any amount of any balances held by the Collateral Agent or any Lender for the account of any Obligor or any other property held or owing by it to or for the credit or for the account of any Obligor to the extent set off or appropriated by it, but excluding, except as otherwise provided in paragraph (c) of this Section 3.01, amounts on deposits in the Special Cash Collateral Account provided for in such paragraph (c)) and any other payments received, directly or indirectly, by the Collateral 15 Agent or any Lender on or with respect to any Senior Indebtedness (including, without limitation, any payment made with respect to any Guaranteed Obligations, any payment in any insolvency or reorganization proceeding and the proceeds from any sale of any Senior Indebtedness or any interest therein to any Obligor or any affiliate of any Obligor) shall be delivered to the Collateral Agent and distributed as follows: (i) First, to the Collateral Agent in the amount of any unpaid Collateral Agent Expenses; (ii) Next, to the Lenders in the amount of any unreimbursed amounts paid by the Lenders to any Indemnitee pursuant to Section 2.11 hereof, pro rata in proportion to the respective unreimbursed amounts thereof paid by each Lender; (iii) Next, to the Banks in the amount of any outstanding New Senior Indebtedness, pro rata in proportion to the respective amounts thereof owed to each Bank as of the applicable Sharing Date (and, for this purpose, New Letter of Credit Exposure shall be considered to have been paid to the extent of any amount then on deposit in the New L/C Cash Collateral Account provided for in paragraph (b) of this Section 3.01); (iv) Next, to the Lenders in the amount of any outstanding Existing Senior Indebtedness and any Yield Maintenance Amount that would be due upon any prepayment thereof, pro rata in proportion to the respective amounts thereof owed to each Lender as of the applicable Sharing Date (and, for this purpose, Existing Letter of Credit Exposure shall be considered to have been paid to the extent of any amount then on deposit in the Existing L/C Cash Collateral Account provided for in paragraph (c) of this Section 3.01); (v) Next, to the Lenders in the amount of any other obligations or indebtedness owed to such Lenders by any Obligor, pro rata in proportion to the respective amounts thereof owed to each Lender as of the Sharing Date. After all Senior Indebtedness has been indefeasibly paid in full in cash, the balance of the proceeds of the Collateral, if any, shall be paid to the Obligors, as applicable, or as otherwise required by law. (b) Any payment pursuant to clause (a)(iii) above with respect to New L/C Reimbursement Obligations shall be paid to the Collateral Agent for deposit in an account (the "New L/C Cash Collateral Account") to be held as collateral for the Senior Indebtedness. On each date after the Sharing Date on which a payment is made to a beneficiary pursuant to a draw on a New Letter of Credit, the Collateral Agent shall distribute to the Banks from the New L/C Cash Collateral Account for application to the payment of the reimbursement obligation due to the Banks with respect to such draw an amount equal to such draw. On the last day of each calendar quarter after the Sharing Date, the Collateral Agent shall distribute from the New L/C Cash Collateral Account the amount, if any, by which the cash collateral in the New L/C Cash Collateral Account exceeds the New Letter of Credit Exposure on the last day of such calendar quarter and shall apply such amount as provided in clauses (a)(i) through (v) above. At such time as the amount of the New Letter of Credit Exposure is reduced to zero, any amount 16 remaining in the New L/C Cash Collateral Account, after the distribution therefrom as provided above, shall be distributed as provided in clauses (a)(i) through (v), above. (c) Any payment pursuant to clause (a)(iv) above with respect to Existing L/C Reimbursement Obligations shall be paid to the Collateral Agent for deposit in an account (the "Existing L/C Cash Collateral Account") to be held as collateral for the Existing Senior Indebtedness and any Yield Maintenance Amount that would be due upon any prepayment thereof and disposed of as provided herein. On each date after the Sharing Date on which a payment is made to a beneficiary pursuant to a draw on an Existing Letter of Credit, the Collateral Agent shall distribute to the Banks from the Existing L/C Cash Collateral Account for application to the payment of the reimbursement obligation due to the Banks with respect to such draw an amount equal to the product of (1) (A) the amount then on deposit in the Existing L/C Cash Collateral Account less (B) the outstanding Existing L/C True-Up Amount and (2) a fraction, the numerator of which is the amount of such draw and the denominator of which is the amount of the Existing Letter of Credit Exposure immediately prior to such draw. On the last day of each calendar quarter after the Sharing Date, the Collateral Agent shall distribute from the Existing L/C Cash Collateral Account an amount equal to the Existing L/C True-Up Amount on the last day of such calendar quarter and shall apply such Existing L/C True-Up Amount as provided in clauses (a)(i) through (v) above. At such time as the amount of the Existing Letter of Credit Exposure is reduced to zero, any amount remaining in the Existing L/C Cash Collateral Account, after the distribution therefrom as provided above, shall be distributed as provided in clauses (a)(i) through (v), above. (d) Except as otherwise provided in this subsection (d), the distribution provisions of this Section 3.01 are for the purpose of determining the relative amounts of payments to be distributed to the Lenders and not for the purpose of creating an agreement among the parties as to the manner in which any proceeds or other payments distributed to them are actually to be applied to pay the Senior Indebtedness. Each Lender shall be free, in its own discretion, to apply any proceeds or other payments distributed to it hereunder to the Senior Indebtedness held by such Lender in such order as it may determine. Each Obligor, by its consent hereto, agrees that in the event any payment is made pursuant to the distribution provisions of this Section 3.01, the amount distributed to each Lender shall be applied to the Senior Indebtedness owing to such Lender in the manner in which such Lender elects as provided in the preceding sentence. Notwithstanding the foregoing, for all purposes of this Agreement the Senior Indebtedness shall be deemed paid to the same extent that proceeds and other payments are distributed with respect to it pursuant to Section 3.01(a) notwithstanding the actual application thereof by any individual Lender to the Senior Indebtedness owing to it. Each Obligor, by its consent hereto, agrees that, notwithstanding anything to the contrary in this Agreement, the Credit Agreement or the Note Agreements, the amount of the obligations in respect of Senior Indebtedness owed by any Obligor to a Lender (1) shall be reduced by the amount of the proceeds or other payments received by such Lender pursuant to the distribution provisions of this Section 3.01 and (2) shall not be reduced by the amount of the proceeds or other payments paid over to the Collateral Agent by such Lender pursuant to the terms of this Agreement. Section 3.02. Invalidated Payments. If any amount paid by any Lender to the Collateral Agent for distribution in accordance with the provisions of this Agreement is subsequently 17 required to be returned or repaid, whether by court order, settlement or otherwise, such Lender shall promptly notify the Collateral Agent of such requirement, the Collateral Agent shall notify each of the Lenders thereof, and each Lender shall, promptly upon its receipt of such notice from the Collateral Agent, pay to the Collateral Agent the pro rata portion received by it of such amount, without any interest thereon, for payment to the appropriate party in interest. If any such amounts are subsequently recovered by any Lender, such Lender shall remit such amounts to the Collateral Agent and the Collateral Agent shall redistribute such amounts to the Lenders, without any interest thereon, on the same basis as such amounts were originally distributed. The obligations of the Lenders and the Collateral Agent under this Section 3.02 shall survive the repayment of the Senior Indebtedness and termination of the Credit Agreement and the Note Agreements. Section 3.03. Additional Collateral. Each of the Lenders hereby covenants and agrees that (i) such Lender will not accept from any Person on behalf of the Company or any Subsidiary any guarantee (a "Third-Party Guarantee") of any of the Senior Indebtedness or any other Senior Indebtedness owing to such Lender unless such Person also guarantees substantially contemporaneously, by the same or separate instrument, the payment of all of the Senior Indebtedness owing to all Lenders (or, if such Third-Party Guarantee guarantees only a portion thereof owing to such Lender, such Lender will not accept such Third-Party Guarantee unless such Guarantor simultaneously guarantees the same proportion of Senior Indebtedness owing to the other Lenders) and (ii) such Lender will not take, accept or obtain any security interest in, or lien or encumbrance upon, any assets of any of Obligor, any Subsidiary thereof or any other Person (other than assets which, if obtained by the Lenders, would be shared pro rata as provided herein) to secure the payment and performance of the Senior Indebtedness or any other Senior Indebtedness owed to such Lender except by virtue of all of the Lenders being granted a security interest in, or lien upon, such assets, in either case, pursuant to documents in form and substance satisfactory to all of the Lenders, to secure the Senior Indebtedness pro rata as provided herein. Section 3.04. Turnover of Collateral. If any Lender acquires custody, control or possession of any Collateral or any proceeds thereof or any payment of any Guaranteed Obligation other than pursuant to the terms of this Agreement, such Lender, as the case may be, shall promptly cause such Collateral or the proceeds thereof or any such payment to be delivered to or put in the custody, possession or control of the Collateral Agent for disposition and distribution in accordance with the provisions of Section 3.01 of this Agreement. Until such time as such Lender, as the case may be, shall have complied with the provisions of the immediately preceding sentence, such Lender, as the case may be, shall be deemed to hold such Collateral and the proceeds thereof or any such payment in trust for the parties entitled thereto under this Agreement. Section 3.05. Accounting; Adjustments. (a) The Collateral Agent and each Lender agrees to render at any time an accounting to any of the others of the amounts of the outstanding Senior Indebtedness, any other payments from the Obligors or from the Collateral and of other items relevant to the provisions of this Agreement upon the reasonable request from one of the other Lenders as soon as reasonably 18 practicable after such request, giving effect to the application of payments and the proceeds of Collateral as hereinbefore provided in this Agreement. (b) Each party hereto agrees that to the extent any payment of any Senior Indebtedness made to it hereunder is in excess of the amount due to be paid to it hereunder, then it shall pay to the other parties hereto such amounts so that, after giving effect to such payments, the amounts received by all parties are equal to the amounts to be paid to them hereunder. Section 3.06. Notice; Cooperation of Lender. Each Lender hereby agrees and covenants with each other Lender that: (a) it will from time to time provide such information that is available to it to the Collateral Agent as may be necessary to enable the Collateral Agent to make any calculation hereunder or otherwise required for any other purpose hereof; (b) it will from time to time consult with the Collateral Agent and the other Lenders in good faith regarding the Enforcement of its rights with a view to recovering amounts due under any of the Collateral Documents; and (c) it will not amend, modify, supplement or waive any of the terms or provisions of any Collateral Document in any manner detrimental to any other Lender or in any manner impair the Collateral without the consent of the Required Senior Lenders. ARTICLE IV NO CONTEST; BANKRUPTCY Section 4.01. Contesting Liens or Security Interests; No Partitioning or Marshalling of Collateral; Contesting Senior Indebtedness. (a) Neither the Collateral Agent nor any Lender shall contest the validity, perfection, priority or enforceability of or seek to avoid, have declared fraudulent or have set aside any lien or security interest granted to the Collateral Agent or any Noteholder Guaranteed Obligations or any Bank Guaranteed Obligations and each party hereby agrees to cooperate in the defense of any action contesting the validity, perfection, priority or enforceability of such liens or security interests or Guaranteed Obligations. (b) Notwithstanding anything to the contrary in this Agreement or in any Collateral Document, no Lender shall have the right to have any of the Collateral, or any security interest or other property being held as security for all or any part of the Senior Indebtedness by the Collateral Agent, partitioned, or to file a complaint or institute any proceeding at law or in equity to have any of the Collateral or any such security interest or other property partitioned, and the each Lender hereby waives any such right. Each Lender hereby waives any and all rights to have the Collateral, or any part thereof, marshaled upon any foreclosure of any of the liens or security interests securing the Senior Indebtedness. 19 (c) Neither the Collateral Agent nor any Lender shall contest the validity or enforceability of or seek to avoid, have declared fraudulent or have set aside any Senior Indebtedness. In the event any Senior Indebtedness is invalidated, avoided, declared fraudulent or set aside for the benefit of any Obligor, the Collateral Agent and the Lenders agree that such Senior Indebtedness shall nevertheless be considered to be outstanding for all purposes of this Agreement. (d) Each party hereto agrees to cooperate fully with the other parties hereto, in the exercise of its reasonable judgment, to the end that the terms and provisions of this Agreement may be promptly and fully carried out. Each party hereto also agrees, from time to time, to execute and deliver any and all other agreements, documents or instruments and to take such other actions, all as may be reasonably necessary or desirable to effectuate the terms, provisions and intent of this Agreement. Section 4.02. Lien Priorities. The parties hereto expressly agree that the security interests and liens granted to the Collateral Agent shall secure the Senior Indebtedness on a pari passu basis for the benefit of the Collateral Agent and the Lenders and that, notwithstanding the relative priority or the time of grant, creation, attachment or perfection under applicable law of any security interests and liens, if any, of any of the Collateral Agent or any Lender upon or in any of the Collateral to secure any Senior Indebtedness, whether such security interests and liens are now existing or hereafter acquired or arising and whether such security interests and liens are in or upon now existing or hereafter arising Collateral, such security interests and liens shall be first and prior security interests and liens in favor of the Collateral Agent to secure the Senior Indebtedness on a pari passu basis for the benefit of the Collateral Agent and the Lenders. Section 4.03. Bankruptcy Proceedings. Nothing contained herein shall limit or restrict the independent right of any Lender to initiate an action or actions in any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar proceeding in its individual capacity and to appear or be heard on any matter before the bankruptcy or other applicable court in any such proceeding, including, without limitation, with respect to any question concerning the post-petition usage of Collateral and post-petition financing arrangements. The Collateral Agent is not entitled to initiate such actions on behalf of any Lender or to appear and be heard on any matter before the bankruptcy or other applicable court in any such proceeding to enter into any agreement for, or give any authorization or consent with respect to, the post-petition usage of Collateral, unless such agreement, authorization or consent with respect to, the post-petition usage of Collateral, unless such agreement, authorization or consent has been approved in writing by the Required Banks and Required Holders. This Agreement shall survive the commencement of any such bankruptcy, reorganization, compromised, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar proceeding. Section 4.04. Other Rights. Nothing contained in this Agreement shall (i) prevent any Lender from imposing a default rate of interest in accordance with the Credit Agreement, the Note Agreements or the Senior Notes, as applicable, or prevent a Lender from raising any defenses in any action in which it has been made a party defendant or has been joined as a third party, except that the Collateral Agent may direct and control any defense directly relating to the 20 Collateral or any one or more of the Collateral Documents as directed by the Required Senior Lenders, which shall be governed by the provisions of this Agreement or (ii) affect or impair the right any Lender may have under the terms and conditions governing the Senior Indebtedness to accelerate and demand repayment of such Senior Indebtedness. Subject only to the express limitations set forth in this Agreement, each Lender retains the right to freely exercise its rights and remedies as a general creditor of the Obligors in accordance with applicable law and agreements with the Obligors, including, without limitation, the right to file a lawsuit and obtain a judgment therein against the Obligors and to enforce such judgment. ARTICLE V MISCELLANEOUS Section 5.01. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK. Section 5.02. Certain Notices. Each of the Collateral Agent and each Lender agrees to use its reasonable efforts to give to the others (a) notice of the refusal of any Bank to make any Revolving Loans or issue any Letter of Credit, promptly after such refusal and (b) notice of an Enforcement by such party, prior to commencing such Enforcement, but the failure to give any of the foregoing notices shall not affect the validity of any notice given to an Obligor or create a cause of action against or cause a forfeiture of any rights of the party failing to give such notice or create any claim or right on behalf of any third party. Section 5.03. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one agreement, and shall constitute a binding agreement when executed by each of the parties hereto. Section 5.04. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successor and assigns of the parties hereto including any assignees of the Senior Indebtedness and Persons subsequently becoming parties to the Credit Agreement as a "Bank" thereunder. Section 5.05. Amendments to Agreement and Documentation. This Agreement and the provisions hereof may be amended, modified or waived only by a writing signed by the Collateral Agent and all of the Lenders. Neither Section 2.05, nor any other provision of this Agreement, shall in any way limit the ability of any Lender to waive, amend or otherwise modify any document relating to the Senior Indebtedness, except that, without the consent of all Lenders, no Lender shall release any Guarantor from its liabilities in respect of such obligations unless the portion of such Senior Indebtedness owing to such Lender shall have been finally and indefeasibly paid in full except as permitted by each of the Credit Agreement and the Note Agreements or any Collateral Document. Section 5.06. Termination. This Agreement shall terminate upon the payment in full of all Senior Indebtedness and the termination of the Credit Agreement and the Note Agreements. 21 Section 5.07. Transfer. In connection with an assignment of all, or of a proportionate part of all, of any Lender's right, title and interest under the Credit Agreement or the Note Agreements, as the case may be, to any bank, insurance company, other financial institution or other Person (the "Transferee"), such Transferee shall become a Lender hereunder only upon, and each of the Lenders party hereto hereby covenants and agrees that prior to the effectiveness of any transfer it shall cause to occur, (i) the written agreement of such transferor Lender and such Transferee and (ii) the receipt by the Collateral Agent of a supplement to this Agreement in the form of Exhibit B hereto executed by such Transferee. Section 5.08. No Waiver. No failure or delay on the part of any Lender in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. Section 5.09. Notices. All written communications provided for hereunder shall be sent (x) by telecopier if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service, with charges prepaid, or (y) by first class mail or nationwide overnight delivery service, with charges prepaid and (i) if to a Bank, addressed to such Bank at the address specified on the signature page hereof or any such other address as the Bank shall have specified to the Noteholders and the Collateral Agent in writing, (ii) if to any Noteholder, addressed to such Noteholder at the address specified on the signature page hereof, or at such other address as such Noteholder shall have specified to the Collateral Agent in writing, and (iii) if to the Collateral Agent, addressed to the Collateral Agent at such address specified on the signature page hereof, or at such other address as the Collateral Agent shall have specified to each Lender in writing. Section 5.10. Third Party Beneficiary. No Person, including. without limitation, the Obligors shall have any rights under this Agreement, other than the Lenders, the Collateral Agent and their respective successors and assigns. Section 5.11. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. Section 5.12. Headings. The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. Section 5.13. Submission to Jurisdiction; Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT 22 SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. NONE OF THE PARTIES HERETO SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF OR OTHERWISE RELATED TO THIS AGREEMENT AND EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO ANY SUCH JURY TRIAL AND ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY SUCH PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 5.13. Section 5.14. Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties hereto and supersedes all prior agreements and understandings related to the subject matter hereof. [Signatures On Next Page] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above. Collateral Agent: FLEET NATIONAL BANK, as Collateral Agent on behalf of the Lenders By: ---------------------------------------- Name: Title: Address: Fleet National Bank 100 Federal Street Boston, Massachusetts 02110 Attention: Christopher S. Allen, Senior Vice President Telecopy: 617) 4340-4929 Signature Page to Intercreditor Agreement Bank: FLEET NATIONAL BANK By: ---------------------------------------- Name: Title: Address: Fleet National Bank 100 Federal Street Boston, Massachusetts 02110 Attention: Christopher S. Allen, Senior Vice President Telecopy: 617) 4340-4929 Noteholder: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: ---------------------------------------- Name: Title: Address: The Prudential Insurance Company of America c/o Prudential Capital Group 1114 Avenue of the Americas New York, NY 10036 Attention: Managing Director Telecopier: 212-626-2077 Signature Page to Intercreditor Agreement ACKNOWLEDGMENT OF AND CONSENT AND AGREEMENT TO INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT The undersigned, the Obligors described in the Intercreditor and Collateral Agency Agreement set forth above, acknowledge and, to the extent required, consent to the terms and conditions thereof. The undersigned Obligors do hereby further acknowledge and agree to their joint and several agreements under Sections 2.10 and 3.01(d) of the Intercreditor and Collateral Agency Agreement and acknowledge and agree that no Obligor is a third-party beneficiary of, or has any rights under, the Intercreditor and Collateral Agency Agreement. Each Obligor, by its consent hereto, acknowledges that it shall have no rights under the Intercreditor and Collateral Agency Agreement. If the Collateral Agent or any Lender shall violate the terms of the Intercreditor and Collateral Agency Agreement, each Obligor agrees, by its consent hereto, that it shall not use such violation as a defense to any enforcement by any such party nor assert such violation as a counterclaim or basis for setoff or recoupment against any such party. Nothing contained in the foregoing sentence shall be deemed to modify, amend or waive any rights that any Obligor may otherwise have under the Collateral Documents. This Acknowledgment of and Agreement to Intercreditor and Collateral Agency Agreement and any amendment hereof may be executed in several counterparts and by each parry on a separate counterpart, each of which, when so executed and delivered, shall be an original, but all of which together shall constitute but one of the same instrument. IN WITNESS WHEREOF, the parties below have caused this Acknowledgment of and Consent and Agreement to Intercreditor and Collateral Agency Agreement to be executed by their respective duly authorized officer as of March 31, 2005. QUAKER FABRIC CORPORATION OF FALL RIVER, a Massachusetts corporation By: ---------------------------------------- Name: Title: QUAKER FABRIC CORPORATION, a Delaware corporation By: ---------------------------------------- Name: Title: Signature Page to Intercreditor Agreement QUAKER TEXTILE CORPORATION, a Massachusetts corporation By: ---------------------------------------- Name: Title: QUAKER FABRIC MEXICO, S.A. de C.V., a Mexican corporation By: ---------------------------------------- Name: Title: EXHIBIT A TO INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT FORM OF JOINDER REPLACEMENT COLLATERAL AGENT Upon execution of this signature page, the undersigned acknowledges that it has been appointed as a replacement Collateral Agent pursuant to Section 2.09 of the Agreement (as defined below) and shall, from the date set forth below, become the "Collateral Agent" under the Intercreditor and Collateral Agency Agreement, dated as of March 31, 2005 (as amended, restated, supplemented or otherwise modified, the "Agreement"), by and among The Prudential Insurance Company of America and Fleet National Bank, individually and as the original Collateral Agent. As a party to the Agreement, the undersigned agrees to be bound by all of the terms and conditions of the Agreement in its capacity as the "Collateral Agent". Capitalized terms used and not defined in this joinder instrument shall have meanings given in the Agreement. IN WITNESS WHEREOF, the undersigned has caused this Joinder to Intercreditor and Collateral Agency Agreement to be duly executed by its authorized officer as of the date set forth opposite such officer's signature. REPLACEMENT COLLATERAL AGENT: [NAME] By: ----------------------------------- Title: -------------------------------- ADDRESS: --------------------------------------- --------------------------------------- --------------------------------------- Telephone: ---------------------------- Telecopy: ------------------------- Dated: -------------------- A-1 EXHIBIT B Form of INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT SUPPLEMENT THIS INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT SUPPLEMENT (the "Supplement") is made and entered into as of this __ day of ___________, 20__, by and between ________________________ (the "Assignor") and ________________________ (the "Assignee"). Reference is hereby made to that certain Intercreditor and Collateral Agency Agreement dated as of March 31, 2005 (as it may be modified, amended, supplemented or restated from time to time, the "Intercreditor Agreement") by and among each of the banks listed on the signature page thereof (together with its successors and assigns, other than the Company and its subsidiaries and affiliates, collectively the "Banks"), Fleet National Bank, as Collateral Agent for the Lenders, and the holders of the Senior Notes listed on the signature pages thereof (together with their respective successors and assigns, other than the Company and its subsidiaries and affiliates, the "Noteholders" and together with the Bank, the "Lenders"). WITNESSETH WHEREAS, pursuant to that certain ____________ dated as of __________, 20__ among the Assignor and the Assignee, the Assignor has assigned all, or a proportionate part of all, of its right, title and interest under the [Credit Agreement] [1997 Note Agreement] [2002 Note Agreement] (as defined in the Intercreditor Agreement) to the Assignee and the Assignee has accepted such assignment; and WHEREAS, pursuant to the terms of the Intercreditor Agreement, such assignment requires the delivery of this Supplement to the Collateral Agent (as defined in the Intercreditor Agreement); and NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Assignee hereby acknowledges and agrees that it is a party to and is bound by the terms and conditions of the Intercreditor Agreement to the same degree and extent as if it were an original signatory thereto. B-1 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Supplement as of the date first above written. ASSIGNEE: By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- ASSIGNOR: By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Signature Page to Intercreditor Agreement Signature Page to Intercreditor Agreement Schedule I Existing Letters of Credit --------------------------
Instrument Letter of Credit Expiry Number Amount Date 64144463 $400,000.00 04/15/05 64137478 $4,500,000.00 12/01/05 64034704 $5,832.75 03/04/05 64034705 $134,095.50 06/20/05 64034706 $41,233.50 06/04/05 64034707 $44,467.50 06/04/05 50065711 855,527.05 (MXN) 02/08/06 $77,112.72 (USD)
EX-10 3 ex10-19.txt EXHIBIT 10.19 SECURITY AGREEMENT ------------------ SECURITY AGREEMENT, dated as of March 31, 2005, between (a) QUAKER FABRIC CORPORATION OF FALL RIVER, a Massachusetts corporation ("Quaker Fabric"), QUAKER TEXTILE CORPORATION, a Massachusetts corporation ("Quaker Textile"), and QUAKER FABRIC MEXICO, S.A. de C.V., a Mexican corporation ("Quaker Mexico", and along with Quaker Fabric and Quaker Textile, the "Borrowers"), (b) QUAKER FABRIC CORPORATION, a Delaware corporation (the "Parent") (each of the Borrowers and the Parent being sometimes referred to herein as a "Company" and collectively, as the "Companies"), and (c) FLEET NATIONAL BANK, in its capacity as collateral agent (hereinafter, in such capacity, the "Collateral Agent") under the Intercreditor and Collateral Agency Agreement of even date herewith (the "Intercreditor Agreement"), among the Lenders (as such term is defined in the Intercreditor Agreement) and the Collateral Agent for the benefit of the Lenders, and acknowledged by the Companies. WHEREAS, it is a condition precedent to (i) the Bank's making any further loans or otherwise extending further credit to the Companies under the Credit Agreement and (ii) the Noteholders agreeing to certain forbearance arrangements in respect of the Note Agreements that each Company execute and deliver to the Collateral Agent a security agreement in substantially the form hereof; and WHEREAS, each Company wishes to grant a security interest in favor of the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, as herein provided; NOW, THEREFORE, in consideration of the promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. ------------ All capitalized terms used herein without definitions shall have the respective meanings provided therefor in the Intercreditor Agreement. The term "State", as used herein, means the State of New York. All terms defined in the Uniform Commercial Code of the State and used herein shall have the same definitions herein as specified therein. However, if a term is defined in Article 9 of the Uniform Commercial Code of the State differently than in another Article of the Uniform Commercial Code of the State, the term has the meaning specified in Article 9. The term "Obligations", as used herein, means, collectively, all of the Bank Obligations, the Bank Product Obligations, the Collateral Agent Obligations, the Guaranteed Obligations, the Noteholder Obligations and all other liabilities and obligations of the Companies in respect of the Senior Indebtedness. -2- 2. Grant of Security Interest. --------------------------- Each Company hereby grants to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, to secure the payment and performance in full of all of the Obligations, a continuing security interest in and so pledges and assigns to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, the following properties, assets and rights of such Company, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof (all of the same being hereinafter called the "Collateral"): all personal and fixture property of every kind and nature including without limitation all goods (including inventory, equipment (including rolling stock) and any accessions thereto), instruments (including promissory notes), documents including, if applicable, electronic documents, accounts, chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), software, intellectual property rights, commercial tort claims, securities and all other investment property, cash and cash equivalents, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, all general intangibles (including all payment intangibles), and all books and records relating to the foregoing; provided, however, that Collateral shall not include any property or assets of any Company sited outside of the United States (collectively, the "Excluded Assets"). The Collateral Agent acknowledges that the attachment of its security interest in any commercial tort claim as original collateral is subject to each Company's compliance with 'SS' 4.8. 3. Authorization to File Financing Statements. ------------------------------------------- Each Company hereby irrevocably authorizes the Collateral Agent, its counsel or representative at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of the Company or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the State or such other jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of the Uniform Commercial Code of the State or such other jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether such Company is an organization, the type of organization and any organizational identification number issued to such Company and, (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as extracted collateral, a sufficient description of real property to which the Collateral relates. Each Company agrees to furnish any such information to the Collateral Agent promptly upon request. Each Company also ratifies its authorization for the Collateral Agent to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof, with all costs and expenses associated with any such filings to be at the Companies' expense. 4. Other Actions. -------------- -3- Further to insure the attachment, perfection and first priority of, and the ability of the Collateral Agent to enforce, the Collateral Agent's security interest in the Collateral, each Company agrees, in each case at such Company's own expense, to take the following actions with respect to the following Collateral and without limitation on such Company's other obligations contained in this Agreement: 4.1. Promissory Notes and Tangible Chattel Paper. -------------------------------------------- If any Company shall, now or at any time hereafter, hold or acquire any promissory notes or tangible chattel paper, such Company shall forthwith endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify. 4.2. Deposit Accounts. ----------------- For each deposit account that each Company, now or at any time hereafter, opens or maintains, beginning May 31, 2005, each such Company shall, at the Collateral Agent's request and option, pursuant to an agreement in form and substance satisfactory to the Collateral Agent, either (a) cause the depositary bank to agree to comply, without further consent of such Company at any time, with instructions from the Collateral Agent to such depositary bank directing the disposition of funds from time to time credited to such deposit account, or (b) arrange for the Collateral Agent to become the customer of the depositary bank with respect to the deposit account, with such Company being permitted, only with the consent of the Collateral Agent, to exercise rights to withdraw funds from such deposit account. The provisions of this paragraph shall not apply to (i) any deposit account for which any Company, the depositary bank and the Collateral Agent have entered into a cash collateral agreement specially negotiated among such Company, the depositary bank and the Collateral Agent for the specific purpose set forth therein, (ii) a deposit account for which the Collateral Agent is the depositary bank and is in automatic control, and (iii) any deposit accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of a Company's salaried employees. 4.3. Investment Property. -------------------- If any Company shall, now or at any time hereafter, hold or acquire any certificated securities, such Company shall forthwith endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify. If any securities now or hereafter acquired by any Company are uncertificated and are issued to such Company or its nominee directly by the issuer thereof, such Company shall immediately notify the Collateral Agent thereof and, at the Collateral Agent's request and option, pursuant to an -4- agreement in form and substance satisfactory to the Collateral Agent, either (a) cause the issuer to agree to comply without further consent of such Company or such nominee, at any time with instructions from the Collateral Agent as to such securities, or (b) arrange for the Collateral Agent to become the registered owner of the securities; provided, however, that if any securities, whether certificated or uncertificated, or other investment property now or hereafter acquired by any Company are held by such Company or its nominee through a securities intermediary or commodity intermediary, such Company shall immediately notify the Collateral Agent thereof and, at the Collateral Agent's request and option, pursuant to an agreement in form and substance satisfactory to the Collateral Agent, either (i) cause such securities intermediary or (as the case may be) commodity intermediary to agree to comply, in each case without further consent of such Company or such nominee, at any time with entitlement orders or other instructions from the Collateral Agent to such securities intermediary as to such securities or other investment property, or (as the case may be) to apply any value distributed on account of any commodity contract as directed by the Collateral Agent to such commodity intermediary, or (ii) in the case of financial assets or other investment property held through a securities intermediary, arrange for the Collateral Agent to become the entitlement holder with respect to such investment property, with such Company being permitted, only with the consent of the Collateral Agent, to exercise rights to withdraw or otherwise deal with such investment property. The provisions of this paragraph shall not apply to any financial assets credited to a securities account for which the Collateral Agent is the securities intermediary. 4.4. Collateral in the Possession of a Bailee. ----------------------------------------- If any Collateral is, now or at any time hereafter, in the possession of a bailee, beginning May 31, 2005, the applicable Company or Companies shall promptly notify the Collateral Agent thereof and, at the Collateral Agent's request and option, such Company or Companies shall promptly obtain an acknowledgement from the bailee, in form and substance satisfactory to the Collateral Agent, that the bailee holds such Collateral for the benefit of the Collateral Agent and such bailee's agreement to comply, without further consent of such Company or Companies, at any time with instructions of the Collateral Agent as to such Collateral. 4.5. Electronic Chattel Paper and Transferable Records. -------------------------------------------------- If any Company, now or at any time hereafter, holds or acquires an interest in any electronic chattel paper, any electronic document or any "transferable record," as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in 'SS' 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Company shall promptly notify the Collateral Agent thereof and, at the request and option of the Collateral Agent, shall take such action as the Collateral Agent -5- may reasonably request to vest in the Collateral Agent control, under 'SS' 9-105 of the Uniform Commercial Code of the State or any other relevant jurisdiction, of such electronic chattel paper, control, under 'SS' 7-106 of the Uniform Commercial Code of the State or any other relevant jurisdiction, of such electronic document or control, under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, 'SS' 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The provisions of this 'SS' 4.5 relating to electronic documents and "control" under UCC 'SS' 7-106 apply in the event that the 2003 revisions to Article 7, with amendments to Article 9, of the Uniform Commercial Code, in substantially the form approved by the American Law Institute and the National Conference of Commissioners on Uniform State Laws, are now or hereafter adopted and become effective in the State or in any other relevant jurisdiction. 4.6. Letter-of-credit Rights. ------------------------ If any Company is, now or at any time hereafter, a beneficiary under a letter of credit with a face amount equal to or greater than (i) prior to May 31, 2005, $500,000 individually, or $1,500,000 in the aggregate with all other letters of credit under which a Company is beneficiary, and (ii) beginning May 31, 2005, $100,000 individually, or $200,000 in the aggregate with all other letters of credit under which a Company is beneficiary, now or hereafter, such Company shall promptly notify the Collateral Agent thereof and, at the request and option of the Collateral Agent, such Company shall, pursuant to an agreement in form and substance satisfactory to the Collateral Agent, either (a) arrange for the issuer and any confirmer or other nominated person of such letter of credit to consent to an assignment to the Collateral Agent of the proceeds of the letter of credit or (b) arrange for the Collateral Agent to become the transferee beneficiary of the letter of credit, with the Collateral Agent agreeing, in each case, that the proceeds of the letter of credit are to be applied as provided in the Intercreditor Agreement. 4.7. Commercial Tort Claims. ----------------------- If any Company shall, now or at any time hereafter, hold or acquire a commercial tort claim, such Company shall immediately notify the Collateral Agent in a writing signed by such Company of the particulars thereof and grant to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Collateral Agent. 4.8. Other Actions as to any and all Collateral. ------------------------------------------- Each Company further agrees, upon the request of the Collateral Agent and at the Collateral Agent's option, to take any and all other actions as the Collateral Agent may determine to be necessary or useful for the attachment, -6- perfection and first priority of, and the ability of the Collateral Agent to enforce, the Collateral Agent's security interest in any and all of the Collateral, including, without limitation, (a) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the Uniform Commercial Code of any relevant jurisdiction, to the extent, if any, that such Company's signature thereon is required therefor, (b) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Collateral Agent to enforce, the Collateral Agent's security interest in such Collateral, (c) beginning May 31, 2005, obtaining governmental and other third party waivers, consents and approvals, in form and substance satisfactory to the Collateral Agent, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, (d) beginning May 31, 2005, obtaining waivers from landlords in form and substance satisfactory to the Collateral Agent and (e) taking all actions under any earlier versions of the Uniform Commercial Code or under any other law, as reasonably determined by the Collateral Agent to be applicable in any relevant Uniform Commercial Code or other jurisdiction, including any foreign jurisdiction, in each such case, at the Companies' expense. 5. Relation to Other Collateral Documents. --------------------------------------- The provisions of this Agreement shall be read and construed with the other Collateral Documents referred to below in the manner so indicated. 5.1. Second Amended and Restated Pledge Agreement. --------------------------------------------- Concurrently herewith certain of the Companies are executing and delivering to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, a Second Amended and Restated Pledge Agreement, pursuant to which each Company party thereto is pledging to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, all of its shares of capital stock in its domestic subsidiary or subsidiaries and 65% of its capital stock in certain of its foreign subsidiary or subsidiaries. Such pledges shall be governed by the terms of such pledge agreement and not by the terms of this Agreement. 5.2. Patent and Trademark Assignments. Concurrently herewith certain of the Companies are executing and delivering to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, a patent collateral assignment and security agreement (the "Patent Assignment") and a trademark collateral assignment and pledge agreement (the "Trademark Assignment") pursuant to which such Companies are assigning to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, certain Collateral consisting of patents and patent rights and trademarks, service marks and trademark and service mark rights, together with the goodwill appurtenant thereto. The provisions of the Patent Assignment and the Trademark Assignment are supplemental to the -7- provisions of this Agreement, and nothing contained in the Patent Assignment or the Trademark Assignment shall derogate from any of the rights or remedies of the Collateral Agent hereunder. Neither the delivery of, nor anything contained in, the Patent Assignment or the Trademark Assignment shall be deemed to prevent or postpone the time of attachment or perfection of any security interest in such Collateral created hereby. 5.3. Copyright Memorandum. Concurrently herewith certain of the Companies are executing and delivering to the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, for recording in the United States Copyright Office (the "Copyright Office"), a Memorandum of Grant of Security Interest in Copyrights. Each Company represents and warrants to the Collateral Agent that such Memorandum identifies all now existing material copyrights and other rights in and to all material copyrightable works of the Companies, identified, where applicable, by title, author and/or Copyright Office registration number and date. 6. Representations and Warranties Concerning each Company's Legal -------------------------------------------------------------- Status. - ------- Each of the Companies has previously delivered to the Collateral Agent a certificate signed by the Company and entitled "Perfection Certificate" (the "Perfection Certificate"). Each Company represents and warrants to the Lenders and the Collateral Agent as follows: (a) each Company's exact legal name is that indicated on its Perfection Certificate and on the signature page hereof, (b) the Company is an organization of the type, and is organized in the jurisdiction, set forth in its Perfection Certificate, (c) its Perfection Certificate accurately sets forth the Company's organizational identification number or accurately states that such Company has none, (d) its Perfection Certificate accurately sets forth such Company's place of business or, if more than one, its chief executive office, as well as such Company's mailing address, if different, (e) all other information set forth on its Perfection Certificate pertaining to such Company is accurate and complete and (f) there has been no change in any of such information since the date on which its Perfection Certificate was signed by such Company. 7. Covenants Concerning each Company's Legal Status. ------------------------------------------------- Each Company covenants with the Lenders and the Collateral Agent as follows: (a) without providing at least thirty (30) days prior written notice to the Collateral Agent, such Company will not change its name, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one, (b) if such Company does not have an organizational identification number and later obtains one, such Company will forthwith notify the Collateral Agent of such organizational identification number, (c) such Company will not change its type of organization, jurisdiction of organization or other legal structure, and (d) such Company will not become a party to any merger, amalgamation or consolidation without the prior written consent of the Collateral Agent. -8- 8. Representations and Warranties Concerning Collateral, Etc. ---------------------------------------------------------- Each Company further represents and warrants to the Lenders and the Collateral Agent as follows: (a) such Company is the owner of the Collateral, free from any right or claim of any person or any adverse lien, security interest or other encumbrance, except for the security interests created by this Agreement and Liens permitted by 'SS' 5.12 of the Credit Agreement and 'SS' 6G of each Note Agreement (collectively, "Permitted Liens"), and that such Company has the power to transfer such Collateral in accordance with the provisions hereof and of the other Collateral Documents, (b) none of the Collateral constitutes, or is the proceeds of, "farm products" as defined in 'SS' 9-102(a)(34) of the Uniform Commercial Code of the State, (c) except as disclosed to the Collateral Agent in writing, none of the account debtors or other persons obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of such Collateral, (d) such Company holds no commercial tort claim except as indicated on its Perfection Certificate or claims arising after the date on which notice is given, (e) such Company has at all times operated its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances, (f) all other information set forth on its Perfection Certificate pertaining to the Collateral is accurate and complete, and (g) there has been no change in any of such information since the date on which its Perfection Certificate was signed by such Company. 9. Covenants Concerning Collateral, Etc. ------------------------------------- Each Company further covenants with the Lenders and the Collateral Agent as follows: (a) the Collateral, to the extent not delivered to the Collateral Agent pursuant to 'SS' 4, will be kept at those locations listed on its Perfection Certificate and such Company will not remove the Collateral from such locations without providing at least 30 days prior written notice to the Collateral Agent, (b) except for the security interest herein granted and Liens permitted by 'SS' 5.12 of the Credit Agreement and 'SS' 6G of each Note Agreement, the Companies shall be the owners of the Collateral free from any right or claim of any other person or any lien, security interest or other encumbrance, and such Company shall defend the same against all claims and demands of all Persons at any time claiming the same or any interests therein adverse to the Collateral Agent or any of the Lenders, (c) such Company shall not pledge, mortgage or create, or suffer to exist any right of any person in or claim by any person to the Collateral, or any lien, security interest or other encumbrance in the Collateral in favor of any Person, other than the Collateral Agent, (d) such Company will keep the Collateral in good order and repair (ordinary wear and tear excepted) and will not use the same in violation of law or any policy of insurance thereon, (e) such Company will permit the Collateral Agent, or its designee, to inspect the Collateral at any reasonable time, wherever located, (f) such Company will pay promptly when due all taxes, assessments, governmental charges and levies upon the Collateral or incurred in connection with the use or operation of the Collateral or incurred in connection with this Agreement, (g) such Company will -9- continue to operate, its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances, (h) such Company will not sell or otherwise dispose, or offer to sell or otherwise dispose, of the Collateral or any interest therein except for sales of obsolete and worn-out equipment and inventory in the ordinary course of business and other sales or dispositions expressly permitted under the Credit Agreement and the Note Agreements, and (i) such Company will not file any amendment to or termination of any Uniform Commercial Code financing statement naming any Company as debtor and the Collateral Agent as secured party. In addition, each Company hereby further covenants and agrees that no such Person shall enter into any agreement, instrument or other undertaking which creates, incurs, assumes or suffers to exist a Lien on all or any portion of the Excluded Assets. 10. Insurance. ---------- 10.1. Maintenance of Insurance. ------------------------- Each Company will maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with general practices of businesses engaged in similar activities in similar geographic areas. Such insurance shall be in such minimum amounts that such Company will not be deemed a co-insurer under applicable insurance laws, regulations and policies and otherwise shall be in such amounts, contain such terms, be in such forms and be for such periods as may be reasonably satisfactory to the Collateral Agent. In addition, all such insurance in respect of the Collateral shall be payable to the Collateral Agent as loss payee under a "standard" or "New York" loss payee clause for the benefit of the Lenders and the Collateral Agent. Each Company will maintain insurance of the types, in amounts and with deductibles consistent with those generally maintained by businesses engaged in similar activities in similar geographic areas and otherwise in a manner consistent with its past practices. -10- 10.2. Insurance Proceeds. ------------------- The proceeds of any casualty insurance in respect of any casualty loss of any of the Collateral shall, subject to the rights, if any, of other parties with an interest having priority in the property covered thereby, (a) so long as no Event of Default has occurred and is continuing and to the extent that the amount of such proceeds is less than $100,000 (or such greater amount as may be consented to in writing by the Collateral Agent), be disbursed to the applicable Company for direct application by such Company solely to the repair or replacement of such Company's property so damaged or destroyed and (b) after and during the continuance of an Event of Default, be held by the Collateral Agent as cash collateral for the Obligations and/or disbursed by the Collateral Agent in accordance with the provisions of the Intercreditor Agreement. 10.3. Continuation of Insurance. -------------------------- All policies of insurance shall provide for at least thirty (30) days prior written cancellation notice to the Collateral Agent. In the event of failure by any Company to provide and maintain insurance as herein provided, the Collateral Agent may, at its option, provide such insurance and charge the amount thereof to the Companies. Each Company shall furnish the Collateral Agent with certificates of insurance and policies evidencing compliance with the foregoing insurance provision. 11. Collateral Protection Expenses; Preservation of Collateral. ----------------------------------------------------------- 11.1. Expenses Incurred by Collateral Agent. -------------------------------------- In the Collateral Agent's discretion, if any Company fails to do so, the Collateral Agent may discharge taxes and other encumbrances (other than Permitted Liens) at any time levied or placed on any of the Collateral, maintain any of the Collateral, make necessary repairs thereto and pay any necessary filing fees or insurance premiums, in each case if the Companies fail to do so. Each Company agrees to reimburse the Collateral Agent on demand for all expenditures so made. The Collateral Agent shall have no obligation to any Company to make any such expenditures, nor shall the making thereof be construed as a waiver or cure of any Default or Event of Default. 11.2. Collateral Agent's Obligations and Duties. ------------------------------------------ Anything herein to the contrary notwithstanding, each Company shall remain obligated and liable under each contract or agreement comprised in the Collateral to be observed or performed by such Company thereunder. Neither the Collateral Agent not any Lender shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Collateral Agent or any Lender of any payment relating to any of the Collateral, nor shall the Collateral Agent or any Lender be obligated in any -11- manner to perform any of the obligations of any Company under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Collateral Agent in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Collateral Agent or to which the Collateral Agent or any Lender may be entitled at any time or times. The Collateral Agent's sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in its possession, under 'SS' 9-207 of the Uniform Commercial Code of the State or otherwise, shall be to deal with such Collateral in the same manner as the Collateral Agent deals with similar property for its own account. 12. Events of Default. ------------------ If any of the following events ("Events of Default") shall occur: (a) the occurrence of an Event of Default (other than a Specified Default under and as defined in the Credit Agreement, the Note Agreements or any forbearance agreement relating to any of the foregoing); (b) any Company shall fail to perform any term, covenant or agreement contained herein or in any of the other Collateral Documents for fifteen (15) days after written notice of such failure has been given to the Companies by the Collateral Agent; (c) any representation or warranty of any Company in this Agreement or any of the other Collateral Documents or in any other document or instrument delivered pursuant to or in connection with this Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; or (d) there shall occur any material damage to, or loss, theft or destruction of, any Collateral which is not covered by insurance; then, and in any such event, so long as the same may be continuing, the Collateral Agent may exercise all of its rights and remedies provided herein (including, without limitation, those provided in 'SS' 16 herein), in the Credit Agreement, in the Note Agreements and in the other Collateral Documents. 13. Securities and Deposits. ------------------------ Subject to the terms and conditions of the Intercreditor Agreement, the Collateral Agent may at any time following and during the continuance of an Event of Default, at its option, transfer to itself or any nominee any securities constituting Collateral, receive any income thereon and hold such income as additional Collateral or apply it to the Obligations. Subject to the terms and conditions of the Intercreditor Agreement, whether or not any Obligations are due, following and during the continuance of an Event of Default, the Collateral Agent may demand, sue for, collect, or make any settlement or -12- compromise which it deems desirable with respect to the Collateral. Regardless of the adequacy of Collateral or any other security for the Obligations, any deposits or other sums at any time credited by or due from the Collateral Agent or any Lender to any Company may at any time be applied to or set off against any of the Obligations. 14. Notification to Account Debtors and Other Persons Obligated on -------------------------------------------------------------- Collateral. - ----------- Each Company shall, following and during the continuance of an Event of Default and at the request and option of the Collateral Agent, notify account debtors and other persons obligated on any of the Collateral of the security interest of the Collateral Agent in any account, chattel paper, general intangible, instrument or other Collateral and that payment thereof is to be made directly to the Collateral Agent or to any financial institution designated by the Collateral Agent as the Collateral Agent's agent therefor, and following and during the continuance of an Event of Default the Collateral Agent may itself, without notice to or demand upon such Company, so notify account debtors and other persons obligated on Collateral. After the making of such a request or the giving of any such notification, such Company shall hold any proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral received by such Company as trustee for the Collateral Agent, for the benefit of the Lenders and the Collateral Agent, without commingling the same with other funds of such Company and shall turn the same over to the Collateral Agent in the identical form received, together with any necessary endorsements or assignments. The Collateral Agent shall apply the proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral received by the Collateral Agent to the Obligations in accordance with the terms of the Intercreditor Agreement, such proceeds to be immediately credited after final payment in cash or other immediately available funds of the items giving rise to them. 15. Power of Attorney. ------------------ 15.1. Appointment and Powers of Collateral Agent. ------------------------------------------- Each Company hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of such Company or in the Collateral Agent's own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or useful to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives said attorneys the power and right, on behalf of such Company, without notice to or assent by such Company, to do the following: (a) upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement -13- with respect to or otherwise dispose of or deal with any of the Collateral in such manner as is consistent with the Uniform Commercial Code of the State or other relevant jurisdiction and as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and to do, at such Company's expense, at any time, or from time to time, all acts and things which the Collateral Agent deems necessary or useful to protect, preserve or realize upon the Collateral and the Collateral Agent's security interest therein, in order to effect the intent of this Agreement, all no less fully and effectively as such Company might do, including, without limitation, (i) the filing and prosecuting of registration and transfer applications with the appropriate federal, state or local agencies or authorities with respect to trademarks, copyrights and patentable inventions and processes, (ii) upon written notice to such Company, the exercise of voting rights with respect to voting securities, which rights may be exercised, if the Collateral Agent so elects, with a view to causing the liquidation of assets of the issuer of any such securities and (iii) the execution, delivery and recording, in connection with any sale or other disposition of any Collateral, of the endorsements, assignments or other instruments of conveyance or transfer with respect to such Collateral; and (b) whether or not an Event of Default shall have occurred and be continuing, to the extent that such Company's authorization given in 'SS' 3 is not sufficient, to file such financing statements with respect hereto, with or without such Company's signature, or a photocopy of this Agreement in substitution for a financing statement, as the Collateral Agent may deem appropriate and to execute in such Company's name such financing statements and amendments thereto and continuation statements which may require such Company's signature. 15.2. Ratification by the Companies. ------------------------------ To the extent permitted by law, each Company hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and is irrevocable. 15.3. No Duty on Collateral Agent. ---------------------------- The powers conferred on the Collateral Agent hereunder are solely to protect the interests of the Collateral Agent and the Lenders in the Collateral and shall not impose any duty upon the Collateral Agent to exercise any such powers. The Collateral Agent shall be accountable only for the amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to any Company for any act or failure to act, except for the Collateral Agent's own gross negligence or willful misconduct. -14- 16. Rights and Remedies. -------------------- If an Event of Default shall have occurred and be continuing, the Collateral Agent, without any other notice to or demand upon the Companies, shall have in any jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies, the rights and remedies of a secured party under the Uniform Commercial Code of the State or any other relevant jurisdiction and any additional rights and remedies as may be provided to a secured party at law or in equity in any jurisdiction in which Collateral is located, including, without limitation, the right to take possession of the Collateral, and for that purpose the Collateral Agent may, so far as any Company can give authority therefor, enter upon any premises on which the Collateral may be situated and remove the same therefrom. The Collateral Agent may in its discretion require each Company to assemble all or any part of the Collateral at such location or locations within the jurisdiction(s) of such Company's principal office(s) or at such other locations as the Collateral Agent may reasonably designate. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Collateral Agent shall give to the Companies at least twenty (20) days prior written notice of the time and place of any public sale of Collateral or of the time after which any private sale or any other intended disposition is to be made. Each Company hereby acknowledges that twenty (20) days prior written notice of such sale or sales shall be reasonable notice. In addition, each Company waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Collateral Agent's rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto. 17. Standards for Exercising Rights and Remedies. --------------------------------------------- To the extent that applicable law imposes duties on the Collateral Agent to exercise remedies in a commercially reasonable manner, each Company acknowledges and agrees that it is not commercially unreasonable for the Collateral Agent (a) to fail to incur expenses reasonably deemed significant by the Collateral Agent to prepare Collateral for disposition or otherwise to fail to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to fail to remove Liens on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not in the same business as such Company, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (h) to -15- dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure the Collateral Agent against risks of loss, collection or disposition of Collateral or to provide to the Collateral Agent a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by the Collateral Agent, to obtain the services of brokers, investment bankers, consultants and other professionals to assist the Collateral Agent in the collection or disposition of any of the Collateral. Each Company acknowledges that the purpose of this 'SS' 17 is to provide non-exhaustive indications of what actions or omissions by the Collateral Agent would fulfill the Collateral Agent's duties under the Uniform Commercial Code of the State or any other relevant jurisdiction in the Collateral Agent's exercise of remedies against the Collateral and that other actions or omissions by the Collateral Agent shall not be deemed to fail to fulfill such duties solely on account of not being indicated in this 'SS' 17. Without limitation upon the foregoing, nothing contained in this 'SS' 17 shall be construed to grant any rights to any Company or to impose any duties on the Collateral Agent that would not have been granted or imposed by this Agreement or by applicable law in the absence of this 'SS' 17. 18. No Waiver by Collateral Agent, Etc. ----------------------------------- The Collateral Agent shall not be deemed to have waived any of its rights and remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by the Collateral Agent with the consent of the Required Senior Lenders. No delay or omission on the part of the Collateral Agent in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. All rights and remedies of the Collateral Agent with respect to the Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successively or concurrently at such time or at such times as the Collateral Agent deems expedient. 19. Suretyship Waivers by the Companies. ------------------------------------ Each Company waives demand, notice (other than notices expressly provided for herein or in any other Collateral Document, the Credit Agreement or any of the Note Agreements), protest, notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. With respect to both the Obligations and the Collateral, each Company assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of or failure to perfect any security interest in any Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such manner -16- and at such time or times as the Collateral Agent may deem advisable. The Collateral Agent shall have no duty as to the collection or protection of the Collateral or any income therefrom, the preservation of rights against prior parties, or the preservation of any rights pertaining thereto beyond the safe custody thereof as set forth in 'SS' 11.2. Each Company further waives any and all other suretyship defenses. 20. Marshalling. ------------ Neither the Collateral Agent nor any Lender shall be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the rights and remedies of the Collateral Agent or any Lender hereunder and of the Collateral Agent or any Lender in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, each Company hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Collateral Agent's rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Company hereby irrevocably waives the benefits of all such laws. 21. Proceeds of Dispositions; Expenses. ----------------------------------- Each Company shall pay to the Collateral Agent on demand any and all expenses, including reasonable attorneys' fees and disbursements, incurred or paid by the Collateral Agent in protecting, preserving or, after and during the continuance of an Event of Default, enforcing the Collateral Agent's rights and remedies under or in respect of any of the Obligations or any of the Collateral. After deducting all of said expenses, the residue of any proceeds of collection or sale or other disposition of Collateral shall, to the extent actually received in cash, be applied to the payment of the Obligations in accordance with the provisions of the Intercreditor Agreement, proper allowance and provision being made for any Obligations not then due. Upon the final payment and satisfaction in full of all of the Obligations and after making any payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the State, any excess shall be returned to the Companies. In the absence of final payment and satisfaction in full of all of the Obligations, each Company shall remain liable for any deficiency. 22. Overdue Amounts. ---------------- Until paid, all overdue amounts payable by the Companies hereunder shall be a debt secured by the Collateral and shall bear, whether before or after judgment, interest at the rate of interest set forth in 'SS' 2.07(c) of the Credit Agreement. 23. Governing Law; Consent to Jurisdiction. --------------------------------------- -17- THIS AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE. Each Company agrees that any action or claim arising out of any dispute in connection with this Agreement, any rights or obligations hereunder or the performance or enforcement of such rights or obligations may be brought in the courts of the State or any federal court sitting therein and consents to the non-exclusive jurisdiction of such court and to service of process in any such suit being made upon such Company by mail at the address specified in 'SS' 8.02 of the Credit Agreement and the Purchaser Schedules to the Note Agreements. Each Company hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court. 24. Submission to Jurisdiction; Waiver of Jury Trial. ------------------------------------------------- EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. NONE OF THE PARTIES HERETO SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION PROCEDURE BASED UPON OR ARISING OUT OF OR OTHERWISE RELATED TO THIS AGREEMENT AND EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO ANY SUCH JURY TRIAL AND ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY SUCH PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS 'SS' 24. Except as prohibited by law, each Company waives any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each Company (a) certifies that none of the Collateral Agent, any Lender or any representative, agent or attorney of the Collateral Agent or any Lender has represented, expressly or otherwise, that the Collateral Agent or any Lender would not, in the event of litigation, seek to enforce the foregoing waivers or other waivers contained in this Agreement and (b) acknowledges that, in entering into the Intercreditor Agreement and the other Secured Debt Agreements to which the Collateral Agent or any Lender is a party, the Collateral Agent and the Lenders are relying upon, among other things, the waivers and certifications contained in this 'SS' 24. 25. Amendments to Agreement and Documentation. ------------------------------------------ This Agreement and the provisions hereof may be amended, modified or waived only by a writing signed by the Collateral Agent and each of the Companies. -18- 26. Counterparts. ------------- This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which shall constitute one agreement, and shall constitute a binding agreement when executed by each of the parties hereto. 27. Notices. -------- All written communications provided for hereunder shall be sent in accordance with the provisions of Section 5.09 of the Intercreditor Agreement. 28. Miscellaneous. -------------- The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof. This Agreement and all rights and obligations hereunder shall be binding upon each Company and its successors and assigns, and shall inure to the benefit of the Collateral Agent, the Lenders and their respective successors and assigns. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. Each Company acknowledges receipt of a copy of this Agreement. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, intending to be legally bound, each Company has caused this Agreement to be duly executed as of the date first above written. QUAKER FABRIC CORPORATION OF FALL RIVER By: ---------------------------------------- Name: Title: QUAKER TEXTILE CORPORATION By: ---------------------------------------- Name: Title: QUAKER FABRIC MEXICO, S.A. de C.V. By: ---------------------------------------- Name: Title: QUAKER FABRIC CORPORATION By: ---------------------------------------- Name: Title: Accepted: FLEET NATIONAL BANK, as Collateral Agent By: ------------------------------------- Name: Christopher S. Allen Title: Senior Vice President CERTIFICATE OF ACKNOWLEDGMENT COMMONWEALTH OR STATE OF ______________ ) ) ss. COUNTY OF ____________________________ ) Before me, the undersigned, a Notary Public in and for the county aforesaid, on this ___ day of March, 2005, personally appeared ___________________ to me known personally, and who, being by me duly sworn, deposes and says that s/he is the ________________ of _______________________, and that said instrument was signed and sealed on behalf of said __________________ by authority of its _________________, and said _______________ acknowledged said instrument to be the free act and deed of said limited liability company. --------------------------- Notary Public My commission expires: COMMONWEALTH OR STATE OF ______________ ) ) ss. COUNTY OF ____________________________ ) Before me, the undersigned, a Notary Public in and for the county aforesaid, on this ___ day of March, 2005, personally appeared ___________________ to me known personally, and who, being by me duly sworn, deposes and says that s/he is the ________________ of _______________________, and that said instrument was signed and sealed on behalf of said __________________ by authority of its _________________, and said _______________ acknowledged said instrument to be the free act and deed of said limited liability company. --------------------------- Notary Public My commission expires: COMMONWEALTH OR STATE OF ______________ ) ) ss. COUNTY OF ____________________________ ) Before me, the undersigned, a Notary Public in and for the county aforesaid, on this ___ day of March, 2005, personally appeared ___________________ to me known personally, and who, being by me duly sworn, deposes and says that s/he is the ________________ of _______________________, and that said instrument was signed and sealed on behalf of said __________________ by authority of its _________________, and said _______________ acknowledged said instrument to be the free act and deed of said limited liability company. --------------------------- Notary Public My commission expires: COMMONWEALTH OR STATE OF ______________ ) ) ss. COUNTY OF ____________________________ ) Before me, the undersigned, a Notary Public in and for the county aforesaid, on this ___ day of March, 2005, personally appeared ___________________ to me known personally, and who, being by me duly sworn, deposes and says that s/he is the ________________ of _______________________, and that said instrument was signed and sealed on behalf of said __________________ by authority of its _________________, and said _______________ acknowledged said instrument to be the free act and deed of said limited liability company. --------------------------- Notary Public My commission expires: EX-10 4 ex10-20.txt EXHIBIT 10.20 SECOND AMENDED AND RESTATED PLEDGE AGREEMENT This SECOND AMENDED AND RESTATED PLEDGE AGREEMENT (this "Agreement") is made as of March 31, 2005, among (i) QUAKER FABRIC CORPORATION OF FALL RIVER, QUAKER TEXTILE CORPORATION, QUAKER FABRIC MEXICO, S.A. de C.V. and QUAKER FABRIC CORPORATION (each a "Company" and collectively, the "Companies"), (ii) THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential"), and the other Holders of Debentures (as defined below) which have executed the signature pages hereof or which have otherwise become parties hereto in the manner provided in 'SS'19.10 hereof, and (iii) FLEET NATIONAL BANK (f/k/a BankBoston, N.A.) ("Fleet") as the Lender (as hereinafter defined) and as collateral agent (in such capacity, the "Collateral Agent") for the Secured Parties (as hereinafter defined) under the Intercreditor and Collateral Agency Agreement of even date herewith (the "Intercreditor Agreement"), among the Companies, the Secured Parties and the Collateral Agent for the benefit of the Secured Parties. WHEREAS, pursuant to a Second Amended and Restated Credit Agreement dated as of February 14, 2002 (as amended, supplemented and in effect from time to time, the "Credit Agreement"), among Quaker Fabric Corporation of Fall River ("Quaker"), Quaker Textile Corporation ("Quaker Textile"), Quaker Fabric Mexico, S.A. de C.V. ("Quaker Mexico"), Quaker Fabric Corporation, and Fleet as Lender (in such capacity, the "Lender"), the Lender agreed, upon the terms and subject to the conditions contained therein, to make loans and otherwise extend credit to the Company, Quaker Textile and Quaker Mexico; WHEREAS, pursuant to a Note Purchase Agreement dated as of October 10, 1997 (as amended and in effect from time to time, the "1997 Indenture"), among the Company, The Prudential Insurance Company of America and the other financial institutions party (from time to time) thereto, the Company agreed to issue those certain 7.09% Senior Notes due October 10, 2005, in an aggregate original principal amount equal to $15,000,000, and those certain 7.18% Senior Notes due October 10, 2007, in an aggregate original principal amount equal to $30,000,000 (collectively, the "1997 Notes"); WHEREAS, pursuant to a Note Agreement and Private Shelf Facility dated as of February 14, 2002 (as amended and in effect from time to time, the "2002 Indenture"; and collectively with the 1997 Indenture, the "Indentures"), among the Company, The Prudential Insurance Company of America and the other Prudential Affiliates party (from time to time) thereto, the Company agreed to issue those certain 7.56% Senior Notes due on or about February 14, 2009, in an aggregate original principal amount equal to $5,000,000 (collectively, the "Initial 2002 Notes") and also agreed to issue from time to time thereunder the Shelf Notes (as defined in the 2002 Indenture) described therein (together with the Initial 2002 Notes, the "2002 Notes"; such 2002 Notes, collectively with the 1997 Notes, the "Debentures"); WHEREAS, in connection with the Credit Agreement and the Debentures, Quaker executed and delivered to the Collateral Agent, for the benefit of the Secured Parties, a certain Amended and Restated Collateral Agency and Pledge Agreement dated as of February 14, 2002 (as amended, supplemented and in effect on the date hereof, the "Original Pledge Agreement"); WHEREAS, it is a condition precedent to (i) the Lender's obligations to make further loans and otherwise further extend credit to Quaker, Quaker Textile and Quaker Mexico and (ii) the Holders of Debentures agreeing to certain forbearance arrangements in respect of the Indentures that the Companies execute and deliver to the Collateral Agent, for the benefit of the Secured Parties, an amended and restated pledge agreement in substantially the form hereof; WHEREAS, the parties hereto wish to set forth their relative rights and priorities with respect to the Stock Collateral (as hereinafter defined); NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. ------------ 1.1. Definitions. The following terms shall have the meanings set forth in this 'SS'1 or elsewhere in the provisions of this Agreement referred to below: Act. See 'SS'5.2. Actionable Default. Any Event of Default under and as defined in the Credit Agreement or Event of Default under and as defined in either of the Indentures. Agreement. This Second Amended and Restated Pledge Agreement. Bank Debt. The advances, letter of credit reimbursement obligations and all other obligations of the Companies now existing or hereafter arising to the Lender under the Credit Agreement. Bank Debt shall include without limitation, any interest and collection costs. Bank Loan Documents. The Credit Agreement and all other documents and instruments executed or delivered in connection therewith, or any terms having the same meaning contained in any other Credit Agreement. Cash Collateral. See 'SS'4.2. Cash Collateral Account. See 'SS'4.2. Company. As defined in the preamble hereto. Collateral. The Stock Collateral and the Cash Collateral. Collateral Agent. As defined in the preamble hereto unless and until a successor Collateral Agent shall have been appointed pursuant to 'SS'14.4 hereof, and thereafter "Collateral Agent" shall mean such successor Collateral Agent. Credit Agreement. The Credit Agreement and the other Bank Loan Documents, and any agreement or agreements designated as a "Credit Agreement" to other "Bank Loan Documents" hereunder by written notice by the Companies to the Collateral Agent with the written consent of the Lender and governing Bank Debt all or part of which was incurred to refund, refinance or replace all or any portion of the Bank Debt under the Credit Agreement, as the same may hereafter be amended, renewed, extended, restated, supplemented or otherwise modified (including by increasing the amount of Bank Debt thereunder or by otherwise providing additional financing to the Companies) from time to time. Credit Documents. Collectively, the Credit Agreement and the Indentures. Debenture Debt. The obligations of the Company to the Holders of Debentures under the Indentures and the Debentures. Debenture Debt shall include without limitation, any interest and collection costs. Debentures. As defined in the preamble hereto. Fleet. As defined in the preamble hereto, together with its successors and assigns. Foreign Subsidiary. Any Subsidiary that is organized under the laws of a jurisdiction other than the United States of America and the States (or the District of Columbia) thereof. Holders of Debentures. Any holder of the Debentures, together with their respective successors, assigns and transferees. Indentures. As defined in the preamble hereto and shall include any respective amendment or supplement thereof. Intercreditor Agreement. As defined in the preamble hereto. Lender. As defined in the preamble hereto, together with its successors and assignees, and shall include any replacement or successive lenders under the Credit Agreement. Majority Debenture Holder(s). The Holder(s) of (a) Debentures representing a majority of the outstanding Debenture Debt in respect of the 1997 Indenture and 1997 Notes, and (b) Debentures representing a majority of the outstanding Debenture Debt in respect of the 2002 Indenture and 2002 Notes, which (in each case), for so long as it shall hold a majority of such Debenture Debt, shall be Prudential. Notice of Actionable Default. A notice by any Requisite Party delivered to the Collateral Agent, stating that an Actionable Default has occurred. A Notice of Actionable Default shall be deemed to have been given when the notice referred to in the preceding sentence has actually been received by the Collateral Agent and shall be deemed to have been rescinded when the Collateral Agent has actually received from the notifying party a notice withdrawing such notice. A Notice of Actionable Default shall be deemed to be outstanding at all times after such notice has been given until such time, if any, as such notice has been rescinded. Person. Any individual, corporation, partnership, trust, unincorporated association, business or other legal entity, and any government or any governmental agency or political subdivision thereof. Requisite Party. Fleet, so long as there shall be Bank Debt and the Majority Debenture Holder(s), so long as there shall be Debenture Debt. Secured Obligations. Collectively, the Bank Debt and the Debenture Debt. Secured Parties. The Lender and the Holders of Debentures. Stock. Includes the shares of stock described in Annex A attached hereto and any additional shares of stock at the time pledged with the Collateral Agent hereunder. Stock Collateral. The property at any time pledged to the Collateral Agent hereunder (whether described herein or not) and all income therefrom, increases therein and proceeds thereof, including without limitation that included in Cash Collateral, but excluding from the definition of "Stock Collateral" any income, increases or proceeds received by the Companies to the extent expressly permitted by 'SS'8. Subsidiary. Any corporation (other than Quaker Mexico or Quaker Fabric Foreign Sales Corporation) of which or in which any Company owns directly or indirectly 50% or more of the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person. Time Deposits. See 'SS'4.2. 1.2. Terms Generally. The definitions in 'SS'1.2 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation." All references herein to Sections shall be deemed references to Sections of this Agreement unless the context shall otherwise require. 2. PLEDGE OF STOCK, ETC. --------------------- 2.1. Pledge of Stock. Each Company hereby pledges, assigns, grants a security interest in, and delivers to the Collateral Agent, for the benefit of the Secured Parties, all of the shares of capital stock of the Subsidiaries of every class, as more fully described on Annex A hereto, to be held by the Collateral Agent, for the benefit of the Secured Parties, subject to the terms and conditions hereinafter set forth. The certificates for such shares, accompanied by stock powers or other appropriate instruments of assignment thereof duly executed in blank by the applicable Companies, have been delivered to the Collateral Agent. In case any Company shall acquire any shares or additional shares of the capital stock of any Subsidiary or corporation which is the successor of any Subsidiary, or any securities exchangeable for or convertible into shares of such capital stock of any class of any Subsidiary, by purchase, stock dividend, stock split or otherwise, then such Company shall forthwith deliver to, and upon such delivery shall be deemed to have pledged, such shares or other securities to the Collateral Agent, for the benefit of the Secured Parties, under this Agreement and shall deliver to the Collateral Agent forthwith any certificates therefor, accompanied by stock powers or other appropriate instruments of assignment duly executed by such Company in blank; provided, however, that notwithstanding anything to the contrary contained in this 'SS'2.1, each Company shall only be required to pledge sixty-five percent (65%) of the shares of the capital stock of any Foreign Subsidiary. Each Company agrees that the Collateral Agent may from time to time attach as Annex A hereto an updated list of the shares of capital stock or securities at the time pledged with the Collateral Agent hereunder. 2.2. Pledge of Cash Collateral Account. Each Company also hereby pledges, assigns, grants a security interest in, and delivers to the Collateral Agent, for the benefit of the Secured Parties, the Cash Collateral Account and all of the Cash Collateral as such terms are hereinafter defined. 3. SECURITY FOR OBLIGATIONS. ------------------------- This Agreement and the security interest in and pledge of the Stock Collateral hereunder are made with and granted to the Collateral Agent, for the benefit of the Secured Parties and the Collateral Agent, as security for the payment and performance in full of all the Secured Obligations. 4. LIQUIDATION, RECAPITALIZATION, ETC. ----------------------------------- 4.1. Distributions Paid to Collateral Agent. Any sums or other property paid or distributed upon or with respect to any of the Stock, whether by dividend or redemption or upon the liquidation or dissolution of the issuer thereof or otherwise, shall, except to the limited extent provided in 'SS'8, be paid over and delivered to the Collateral Agent to be held by the Collateral Agent, for the benefit of the Secured Parties, as security for the payment and performance in full of all of the Secured Obligations. In case, pursuant to the recapitalization or reclassification of the capital of the issuer thereof or pursuant to the reorganization thereof, any distribution of capital shall be made on or in respect of any of the Stock or any property shall be distributed upon or with respect to any of the Stock, the property so distributed shall be delivered to the Collateral Agent, for the benefit of the Secured Parties, to be held by it as security for the Secured Obligations. Except to the limited extent provided in 'SS'8, all sums of money and property paid or distributed in respect of the Stock, whether as a dividend or upon such a liquidation, dissolution, recapitalization or reclassification or otherwise, that are received by any Company shall, until paid or delivered to the Collateral Agent, be held in trust for the Collateral Agent, for the benefit of the Secured Parties, as security for the payment and performance in full of all of the Secured Obligations. 4.2. Cash Collateral Account. All sums of money that are delivered to the Collateral Agent pursuant to this 'SS'4 shall be deposited to an interest bearing account with the Collateral Agent (the "Cash Collateral Account"). Some or all of the funds from time to time in the Cash Collateral Account may be invested in time deposits, including, without limitation, certificates of deposit being hereinafter referred to, collectively, as "Time Deposits"), that are satisfactory to the Collateral Agent after consultation with the Companies, provided, that, in each such case, arrangements satisfactory to the Collateral Agent are made and are in place to perfect and to insure the first priority of the Collateral Agent's security interest therein. Interest earned on the Cash Collateral Account and on the Time Deposits, and the principal of the Time Deposits at maturity that is not invested in the new Time Deposits, shall be deposited in the Cash Collateral Account. The Cash Collateral Account, all sums from time to time standing to the credit of the Cash Collateral Account, any and all Time Deposits, any and all instruments or other writings evidencing Time Deposits and any and all proceeds or any thereof are hereinafter referred to as the "Cash Collateral." 4.3. Companies' Rights to Cash Collateral, etc. Except as otherwise expressly provided in 'SS'8, no Company shall have any right to withdraw sums from the Cash Collateral Account, to receive any of the Cash Collateral to require the Collateral Agent to part with the Collateral Agent's possession of any instruments or other writings evidencing any Time Deposits. 5. RECOURSE OF SECURED PARTIES; ---------------------------- OTHER COLLATERAL; ACTS OF SECURED PARTIES. ------------------------------------------ 5.1. Recourse of Secured Parties; Other Collateral. Each of the Secured Parties acknowledges and agrees that (i) it shall only have recourse to the Collateral through the Collateral Agent and that it shall have no independent recourse to the Collateral and (ii) the Collateral Agent shall have no obligation to take any action, or refrain from taking any action, except upon instructions from a Requisite Party in accordance with 'SS'5.2 hereof. Nothing contained herein shall restrict the Majority Debenture Holder's or Fleet's rights to pursue remedies, by proceedings in law and equity, to collect any amounts due under the Debenture Debt or the Bank Debt, including without limitation principal or interest thereon, or to enforce the performance of any provisions of the Credit Documents, to the extent that such remedies do not relate to the Collateral or interfere with the Collateral Agent's rights to take action hereunder. 5.2. Acts of Secured Parties. Any request, demand, authorization, direction, notice, consent, waiver or other action permitted or required by this Agreement to be given or taken by any Requisite Party, may be and, at the request of the Collateral Agent, shall be embodied in and evidenced by one or more instruments satisfactory in form to the Collateral Agent and signed by or on behalf of a Requisite Party and, except as otherwise expressly provided in any such instrument, any such action shall become effective when such instrument or instruments shall have been delivered to the Collateral Agent. The instrument or instruments evidencing any action (and the action embodied therein and evidenced thereby) are sometimes referred to herein as in "Act" of the persons signing such instrument or instruments. The Collateral Agent shall be entitled to rely absolutely upon an Act of any Requisite Party, and nothing in this 'SS'5.2 or elsewhere in this Agreement shall be construed to require Fleet or the Majority Debenture Holder to demonstrate that it has been authorized by the Lender or, as the case may be, holders of the Debentures to take any action which it purports to be taking, the Collateral Agent being entitled to rely conclusively, and being fully protected in so relying, on any Act of Fleet or the Majority Debenture Holder, as the case may be. 6. PRIORITY OF RIGHTS AGAINST COLLATERAL AND PROCEEDS -------------------------------------------------- THEREOF. -------- It is the intent of the parties hereto that any amounts received on account of the Collateral are to be applied by the Collateral Agent to the Secured Obligations in accordance with the provisions of the Intercreditor Agreement. 7. WARRANTY OF TITLE; AUTHORITY. ----------------------------- Each Company hereby represents and warrants that: (i) at the time of the acquisition thereof such Company will have good and marketable title to, and will be the sole record and beneficial owner of, the Stock described in 'SS'2 and any Stock Collateral hereafter pledged, subject to no pledges, liens, security interests, charges, options, restrictions or other encumbrances except the pledge and security interest created by the Agreement, (ii) all of the Stock described in 'SS'2 and any Stock Collateral hereafter pledged will be validly issued, fully paid and non-assessable, (iii) such Company has full power, authority and legal right to execute, deliver and perform its obligations under this Agreement and to pledge and grant a security interest in all of the Stock Collateral pursuant to this Agreement, and the execution, delivery and performance hereof and the pledge of and granting of a security interest in the Stock Collateral hereunder have been duly authorized by all necessary corporate or other action and do not contravene any law, rule or regulation or any provision of such Company's charter documents or by-laws or of any judgment, decree or order of any tribunal or of any agreement or instrument to which such Company is a party or by which it or any of its property is bound or affected or constitute a default thereunder, and (iv) the information set forth in Annex A hereto relating to the Stock is true, correct and complete in all respects. 8. DIVIDENDS, VOTING, ETC., PRIOR TO MATURITY. ------------------------------------------- So long as no Actionable Default shall have occurred, the Companies shall be entitled to receive all cash dividends paid in respect of the Stock, to vote the Stock and to give consents, waivers and ratifications in respect of the Stock; provided, however, that no vote shall be cast or consent, waiver or ratification given by any Company if the effect thereof would impair any of the Stock Collateral or be inconsistent with or result in any violation of any of the provisions of the Credit Documents. All such rights of the Companies to receive cash dividends shall cease in case an Actionable Default shall have occurred and be continuing. All such rights of the Companies to vote and give consents, waivers and ratifications with respect to the Stock shall, at the Collateral Agent's option, as evidenced by the Collateral Agent's notifying the Companies of such election, cease in case an Actionable Default shall have occurred and be continuing. 9. REMEDIES. --------- 9.1. In General. If the Collateral Agent shall have received a Notice of Actionable Default, the Collateral Agent shall thereafter have the following rights and remedies (to the extent not inconsistent with any provisions of the Intercreditor Agreement and as permitted by applicable law) in addition to the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively or concurrently, at such time or times as the Collateral Agent deems expedient: (a) if the Collateral Agent so elects and gives notice of such election to the Companies, the Collateral Agent may vote any or all shares of the Stock (whether or not the same shall have been transferred into its name or the name of its nominee or nominees) for any lawful purpose, including, without limitation, if the Collateral Agent so elects, for the liquidation of the assets of the issuer thereof, and give all consents, waivers and ratifications in respect of the Stock and otherwise act with respect thereto as though it were the outright owner thereof (each Company hereby irrevocably constituting and appointing the Collateral Agent proxy and attorney-in-fact of such Company, with full power of substitution, to do so); (b) the Collateral Agent may demand, sue for, collect or make any compromise or settlement the Collateral Agent deems suitable in respect of any Stock Collateral; (c) the Collateral Agent may sell, resell, assign and deliver, or otherwise dispose of any or all of the Stock Collateral, for cash or credit or both and upon such terms at such place or places, at such time or times and to such entities or other persons as the Collateral Agent thinks expedient, all without demand for performance by any Company or any notice or advertisement whatsoever except as expressly provided herein or as may otherwise be required by law; (d) the Collateral Agent may cause all or any part of the Stock held by it to be transferred into its name or the name of its nominee or nominees; and (e) the Collateral Agent may set off against the Secured Obligations any and all sums deposited with it or held by it, including without limitation, any sums standing to the credit of the Cash Collateral Account and any Time Deposits issued by the Collateral Agent. Notwithstanding any provision of this Agreement to the contrary, the Collateral Agent shall not take any action with respect to the Collateral set forth in this 'SS'9.1 until five (5) business days have elapsed following the delivery to the Majority Debenture Holder and Fleet of each Notice of Actionable Default received by the Collateral Agent unless such lapse of time has been waived by the Majority Debenture Holder and Fleet. 9.2. Sale of Stock Collateral. In the event of any disposition of the Stock Collateral as provided in clause (c) of 'SS'9.1, the Collateral Agent shall give to the Companies at least five Business Days prior written notice of the time and place of any public sale of the Stock Collateral or of the time after which any private sale or any other intended disposition is to be made. Each Company hereby acknowledges that twenty days prior written notice of such sale or sales shall be reasonable notice. The Collateral Agent may enforce its rights hereunder without any other notice and without compliance with any other condition precedent now or hereunder imposed by statute, rule of law or otherwise (all of which are hereby expressly waived by each Company, to the fullest extent permitted by law). The Collateral Agent may buy any part or all of the Stock Collateral at any public sale and if any part or all of the Stock Collateral is of a type customarily sold in a recognized market or is of the type which is the subject of widely-distributed standard price quotations, the Collateral Agent may buy at private sale and may make payments thereof by any means. The Collateral Agent shall apply the cash proceeds actually received from any sale or other disposition in the manner specified in the Intercreditor Agreement. 9.3. Private Sales. Each Company recognizes that the Collateral Agent may be unable to effect a public sale of the Stock by reason of certain prohibitions contained in the Securities Act, federal banking laws, and other applicable laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers. Each Company agrees that any such private sales may be at prices and other terms less favorable to the seller than if sold at public sales and that such private sales shall not by reason thereof be deemed not to have been made in a commercially reasonable manner. The Collateral Agent shall be under no obligation to delay a sale of any of the Stock for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or such other federal banking or other applicable laws, even if the issuer would agree to do so. Subject to the foregoing, the Collateral Agent agrees that any sale of the Stock shall be made in a commercially reasonable manner, and each Company agrees to use its best efforts to cause the issuer or issuers of the Stock contemplated to be sold, to execute and deliver, and cause the directors and officers of such issuer to execute and deliver, all at such Company's expense, all such instruments and documents, and to do or cause to be done all such other acts and things as may be necessary or, in the reasonable opinion of the Collateral Agent, advisable to exempt such Stock from registration under the provisions of the Securities Act, and to make all amendments to such instruments and documents which, in the opinion of the Collateral Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Company further agrees to use its best efforts to cause such issuer or issuers to comply with the provisions of the securities or "Blue Sky" laws of any jurisdiction which the Collateral Agent shall designate and, if required, to cause such issuer or issuers to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. 9.4. Companies' Agreements, etc. Each Company further agrees to do or cause to be done all such other acts and things as may be reasonably necessary to make any sales of any portion or all of the Stock pursuant to this 'SS'9 valid and binding and in compliance with any and all applicable laws (including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulation of the Securities and Exchange Commission applicable thereto and all applicable state securities or "Blue Sky" laws), regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at such Company's expense. Each Company further agrees that a breach of any of the covenants contained in this 'SS'9 will cause irreparable injury to the Collateral Agent and the Secured Parties, that the Collateral Agent and the Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this 'SS'9 shall be specifically enforceable against such Company by Collateral Agent and each Company hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants. 10. MARSHALLING. ------------ Neither the Collateral Agent nor any Secured Party shall be required to marshal any present or future collateral security for (including but not limited to this Agreement and the Stock Collateral), or other assurances of payment of, the Secured Obligations or any of them, or to resort to such collateral security or other assurances of payment in any particular order. All of the Collateral Agent's rights hereunder and of the Secured Parties and the Collateral Agent in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that it lawfully may, each Company hereby agrees that it will not invoke any law relating to the marshalling of collateral that might cause delay in or impede the enforcement of the Collateral Agent's rights under this Agreement or under any other instrument evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and to the extent that it lawfully may such Company hereby irrevocably waives the benefits of all such laws. 11. COMPANIES' OBLIGATIONS NOT AFFECTED. ------------------------------------ The obligations of the Companies hereunder shall remain in full force and effect without regard to, and shall not be impaired by (i) any exercise or nonexercise, or any waiver, by the Collateral Agent or any Lender of any right, remedy, power or privilege under or in respect of any of the Secured Obligations or any security thereof (including this Agreement); (ii) any amendment to or modification of the Credit Documents or (iii) the taking of additional security for, or any other assurances of payment of any of the Secured Obligations or the release or discharge or termination of any security or other assurances of payment or performance for any of the Secured Obligations; whether or not any Company shall have notice or knowledge of any of the foregoing. 12. TRANSFER, ETC., BY COMPANIES. ----------------------------- Without the prior written consent of the Collateral Agent, no Company will sell, assign, transfer or otherwise dispose of, grant any option with respect to, or pledge or grant any security interest in any of the Collateral, except for the pledge thereof and security interest therein provided for in this Agreement. 13. FURTHER ASSURANCES. ------------------- Each Company will do all such acts, and will furnish to the Collateral Agent all such financing statements, certificates, legal opinions and other documents and will obtain all such governmental consents and corporate approvals and will do or cause to be done all such other things as the Collateral Agent may reasonably request from time to time in order to give full effect to this Agreement and to secure the rights of the Secured Parties and the Collateral Agent hereunder, all without any cost or expense to the Collateral Agent or any Secured Party. If the Collateral Agent so elects, a photocopy of this Agreement may at any time and from time to time be filed by the Collateral Agent as a financing statement in any recording office in any jurisdiction. 14. CONCERNING THE COLLATERAL AGENT. -------------------------------- 14.1. General Provisions. All duties, responsibilities and rights of the Collateral Agent (including, without limitation, its expense reimbursement and indemnification rights in respect of this Agreement) shall be governed by the terms of the Intercreditor Agreement. 15. REPRESENTATIONS AND WARRANTIES. ------------------------------- Each of the Collateral Agent, the Majority Debenture Holder, and each Company represents and warrants to the other parties hereto that (i) the execution, delivery and performance of this Agreement (A) have been duly authorized by all requisite corporate action on its part and, in the case of the Majority Debenture Holder, by the Indenture, and (B) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which it is subject or any judgment, order, writ, injunction, license or permit applicable to it and will not conflict with any provision of its corporate charter or bylaws or any agreement or other instrument binding upon it; and (ii) this Agreement has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. 16. STOCK COLLATERAL; FREEDOM TO DEAL. ---------------------------------- 16.1. Release of Stock Collateral. Subject to the provisions of the Intercreditor Agreement, the Collateral Agent is hereby authorized, upon receipt of instructions from each Requisite Party, to release any Stock Collateral and to provide such releases and termination statements with respect to any Stock Collateral in connection with any sale, exchange or other disposition thereof. 16.2. Legally Required Releases. Whether or not so instructed by the Requisite Parties, the Collateral Agent may release any Stock Collateral and may provide any release, termination statement or instrument of subordination required by order of a court of competent jurisdiction or otherwise required by applicable law. 17. AMENDMENT OF THIS AGREEMENT. ---------------------------- 17.1. General. No modification or amendment of this Agreement shall be effective unless the same shall be in writing and signed by the Secured Parties, the Collateral Agent and each Company and no modification or amendment of this Agreement shall be effective without the written consent of the Lender and the Majority Debenture Holder; provided, however, (i) no amendment or waiver shall adversely affect any of the collateral Agent's rights, immunities or rights to indemnification hereunder or expand its duties or reduce any amount payable to the Collateral Agent hereunder without the written consent of the Collateral Agent; and (ii) 'SS''SS'14 and 16 of this Agreement and any other provision of this Agreement affecting the rights and obligations of the Collateral Agent hereunder may not be amended without the written consent of the Collateral Agent. 17.2. Waiver. No waiver of any provision of this Agreement and no consent to any departure by any party hereto from the provisions hereof shall be effective unless such waiver or consent shall be set forth in a written instrument executed by the party against which it is sought to be enforced, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any party hereto in any case shall entitle such party to any other or further notice or demand in the same, similar or other circumstances. 18. COLLATERAL AGENT AS AGENT AND LENDER. ------------------------------------- In its individual capacity and in its capacity as Lender, Fleet National Bank shall have the same obligations and the same rights, powers and privileges as it would have had were it not also the Collateral Agent. 19. MISCELLANEOUS. -------------- 19.1. Further Assurances, etc. The Lender, the Majority Debenture Holder and each of the Companies agree to execute and deliver such other documents and instruments, in form and substance reasonably satisfactory to the Collateral Agent, and shall take such other action, in each case as the Collateral Agent or any Secured Party may reasonably request (at the sole cost and expense of the Companies which agree to pay such costs and expenses), to effectuate and carry out the provisions of this Agreement including, without limitation, by recording or filing in such places as the requesting party may deem desirable, this Agreement or such other documents or instruments. 19.2. Notices. All notices and other communications made or required to be given pursuant to this Agreement shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier or sent by telegraph, telecopy, facsimile or telex, confirmed by delivery via courier or postal service addressed as follows: (a) if to Fleet, at Fleet National Bank 100 Federal Street Boston, Massachusetts 02110 Attention: Christopher S. Allen, Senior Vice President (b) if to the Majority Debenture Holder(s), at The Prudential Insurance Company of America c/o Prudential Capital Group 1114 Avenue of the Americas, 30th Floor New York, New York 10036 Attention: Managing Director (c) if to the Collateral Agent, at Fleet National Bank 100 Federal Street Boston, Massachusetts 02110 Attention: Christopher S. Allen, Senior Vice President; and (d) if to the Company, at Quaker Fabric Corporation of Fall River 941 Grinnell Street Fall River, Massachusetts 02721 Attention: Paul J. Kelly
Any such notice and other communications shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile and (ii) if mailed, sent by registered or certified first class mail postage prepaid, on the third Business Day following the mailing thereof; provided, however, that a Notice of Actionable Default or any other notice to be delivered to the Collateral Agent pursuant to the terms of this Agreement shall not be deemed to have been received by the Collateral Agent until the Collateral Agent actually receives such notice. 19.3. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CONFLICT OF LAWS). THE PARTIES AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE PARTIES BY MAIL AT THE ADDRESSES SPECIFIED IN 'SS'19.2. THE PARTIES HEREBY WAIVE ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 19.4. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER, OR THE PERFORMANCE OF ANY SUCH RIGHTS AND OBLIGATIONS. Except as prohibited by law, each of the parties hereto hereby waive any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each of the parties hereto (i) certifies that neither the Collateral Agent, the Lender or the Majority Debenture Holder nor any representative, agent or attorney of the Collateral Agent, the Lender or the Majority Debenture Holder has represented, expressly or otherwise, that the Collateral Agent would not, in the event of litigation, seek to enforce the foregoing waivers, and (ii) acknowledges that, in entering into this Agreement, the Collateral Agent, the Lender and the Majority Debenture Holder are relying upon, among other things, the waivers and certifications contained in this 'SS'19.4. 19.5. Waiver of Rights. Neither any failure nor any delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, and a single or partial exercise thereof shall not preclude any other or further exercise or the exercise of any other right, power or privilege. 19.6. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 19.7. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. 19.8. Section Headings. The section headings used herein are for convenience of reference only and are not to affect the construction of or be taken into consideration in interpreting this Agreement. 19.9. Complete Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior representations, negotiations, writings, memoranda and agreements. To the extent any provision of this Agreement conflicts with the Credit Agreement, the Indentures or any other Credit Document, as among the Secured Parties the provisions of this Agreement shall be controlling. To the extent any provision of this Agreement conflicts with the Intercreditor Agreement, as among the Secured Parties the provisions of the Intercreditor Agreement shall be controlling. Nothing in this Agreement, expressed or implied, is intended to confer upon any person other than the parties hereto and the Secured Parties any rights or remedies under or by reason of this Agreement. 19.10. Subsequent Holders of Debentures as Parties. Any Holder of Debentures which is not one of the original parties hereto by accepting any Debenture shall be subject to all the provisions hereof and entitled to the benefits hereof. Any such holder shall execute and deliver an Instrument of Accession substantially in the form of Annex B hereto and shall deliver a copy thereof to the Lender and the Collateral Agent, but no such execution and delivery shall be required as a pre-condition to becoming a holder hereunder and being subject to the provisions hereof and receiving the benefits hereof. IN WITNESS WHEREOF, the Collateral Agent, the Lender, the Holders of Debentures and each of the Companies have caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. FLEET NATIONAL BANK, in its capacity as Collateral Agent By: ________________________________ Name: Title: FLEET NATIONAL BANK, as a Lender By: ________________________________ Name: Title: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: ________________________________ Name: Title: PRUCO LIFE INSURANCE COMPANY By: ________________________________ Name: Title: QUAKER FABRIC CORPORATION OF FALL RIVER By: ________________________________ Name: Title: QUAKER TEXTILE CORPORATION By: ________________________________ Name: Title: QUAKER FABRIC MEXICO, S.A. de C.V. By: ________________________________ Name: Title: QUAKER FABRIC CORPORATION By: ________________________________ Name: Title: ANNEX A ------- [To be Provided] ANNEX B ------- INSTRUMENT OF ACCESSION ----------------------- With the intention of becoming a "Secured Party" for the purposes and within the meaning of the SECOND AMENDED AND RESTATED PLEDGE AGREEMENT dated as of March __, 2005, a copy of which being annexed hereto (the "Agreement"), the undersigned hereby consents and agrees to be bound by the terms and provisions of the Agreement to the same extent and with the same effect as if the undersigned had executed and delivered the same as one of the original parties thereto as a Secured Party and Holder of Debentures. The address of the undersigned for purposes of notices given under the Agreement is set forth below. Dated: ____________, __, 20__ [NAME OF HOLDER OF DEBENTURES] By: ________________________________ Name: Title: Address for Notices: -------------------- --------------------------- --------------------------- --------------------------- Telecopy: EX-10 5 ex10-21.txt EXHIBIT 10.21 EXECUTION VERSION GUARANTY AGREEMENT THIS GUARANTY AGREEMENT, dated as of March 31, 2005 (the "Guaranty Agreement"), is made by QUAKER TEXTILE CORPORATION, a Massachusetts corporation ("Quaker Textile") and QUAKER FABRIC MEXICO, S.A. de C.V., a corporation organized under the laws of Mexico ("Quaker Mexico" and together with Quaker Textile, each a "Guarantor" and collectively, the "Guarantors") in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey mutual insurance company ("Prudential"), PRUCO LIFE INSURANCE COMPANY, a New Jersey mutual insurance company ("Pruco") and the other Purchasers from time to time party to the Note Agreement (as defined below) (together with Prudential and Pruco, each a "Purchaser" and collectively, the "Purchasers"). Terms not defined herein shall have the meanings specified in the Note Agreement (as defined below). WHEREAS, each of the Purchasers agreed to purchase those certain 7.09% Senior Notes due October 10, 2005, in the aggregate principal amount of $15,000,000 (the "7.09% Notes"), and those certain 7.18% Senior Notes due October 10, 2007, in the aggregate principal amount of $30,000,000 (the "7.18 % Notes", and together with the 7.09% Notes collectively, the "Notes") issued by Quaker Fabric Corporation of Fall River (the "Company") pursuant to that certain Note Purchase Agreement, dated as of October 10, 1997, by and between each of the Purchasers and the Company (the "Note Agreement"); and WHEREAS, pursuant to that certain Forbearance Agreement, dated as of March 11, 2005, each of the Purchasers agreed to forbear from making demand of payment on any amounts due and owing under the Notes and the Note Agreement and to forbear from exercising and pursuing their rights and remedies under the Note Agreement (the "Forbearance Agreement"); and WHEREAS, it is a condition to the continued effectiveness of the Forbearance Agreement, that the Guarantors execute and deliver this Guaranty Agreement; NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and intending to be legally bound, each Guarantor hereby covenants and agrees with, and represents and warrants to each of the Purchasers as follows: 1. THE GUARANTY. Each Guarantor hereby irrevocably and unconditionally guarantees to each holder from time to time of any of the Notes, the due and punctual payment in full of (i) the principal of, the Yield-Maintenance Amount, if any, and interest on, and any other amounts due under, the Notes when and as the same shall become due and payable (whether at stated maturity or by required or optional prepayment or by acceleration or otherwise) and (ii) any other sums which may become due under the terms and provisions of the Note Agreement and the Notes (all such obligations described in clauses (i) and (ii) above are herein called the "Guaranteed Obligations"). The guaranty in the preceding sentence is ----------------------- an absolute, present and continuing guaranty of payment and not of collectibility and is in no way conditional or contingent upon any attempt to collect from the Company or upon any other action, occurrence or circumstance whatsoever. In the event that the Company shall fail so to pay any of such Guaranteed Obligations, each Guarantor agrees to pay the same when due to the holders of the Notes entitled thereto, without demand, presentment, protest or notice of any kind, in the specified Available Currency, at the place for payment specified in the Notes and the Note Agreement. Each default in payment of principal of, Yield-Maintenance Amount, if any, or interest on any Note shall give rise to a separate cause of action hereunder and separate suits may be brought hereunder as each cause of action arises. Each Guarantor hereby agrees that the Notes issued in connection with the Note Agreement may make reference to this guaranty. Each Guarantor hereby agrees to pay and to indemnify and save the holders of the Notes harmless from and against any damage, loss, cost or expense (including attorneys' fees) which such holder may incur or be subject to as a consequence, direct or indirect, of (i) any breach by any Guarantor or by the Company of any warranty, covenant, term or condition in, or the occurrence of any default under, this Guaranty Agreement, the Notes or the Note Agreement, together with all expenses resulting from the compromise or defense of any claims or liabilities arising as a result of any such breach or default, and (ii) any legal action commenced to challenge the validity of this Guaranty Agreement, the Notes or the Note Agreement. 2. OBLIGATIONS ABSOLUTE. The obligations of each Guarantor hereunder shall be primary, absolute, irrevocable and unconditional, irrespective of the validity, regularity or enforceability of the Notes or of the Note Agreement, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim any Guarantor may have against the Company or any holder of the Notes or otherwise, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not any Guarantor shall have any knowledge or notice thereof), including, without limitation: (a) any amendment, modification of or supplement to the Note Agreement, the Notes or any other instrument referred to therein (except that the obligations of the Guarantors hereunder shall apply to the Note Agreement, the Notes or such other instruments as so amended, modified or supplemented) or any assignment or transfer of any thereof or of any interest therein, or any furnishing, acceptance or release of any security for the Notes, (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of the Notes or in respect of the Note Agreement; (c) any bankruptcy, insolvency, readjustment, composition, liquidation or similar proceeding with respect to the Company or its property; (d) any merger, amalgamation or consolidation of any Guarantor or of the Company into or with any other corporation or any sale, lease or transfer of any or all of the assets of any Guarantor or of the Company to any person; (e) any failure on the part of the Company for any reason to comply with or perform any of the terms of any other agreement with any Guarantor; or (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor covenants that its obligations hereunder will not be discharged except by payment in full of all of the Guaranteed Obligations. 3. WAIVER. Each Guarantor unconditionally waives to the fullest extent permitted by law, (a) notice of acceptance hereof, of any action taken or omitted in reliance hereon and -2- of any defaults by the Company in the payment of any amounts due under the Notes or the Note Agreement, and of any of the matters referred to in paragraph 2 hereof, (b) all notices which may be required by statute, rule of law or otherwise to preserve any of the rights of each holder from time to time of the Notes against each Guarantor, including, without limitation, presentment to or demand for payment from the Company or any Guarantor with respect to any Note, notice to the Company or to any Guarantor of default or protest for nonpayment or dishonor and the filing of claims with a court in the event of the bankruptcy of the Company, (c) any right to the enforcement, assertion or exercise by any holder of the Notes of any right, power or remedy conferred in this Guaranty Agreement, the Note Agreement or the Notes, (d) any requirement or diligence on the part of any holder of the Notes and (e) any other act or omission or thing or delay to do any other act or thing which might in any manner or to any extent vary the risk of any Guarantor or which might otherwise operate as a discharge of such Guarantor. 4. OBLIGATIONS UNIMPAIRED. Each Guarantor authorizes the holders of the Notes, without notice or demand to any Guarantor and without affecting its obligations hereunder, from time to time (a) to renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, all or any part of the Notes, the Note Agreement or any other instrument referred to therein, (b) to take and hold security for the payment of the Notes, for the performance of this Guaranty Agreement or otherwise for the indebtedness guaranteed hereby and to exchange, enforce, waive and release any such security, (c) to apply any such security and to direct the order or manner of sale thereof as the holders of the Notes in their sole discretion may determine; (d) to obtain additional or substitute endorsers or guarantors; (e) to exercise or refrain from exercising any rights against the Company and others and (f) to apply any sums, by whomsoever paid or however realized, to the payment of the principal of, Yield-Maintenance Amount, if any, and interest on the Notes and any other Guaranteed Obligation hereunder. Each Guarantor waives any right to require the holders of the Notes to proceed against any additional or substitute endorsers or guarantors or to pursue or exhaust any security provided by the Company, any Guarantor or any other person or to pursue any other remedy available to such holders. 5. SUBROGATION. No Guarantor will exercise any rights which it may have acquired by way of subrogation under this Guaranty Agreement, by any payment made hereunder or otherwise, or accept any payment on account of such subrogation rights, or any rights of reimbursement or indemnity or any rights or recourse to any security for the Notes or this Guaranty Agreement unless and until all of the obligations, undertakings or conditions to be performed or observed by the Company pursuant to the Notes and the Note Agreement at the time of such Guarantor's exercise of any such right shall have been performed, observed or paid in full. For a period of one year after the payment in full of the Guaranteed Obligations, each Guarantor hereby waives (x) all rights of subrogation which it may at any time otherwise have as a result of this Guaranty Agreement (whether, statutory or otherwise) to the claims of the holders of the Notes against the Company or any other guarantor of the Guaranteed Obligations (each referred to herein as the "Other Party") and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any -3- Other Party which it may at any time otherwise have as a result of this Guaranty Agreement; (y) any right to enforce any other remedy which the holders of the Notes now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the Guaranteed Obligations; and (z) all claims (as such term is defined in the Bankruptcy Code) it may at any time otherwise have against any Other Party arising from any transaction whatsoever, including without limitation its right to assert or enforce any such claims. 6. REINSTATEMENT OF GUARANTY. This Guaranty Agreement shall continue to be effective, or be reinstated, as the case may be, if and to the extent at any time payment, in whole or in part, of any of the sums due to any holder of the Notes for principal, Yield-Maintenance Amount, if any, or interest on the Notes or any of the other Guaranteed Obligations is rescinded or must otherwise be restored or returned by such holder upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any substantial part of its property, or otherwise, all as though such payments had not been made. If an event permitting the acceleration of the maturity of the principal amount of the Notes shall at any time have occurred and be continuing and such acceleration shall at such time be prevented or the right of any holder of a Note to receive any payment under any Note shall at such time be delayed or otherwise affected by reason of the pendency against the Company of a case or proceeding under a bankruptcy or insolvency law, each Guarantor agrees that, for purposes of this Guaranty Agreement and its obligations hereunder, the maturity of such principal amount shall be deemed to have been accelerated with the same effect as if the holders of the Notes had accelerated the same in accordance with the terms of the Note Agreement, and each Guarantor shall forthwith pay such accelerated principal amount, accrued interest and Yield-Maintenance Amount, if any, thereon and any other amounts guaranteed hereunder. 7. RANK OF GUARANTY. Each Guarantor agrees that its obligations under this Guaranty Agreement shall rank at least pari passu with all other secured senior obligations of such Guarantor now or hereafter existing. 8. ADDITIONAL COVENANTS OF THE GUARANTORS. (a) Maintenance of Corporate Existence, Etc. Each Guarantor will at all times do or cause to be done all things necessary to maintain and preserve its corporate existence and the corporate existence of each subsidiary of such Guarantor, and maintain, preserve and renew its and their licenses, patents and franchises material to the conduct of the business of such Guarantor and such subsidiaries taken as a whole, provided that nothing contained in this Section 8(a) shall (i) require any Guarantor or any such subsidiary to maintain, preserve or renew any license, patent or franchise not necessary or desirable in the conduct of its business, (ii) prohibit any Guarantor from terminating the corporate existence of a subsidiary if in the reasonable opinion of an officer of such Guarantor such termination is in the best interests of such Guarantor and is not disadvantageous to the holders of the Notes and such termination has been approved by the Board of Directors of such Guarantor, or (iii) prohibit a consolidation or merger by -4- one subsidiary with, or a conveyance, transfer or lease by one subsidiary to, any Guarantor or another subsidiary. (b) Merger, Consolidation. No Guarantor shall consolidate with or merge into any other person or convey, transfer or lease all or substantially all of its assets as an entirety (whether by one transaction or a series of related transactions) to any person, unless: (i) the successor entity formed by such consolidation or into which such Guarantor is merged or the successor entity which acquires by conveyance, transfer or lease all or substantially all of its assets as an entirety shall be a solvent entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and a substantial part of such successor entity's assets, properties and operations shall be within the United States; (ii) such successor entity (or entity to which all or substantially all of such Guarantor's assets shall have been conveyed, transferred or leased) shall expressly assume in writing by instrument or instruments reasonably satisfactory to the Required Holders, in scope, form and legal effect, the due and punctual payment, performance and observance of all obligations of such Guarantor under this Guaranty Agreement, with the same effect as if such entity had originally been named a Guarantor herein or had been a party hereto; (iii) prior to and immediately after giving effect to such transaction, no default or Event of Default shall exist under the Notes or the Note Agreement, or under any other document or instrument referred to therein; and (iv) such Guarantor shall have delivered to each of the holders of the Notes an officer's certificate stating that such consolidation, merger, conveyance, transfer or lease and the assumption agreement required by clause (ii) above comply with the provisions of this Section 8(b). Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of any Guarantor as an entirety in accordance with this Section 8(b), the successor corporation formed by such consolidation or into which such Guarantor is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, such Guarantor under this Guaranty Agreement, with the same effect as if such successor corporation had been named as a Guarantor herein. No such conveyance, transfer or lease of all or substantially all of the assets of any Guarantor (or any successor corporation which shall theretofore have become such in the manner prescribed in this Section 8(b)) from its obligations hereunder unless and until such Guarantor (or such successor) shall dissolve. (c) Intentionally Omitted. (d) Addition or Amendment of Certain Provisions. In the event the any Guarantor is a party to, enters into, assumes or otherwise becomes bound or obligated -5- under, or agrees to the modification of, any agreement creating or evidencing Indebtedness in excess of $10,000,000 containing one or more Additional Covenants or Additional Defaults, unless prior written consent to such agreement shall have been obtained pursuant to paragraph 14 below, the terms of this Agreement shall, without any further action on the part of any Guarantor or any of the holders of the Notes, be deemed to be amended automatically to include each Additional Covenant contained in such agreement, but only for so long as such Additional Covenants remain in effect with respect to such other agreement. Each Guarantor further covenants to promptly execute and deliver at their expense (including, without limitation, the fees and expenses of counsel for the holders of the Notes) an amendment to this Agreement in form and substance satisfactory to the Required Holders evidencing the amendment of this Agreement to include such Additional Covenants, provided that the execution and delivery of such amendment shall not be a precondition to the effectiveness of such amendment as provided for in this paragraph, but shall merely be for the convenience of the parties hereto. As used in this paragraph, the term "Additional Covenants" shall mean any affirmative or negative covenant or similar restriction applicable to any Guarantor (regardless of whether such provision is labeled or otherwise characterized as a covenant) the subject matter of which either (i) is similar to that of the covenants in paragraph 8 of this Agreement, or related definitions, but is more beneficial to the holder or holders of the Indebtedness created or evidenced by the document in which such covenant or similar restriction is contained (and such covenant or similar restriction shall be deemed an Additional Covenant only to the extent that it is more restrictive or more beneficial) or (ii) is different from the subject matter of the covenants in paragraph 8 of this Agreement, or related definitions. 9. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS. Each Guarantor represents and warrants as follows: (a) Incorporation, Good Standing and Location. Each Guarantor is (i) a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) duly qualified and authorized to do business and in good standing in every other jurisdiction where the nature of its business requires such qualification and (iii) has all requisite corporate power and authority, and all governmental licenses and permits, to own and operate its properties and to carry on its businesses as presently conducted. Each Guarantor has the requisite corporate power to enter into and perform its obligations under this Guaranty Agreement. (b) Approval and Enforceability of Guaranty Agreement. The execution, delivery and performance of this Guaranty Agreement have been duly authorized by all necessary corporate action on the part of each Guarantor. The Guaranty Agreement has been duly and validly executed and delivered and constitutes the legal, valid and binding obligation of each Guarantor, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, moratorium, reorganization, receivership and similar laws affecting the rights and remedies of creditors generally, and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). -6- 10. NOTICES. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof shall be in writing, and any such communication shall become effective when received, addressed in the following manner: (a) if to any Guarantor, to 941 Grinnell Street, Fall River, Massachusetts 02721, Attn: President, or (b) if to any holder of a Note, to the respective addresses set forth in the Purchasers Schedule to the Note Agreement; provided, however, that any such addressee may change its address for communications by notice given as aforesaid to the other parties hereto. 11. CONSTRUCTION. The section and subsection headings in this Guaranty Agreement are for convenience of reference only and shall neither be deemed to be a part of this Guaranty Agreement nor modify, define, expand or limit any of the terms or provisions hereof. All references herein to numbered sections, unless otherwise indicated, are to sections of this Guaranty Agreement. Words and definitions in the singular shall be read and construed as though in the plural and vice versa, and words in the masculine, neuter or feminine gender shall be read and construed as though in either of the other genders where the context so requires. 12. SEVERABILITY. If any provision of this Guaranty Agreement, or the application thereof to any person or circumstances, shall, for any reason or to any extent, be invalid or unenforceable, such invalidity or unenforceability shall not in any manner affect or render invalid or unenforceable the remainder of this Guaranty Agreement, and the application of that provision to other persons or circumstances shall not be affected but, rather, shall be enforced to the extent permitted by applicable law. 13. SUCCESSORS. The terms and provisions of this Guaranty Agreement shall be binding upon and inure to the benefit of each Guarantor and the holders of the Notes from time to time and their respective permitted successors, transferees and assigns. 14. ENTIRE AGREEMENT; AMENDMENT. This Guaranty Agreement expresses the entire understanding of the subject matter hereof; and all other understandings, written or oral, are hereby merged herein and superseded. No amendment of or supplement to this Guaranty Agreement, or waiver or modification of, or consent under, the terms hereof shall be effective unless in writing and signed by the party to be bound thereby and consented to in writing by the Required Holders. 15. TERM OF GUARANTY AGREEMENT. The Guaranty Agreement and all guarantees, covenants and agreements of each Guarantor contained herein shall continue in full force and effect and shall not be discharged until such time as all of the Guaranteed Obligations shall be paid or otherwise discharged in full. 16. SURVIVAL. All warranties, representations and covenants made by each Guarantor herein or in any certificate or other instrument delivered by it or on its behalf under this Guaranty Agreement shall be considered to have been relied upon by the holders of the Notes and shall survive the execution and delivery of this Guaranty Agreement, regardless of any investigation made by the holder of the Notes or on their behalf. -7- 17. FURTHER ASSURANCES. Each Guarantor hereby agrees to execute and deliver all such instruments and take all such action as the holders of the Notes may from time to time reasonably request in order to effectuate fully the purposes of this Guaranty Agreement. 18. GOVERNING LAW. This Guaranty Agreement has been executed and delivered in the State of New York and shall be governed by, construed and enforced in all respects in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely therein, without regard to principles of conflicts of laws. 19. PAYMENT CURRENCY. All payments on account of any Notes denominated in a specified Available Currency other than Dollars (including principal, interest and Yield-Maintenance Amounts) shall be made in such specified currency, and all payments on account of any Notes denominated in Dollars (including principal, interest and Yield-Maintenance Amounts) shall be made in Dollars. The obligation of the Guarantors to make payment hereunder in the applicable currency specified in the preceding sentence shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any currency other than such applicable currency, except to the extent the applicable obligee actually receives the full amount of the currency in which the underlying obligation is denominated. The obligation of the Guarantors to make payment in any given currency as required by the first sentence of this paragraph shall be enforceable as an alternative or additional cause of action for the purpose of recovery in such currency, of the amount, if any, by which such actual receipt shall fall short of the full amount of such currency expressed to be payable in respect of any such obligation, and shall not be affected by judgment being obtained for any other sums due under the Notes, the Note Agreement or this Guaranty Agreement, as the case may be. 20. PAYMENTS FREE AND CLEAR OF TAXES. Each Guarantor will pay all amounts of principal of, Yield Maintenance Amount, if any, and interest on the Notes, and all other amounts payable hereunder or under the Note Agreement or the Notes, without set-off or counterclaim and free and clear of, and without deduction or withholding for or on account of, all present and future income, stamp, documentary and other taxes and duties, and all other levies, imposts, charges, fees, deductions and withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority (except net income taxes and franchise taxes in lieu of net income taxes imposed on any holder of any Note by its jurisdiction of incorporation or the jurisdiction in which its applicable lending office is located) (all such non-excluded taxes, duties, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any ----- amounts payable hereunder to a holder of any Notes, the amounts so payable to such holder shall be increased to the extent necessary to yield such holder (after payment of all Taxes) interest on any such other amounts payable hereunder at the rates or in the amounts specified in the Note Agreement, this Guaranty Agreement and the Notes. Whenever any Taxes are payable by any Guarantor, as promptly as possible thereafter, such Guarantor shall send to each holder of the Notes, a certified copy of an original official receipt received by such Guarantor showing payment thereof. If any Guarantor fails to pay any Taxes when due to the appropriate taxing -8- authority or fails to remit to each holder of the Notes the required receipts or other required documentary evidence, such Guarantor shall indemnify each holder of the Notes for any Taxes (including interest or penalties) that may become payable by such holder as a result of any such failure. The obligations of the Guarantors under this paragraph shall survive the payment and performance of the Notes and the termination of the Note Agreement and this Guaranty Agreement. 21. CONTRIBUTION; MAXIMUM LIABILITY. (a) Each Guarantor is unconditionally obligated to pay the Guaranteed Obligations as a joint and several obligor under this Guaranty Agreement. If, as of any date, the aggregate amount of payments made by a Guarantor on account of the Guaranteed Obligations and proceeds of such Guarantor's collateral that are applied to the Guaranteed Obligations exceeds the aggregate amount of the proceeds of the Guaranteed Obligations actually used by such Guarantor in its business (such excess amount being referred to as an "Accommodation Payment"), then each of the other Guarantors (each such Guarantor being referred to as a "Contributing Guarantor") shall be obligated to make contribution to such Guarantor (the "Paying Guarantor") in an amount equal to (i) the product derived by multiplying the sum of each Accommodation Payment of each Guarantor by the Allocable Percentage of the Guarantor from whom contribution is sought less (ii) the amount, if any, of the then outstanding Accommodation Payment of such Contributing Guarantor (such last mentioned amount which is to be subtracted from the aforesaid product to be increased by any amounts theretofore paid by such Contributing Guarantor by way of contribution hereunder); provided, however, that a Paying Guarantor's recovery of contribution hereunder from the other Guarantors shall be limited to that amount paid by the Paying Guarantor in excess of its Allocable Percentage of all Accommodation Payments then outstanding of all Guarantors. As used herein, the term "Allocable Percentage" shall mean, on any date of determination thereof, a fraction of the denominator of which shall be equal to the number of Guarantors who are parties to this Guaranty Agreement on such date and the numerator of which shall be 1; provided, however, that such percentages shall be modified in the event that contribution from a Guarantor is not possible by reason of insolvency, bankruptcy, or otherwise by reducing such Guarantor's Allocable Percentage equitably and by adjusting the Allocable Percentage of the other Guarantors proportionately so that the Allocable Percentages of all Guarantors at all times equals 100%. (b) It is the intention of the Guarantors and the Purchasers that each Guarantor's obligations hereunder shall be in, but not in excess of, the maximum amount permitted by applicable federal bankruptcy, state insolvency, fraudulent conveyance or transfer or similar laws ("Applicable Laws"). To that end, but only to the extent such obligations would otherwise be subject to avoidance under Applicable Law, if after giving effect to the provisions of the preceding paragraph (a), any Guarantor is not deemed to have received valuable consideration, fair value or reasonably equivalent value for its obligations hereunder, such Guarantor's obligations hereunder shall be reduced to that amount which, after giving effect thereto, would not render such Guarantor insolvent, or leave such Guarantor with unreasonably small capital to conduct its business, or cause such Guarantor to have incurred debts (or intended to have incurred debts) beyond its ability to pay such debts as they mature, at the time such obligations are deemed to have -9- been incurred under Applicable Laws. As used herein, the terms "insolvent" and "unreasonably small capital" shall likewise be determined in accordance with Applicable Law. This Section is intended solely to preserve the rights of the Purchasers hereunder the maximum extent permitted by Applicable Law, and neither any Guarantor nor any other Person shall have any right or claim under this Section that would not otherwise be available under Applicable Law. [Signature Page Follows] -10- IN WITNESS WHEREOF, each Guarantor has caused this Guaranty Agreement to be duly executed and delivered as of the date and year first above written. QUAKER TEXTILE CORPORATION By --------------------------------- Name: Title: QUAKER FABRIC MEXICO, S.A. de C.V. By --------------------------------- Name: Title: [Signature page to Guaranty Agreement (1997 Note Agreement)] EX-10 6 ex10-22.txt EXHIBIT 10.22 EXECUTION COPY GUARANTY AGREEMENT THIS GUARANTY AGREEMENT, dated as of March 31, 2005 (the "Guaranty Agreement"), is made by QUAKER TEXTILE CORPORATION, a Massachusetts corporation ("Quaker Textile") and QUAKER FABRIC MEXICO, S.A. de C.V., a corporation organized under the laws of Mexico ("Quaker Mexico" and together with Quaker Textile, each a "Guarantor" and collectively, the "Guarantors") in favor of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey mutual insurance company ("Prudential"), PRUCO LIFE INSURANCE COMPANY, a New Jersey mutual insurance company ("Pruco") and the other Purchasers from time to time party to the Note Agreement (as defined below) (together with Prudential and Pruco, each a "Purchaser" and collectively, the "Purchasers"). Terms not defined herein shall have the meanings specified in the Note Agreement (as defined below). WHEREAS, each of the Purchasers agreed to purchase those certain 7.56% Senior Notes due February 11, 2009, in the aggregate principal amount of $5,000,000 (collectively, the "Initial Notes") issued by Quaker Fabric Corporation of Fall River (the "Company") pursuant to that certain Note Purchase Agreement and Private Shelf Facility dated as of February 14, 2002, by and between each of the Purchasers and the Company (the "Note Agreement"); and WHEREAS, pursuant to the Note Agreement, the Company may issue from time to time thereunder the Shelf Notes described therein (collectively with the Initial Notes, the "Notes"); and WHEREAS, pursuant to that certain Forbearance Agreement, dated as of March 11, 2005, each of the Purchasers agreed to forbear from making demand of payment on any amounts due and owing under the Notes and the Note Agreement and to forbear from exercising and pursuing their rights and remedies under the Note Agreement (the "Forbearance Agreement"); and WHEREAS, it is a condition to the continued effectiveness of the Forbearance Agreement, that the Guarantors execute and deliver this Guaranty Agreement; NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and intending to be legally bound, each Guarantor hereby covenants and agrees with, and represents and warrants to each of the Purchasers as follows: 1. THE GUARANTY. Each Guarantor hereby irrevocably and unconditionally guarantees to each holder from time to time of any of the Notes, the due and punctual payment in full of (i) the principal of, the Yield-Maintenance Amount, if any, and interest on, and any other amounts due under, the Notes when and as the same shall become due and payable (whether at stated maturity or by required or optional prepayment or by acceleration or otherwise) and (ii) any other sums which may become due under the terms and provisions of the Note Agreement and the Notes (all such obligations described in clauses (i) and (ii) above are herein called the "Guaranteed Obligations"). The guaranty in the preceding sentence is an absolute, present and continuing guaranty of payment and not of collectibility and is in no way conditional or contingent upon any attempt to collect from the Company or upon any other action, occurrence or circumstance whatsoever. In the event that the Company shall fail so to pay any of such Guaranteed Obligations, each Guarantor agrees to pay the same when due to the holders of the Notes entitled thereto, without demand, presentment, protest or notice of any kind, in the specified Available Currency, at the place for payment specified in the Notes and the Note Agreement. Each default in payment of principal of, Yield-Maintenance Amount, if any, or interest on any Note shall give rise to a separate cause of action hereunder and separate suits may be brought hereunder as each cause of action arises. Each Guarantor hereby agrees that the Notes issued in connection with the Note Agreement may make reference to this guaranty. Each Guarantor hereby agrees to pay and to indemnify and save the holders of the Notes harmless from and against any damage, loss, cost or expense (including attorneys' fees) which such holder may incur or be subject to as a consequence, direct or indirect, of (i) any breach by any Guarantor or by the Company of any warranty, covenant, term or condition in, or the occurrence of any default under, this Guaranty Agreement, the Notes or the Note Agreement, together with all expenses resulting from the compromise or defense of any claims or liabilities arising as a result of any such breach or default, and (ii) any legal action commenced to challenge the validity of this Guaranty Agreement, the Notes or the Note Agreement. 2. OBLIGATIONS ABSOLUTE. The obligations of each Guarantor hereunder shall be primary, absolute, irrevocable and unconditional, irrespective of the validity, regularity or enforceability of the Notes or of the Note Agreement, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim any Guarantor may have against the Company or any holder of the Notes or otherwise, and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by, any circumstance or condition whatsoever (whether or not any Guarantor shall have any knowledge or notice thereof), including, without limitation: (a) any amendment, modification of or supplement to the Note Agreement, the Notes or any other instrument referred to therein (except that the obligations of the Guarantors hereunder shall apply to the Note Agreement, the Notes or such other instruments as so amended, modified or supplemented) or any assignment or transfer of any thereof or of any interest therein, or any furnishing, acceptance or release of any security for the Notes, (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of the Notes or in respect of the Note Agreement; (c) any bankruptcy, insolvency, readjustment, composition, liquidation or similar proceeding with respect to the Company or its property; (d) any merger, amalgamation or consolidation of any Guarantor or of the Company into or with any other corporation or any sale, lease or transfer of any or all of the assets of any Guarantor or of the Company to any person; (e) any failure on the part of the Company for any reason to comply with or perform any of the terms of any other agreement with any Guarantor; or (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor covenants that its obligations hereunder will not be discharged except by payment in full of all of the Guaranteed Obligations. -2- 3. WAIVER. Each Guarantor unconditionally waives to the fullest extent permitted by law, (a) notice of acceptance hereof, of any action taken or omitted in reliance hereon and of any defaults by the Company in the payment of any amounts due under the Notes or the Note Agreement, and of any of the matters referred to in paragraph 2 hereof, (b) all notices which may be required by statute, rule of law or otherwise to preserve any of the rights of each holder from time to time of the Notes against each Guarantor, including, without limitation, presentment to or demand for payment from the Company or any Guarantor with respect to any Note, notice to the Company or to any Guarantor of default or protest for nonpayment or dishonor and the filing of claims with a court in the event of the bankruptcy of the Company, (c) any right to the enforcement, assertion or exercise by any holder of the Notes of any right, power or remedy conferred in this Guaranty Agreement, the Note Agreement or the Notes, (d) any requirement or diligence on the part of any holder of the Notes and (e) any other act or omission or thing or delay to do any other act or thing which might in any manner or to any extent vary the risk of any Guarantor or which might otherwise operate as a discharge of such Guarantor. 4. OBLIGATIONS UNIMPAIRED. Each Guarantor authorizes the holders of the Notes, without notice or demand to any Guarantor and without affecting its obligations hereunder, from time to time (a) to renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, all or any part of the Notes, the Note Agreement or any other instrument referred to therein, (b) to take and hold security for the payment of the Notes, for the performance of this Guaranty Agreement or otherwise for the indebtedness guaranteed hereby and to exchange, enforce, waive and release any such security, (c) to apply any such security and to direct the order or manner of sale thereof as the holders of the Notes in their sole discretion may determine; (d) to obtain additional or substitute endorsers or guarantors; (e) to exercise or refrain from exercising any rights against the Company and others and (f) to apply any sums, by whomsoever paid or however realized, to the payment of the principal of, Yield-Maintenance Amount, if any, and interest on the Notes and any other Guaranteed Obligation hereunder. Each Guarantor waives any right to require the holders of the Notes to proceed against any additional or substitute endorsers or guarantors or to pursue or exhaust any security provided by the Company, any Guarantor or any other person or to pursue any other remedy available to such holders. 5. SUBROGATION. No Guarantor will exercise any rights which it may have acquired by way of subrogation under this Guaranty Agreement, by any payment made hereunder or otherwise, or accept any payment on account of such subrogation rights, or any rights of reimbursement or indemnity or any rights or recourse to any security for the Notes or this Guaranty Agreement unless and until all of the obligations, undertakings or conditions to be performed or observed by the Company pursuant to the Notes and the Note Agreement at the time of such Guarantor's exercise of any such right shall have been performed, observed or paid in full. For a period of one year after the payment in full of the Guaranteed Obligations, each Guarantor hereby waives (x) all rights of subrogation which it may at any time otherwise have as a result of this Guaranty Agreement (whether, statutory or otherwise) to the claims of the holders of the Notes against the Company or any other guarantor of the -3- Guaranteed Obligations (each referred to herein as the "Other Party") and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any Other Party which it may at any time otherwise have as a result of this Guaranty Agreement; (y) any right to enforce any other remedy which the holders of the Notes now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the Guaranteed Obligations; and (z) all claims (as such term is defined in the Bankruptcy Code) it may at any time otherwise have against any Other Party arising from any transaction whatsoever, including without limitation its right to assert or enforce any such claims. 6. REINSTATEMENT OF GUARANTY. This Guaranty Agreement shall continue to be effective, or be reinstated, as the case may be, if and to the extent at any time payment, in whole or in part, of any of the sums due to any holder of the Notes for principal, Yield-Maintenance Amount, if any, or interest on the Notes or any of the other Guaranteed Obligations is rescinded or must otherwise be restored or returned by such holder upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company, or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any substantial part of its property, or otherwise, all as though such payments had not been made. If an event permitting the acceleration of the maturity of the principal amount of the Notes shall at any time have occurred and be continuing and such acceleration shall at such time be prevented or the right of any holder of a Note to receive any payment under any Note shall at such time be delayed or otherwise affected by reason of the pendency against the Company of a case or proceeding under a bankruptcy or insolvency law, each Guarantor agrees that, for purposes of this Guaranty Agreement and its obligations hereunder, the maturity of such principal amount shall be deemed to have been accelerated with the same effect as if the holders of the Notes had accelerated the same in accordance with the terms of the Note Agreement, and each Guarantor shall forthwith pay such accelerated principal amount, accrued interest and Yield-Maintenance Amount, if any, thereon and any other amounts guaranteed hereunder. 7. RANK OF GUARANTY. Each Guarantor agrees that its obligations under this Guaranty Agreement shall rank at least pari passu with all other secured senior obligations of such Guarantor now or hereafter existing. 8. ADDITIONAL COVENANTS OF THE GUARANTORS. (a) Maintenance of Corporate Existence, Etc. Each Guarantor will at all times do or cause to be done all things necessary to maintain and preserve its corporate existence and the corporate existence of each subsidiary of such Guarantor, and maintain, preserve and renew its and their licenses, patents and franchises material to the conduct of the business of such Guarantor and such subsidiaries taken as a whole, provided that nothing contained in this Section 8(a) shall (i) require any Guarantor or any such subsidiary to maintain, preserve or renew any license, patent or franchise not necessary or desirable in the conduct of its business, (ii) prohibit any Guarantor from terminating the corporate existence of a subsidiary if in the reasonable opinion of an officer of such Guarantor such termination is in the best interests of such Guarantor and is not -4- disadvantageous to the holders of the Notes and such termination has been approved by the Board of Directors of such Guarantor, or (iii) prohibit a consolidation or merger by one subsidiary with, or a conveyance, transfer or lease by one subsidiary to, any Guarantor or another subsidiary. (b) Merger, Consolidation. No Guarantor shall consolidate with or merge into any other person or convey, transfer or lease all or substantially all of its assets as an entirety (whether by one transaction or a series of related transactions) to any person, unless: (i) the successor entity formed by such consolidation or into which such Guarantor is merged or the successor entity which acquires by conveyance, transfer or lease all or substantially all of its assets as an entirety shall be a solvent entity organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and a substantial part of such successor entity's assets, properties and operations shall be within the United States; (ii) such successor entity (or entity to which all or substantially all of such Guarantor's assets shall have been conveyed, transferred or leased) shall expressly assume in writing by instrument or instruments reasonably satisfactory to the Required Holders, in scope, form and legal effect, the due and punctual payment, performance and observance of all obligations of such Guarantor under this Guaranty Agreement, with the same effect as if such entity had originally been named a Guarantor herein or had been a party hereto; (iii) prior to and immediately after giving effect to such transaction, no default or Event of Default shall exist under the Notes or the Note Agreement, or under any other document or instrument referred to therein; and (iv) such Guarantor shall have delivered to each of the holders of the Notes an officer's certificate stating that such consolidation, merger, conveyance, transfer or lease and the assumption agreement required by clause (ii) above comply with the provisions of this Section 8(b). Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of any Guarantor as an entirety in accordance with this Section 8(b), the successor corporation formed by such consolidation or into which such Guarantor is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, such Guarantor under this Guaranty Agreement, with the same effect as if such successor corporation had been named as a Guarantor herein. No such conveyance, transfer or lease of all or substantially all of the assets of any Guarantor (or any successor corporation which shall theretofore have become such in the manner prescribed in this Section 8(b)) from its obligations hereunder unless and until such Guarantor (or such successor) shall dissolve. (c) Intentionally Omitted. -5- (d) Addition or Amendment of Certain Provisions. In the event the any Guarantor is a party to, enters into, assumes or otherwise becomes bound or obligated under, or agrees to the modification of, any agreement creating or evidencing Indebtedness in excess of $10,000,000 containing one or more Additional Covenants or Additional Defaults, unless prior written consent to such agreement shall have been obtained pursuant to paragraph 14 below, the terms of this Agreement shall, without any further action on the part of any Guarantor or any of the holders of the Notes, be deemed to be amended automatically to include each Additional Covenant contained in such agreement, but only for so long as such Additional Covenants remain in effect with respect to such other agreement. Each Guarantor further covenants to promptly execute and deliver at their expense (including, without limitation, the fees and expenses of counsel for the holders of the Notes) an amendment to this Agreement in form and substance satisfactory to the Required Holders evidencing the amendment of this Agreement to include such Additional Covenants, provided that the execution and delivery of such amendment shall not be a precondition to the effectiveness of such amendment as provided for in this paragraph, but shall merely be for the convenience of the parties hereto. As used in this paragraph, the term "Additional Covenants" shall mean any affirmative or negative covenant or similar restriction applicable to any Guarantor (regardless of whether such provision is labeled or otherwise characterized as a covenant) the subject matter of which either (i) is similar to that of the covenants in paragraph 8 of this Agreement, or related definitions, but is more beneficial to the holder or holders of the Indebtedness created or evidenced by the document in which such covenant or similar restriction is contained (and such covenant or similar restriction shall be deemed an Additional Covenant only to the extent that it is more restrictive or more beneficial) or (ii) is different from the subject matter of the covenants in paragraph 8 of this Agreement, or related definitions. 9. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS. Each Guarantor represents and warrants as follows: (a) Incorporation, Good Standing and Location. Each Guarantor is (i) a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) duly qualified and authorized to do business and in good standing in every other jurisdiction where the nature of its business requires such qualification and (iii) has all requisite corporate power and authority, and all governmental licenses and permits, to own and operate its properties and to carry on its businesses as presently conducted. Each Guarantor has the requisite corporate power to enter into and perform its obligations under this Guaranty Agreement. (b) Approval and Enforceability of Guaranty Agreement. The execution, delivery and performance of this Guaranty Agreement have been duly authorized by all necessary corporate action on the part of each Guarantor. The Guaranty Agreement has been duly and validly executed and delivered and constitutes the legal, valid and binding obligation of each Guarantor, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, moratorium, reorganization, receivership and similar laws affecting the rights and remedies of creditors generally, and (ii) general -6- principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 10. NOTICES. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof shall be in writing, and any such communication shall become effective when received, addressed in the following manner: (a) if to any Guarantor, to 941 Grinnell Street, Fall River, Massachusetts 02721, Attn: President, or (b) if to any holder of a Note, to the respective addresses set forth in the Purchasers Schedule to the Note Agreement; provided, however, that any such addressee may change its address for communications by notice given as aforesaid to the other parties hereto. 11. CONSTRUCTION. The section and subsection headings in this Guaranty Agreement are for convenience of reference only and shall neither be deemed to be a part of this Guaranty Agreement nor modify, define, expand or limit any of the terms or provisions hereof. All references herein to numbered sections, unless otherwise indicated, are to sections of this Guaranty Agreement. Words and definitions in the singular shall be read and construed as though in the plural and vice versa, and words in the masculine, neuter or feminine gender shall be read and construed as though in either of the other genders where the context so requires. 12. SEVERABILITY. If any provision of this Guaranty Agreement, or the application thereof to any person or circumstances, shall, for any reason or to any extent, be invalid or unenforceable, such invalidity or unenforceability shall not in any manner affect or render invalid or unenforceable the remainder of this Guaranty Agreement, and the application of that provision to other persons or circumstances shall not be affected but, rather, shall be enforced to the extent permitted by applicable law. 13. SUCCESSORS. The terms and provisions of this Guaranty Agreement shall be binding upon and inure to the benefit of each Guarantor and the holders of the Notes from time to time and their respective permitted successors, transferees and assigns. 14. ENTIRE AGREEMENT; AMENDMENT. This Guaranty Agreement expresses the entire understanding of the subject matter hereof; and all other understandings, written or oral, are hereby merged herein and superseded. No amendment of or supplement to this Guaranty Agreement, or waiver or modification of, or consent under, the terms hereof shall be effective unless in writing and signed by the party to be bound thereby and consented to in writing by the Required Holders. 15. TERM OF GUARANTY AGREEMENT. The Guaranty Agreement and all guarantees, covenants and agreements of each Guarantor contained herein shall continue in full force and effect and shall not be discharged until such time as all of the Guaranteed Obligations shall be paid or otherwise discharged in full. 16. SURVIVAL. All warranties, representations and covenants made by each Guarantor herein or in any certificate or other instrument delivered by it or on its behalf under this -7- Guaranty Agreement shall be considered to have been relied upon by the holders of the Notes and shall survive the execution and delivery of this Guaranty Agreement, regardless of any investigation made by the holder of the Notes or on their behalf. 17. FURTHER ASSURANCES. Each Guarantor hereby agrees to execute and deliver all such instruments and take all such action as the holders of the Notes may from time to time reasonably request in order to effectuate fully the purposes of this Guaranty Agreement. 18. GOVERNING LAW. This Guaranty Agreement has been executed and delivered in the State of New York and shall be governed by, construed and enforced in all respects in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely therein, without regard to principles of conflicts of laws. 19. PAYMENT CURRENCY. All payments on account of any Notes denominated in a specified Available Currency other than Dollars (including principal, interest and Yield-Maintenance Amounts) shall be made in such specified currency, and all payments on account of any Notes denominated in Dollars (including principal, interest and Yield-Maintenance Amounts) shall be made in Dollars. The obligation of the Guarantors to make payment hereunder in the applicable currency specified in the preceding sentence shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any currency other than such applicable currency, except to the extent the applicable obligee actually receives the full amount of the currency in which the underlying obligation is denominated. The obligation of the Guarantors to make payment in any given currency as required by the first sentence of this paragraph shall be enforceable as an alternative or additional cause of action for the purpose of recovery in such currency, of the amount, if any, by which such actual receipt shall fall short of the full amount of such currency expressed to be payable in respect of any such obligation, and shall not be affected by judgment being obtained for any other sums due under the Notes, the Note Agreement or this Guaranty Agreement, as the case may be. 20. PAYMENTS FREE AND CLEAR OF TAXES. Each Guarantor will pay all amounts of principal of, Yield Maintenance Amount, if any, and interest on the Notes, and all other amounts payable hereunder or under the Note Agreement or the Notes, without set-off or counterclaim and free and clear of, and without deduction or withholding for or on account of, all present and future income, stamp, documentary and other taxes and duties, and all other levies, imposts, charges, fees, deductions and withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority (except net income taxes and franchise taxes in lieu of net income taxes imposed on any holder of any Note by its jurisdiction of incorporation or the jurisdiction in which its applicable lending office is located) (all such non-excluded taxes, duties, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable hereunder to a holder of any Notes, the amounts so payable to such holder shall be increased to the extent necessary to yield such holder (after payment of all Taxes) interest on any such other amounts payable hereunder at the rates or in the amounts specified in the Note Agreement, this Guaranty -8- Agreement and the Notes. Whenever any Taxes are payable by any Guarantor, as promptly as possible thereafter, such Guarantor shall send to each holder of the Notes, a certified copy of an original official receipt received by such Guarantor showing payment thereof. If any Guarantor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to each holder of the Notes the required receipts or other required documentary evidence, such Guarantor shall indemnify each holder of the Notes for any Taxes (including interest or penalties) that may become payable by such holder as a result of any such failure. The obligations of the Guarantors under this paragraph shall survive the payment and performance of the Notes and the termination of the Note Agreement and this Guaranty Agreement. 21. CONTRIBUTION; MAXIMUM LIABILITY. (a) Each Guarantor is unconditionally obligated to pay the Guaranteed Obligations as a joint and several obligor under this Guaranty Agreement. If, as of any date, the aggregate amount of payments made by a Guarantor on account of the Guaranteed Obligations and proceeds of such Guarantor's collateral that are applied to the Guaranteed Obligations exceeds the aggregate amount of the proceeds of the Guaranteed Obligations actually used by such Guarantor in its business (such excess amount being referred to as an "Accommodation Payment"), then each of the other Guarantors (each such Guarantor being referred to as a "Contributing Guarantor") shall be obligated to make contribution to such Guarantor (the "Paying Guarantor") in an amount equal to (i) the product derived by multiplying the sum of each Accommodation Payment of each Guarantor by the Allocable Percentage of the Guarantor from whom contribution is sought less (ii) the amount, if any, of the then outstanding Accommodation Payment of such Contributing Guarantor (such last mentioned amount which is to be subtracted from the aforesaid product to be increased by any amounts theretofore paid by such Contributing Guarantor by way of contribution hereunder); provided, however, that a Paying Guarantor's recovery of contribution hereunder from the other Guarantors shall be limited to that amount paid by the Paying Guarantor in excess of its Allocable Percentage of all Accommodation Payments then outstanding of all Guarantors. As used herein, the term "Allocable Percentage" shall mean, on any date of determination thereof, a fraction of the denominator of which shall be equal to the number of Guarantors who are parties to this Guaranty Agreement on such date and the numerator of which shall be 1; provided, however, that such percentages shall be modified in the event that contribution from a Guarantor is not possible by reason of insolvency, bankruptcy, or otherwise by reducing such Guarantor's Allocable Percentage equitably and by adjusting the Allocable Percentage of the other Guarantors proportionately so that the Allocable Percentages of all Guarantors at all times equals 100%. (b) It is the intention of the Guarantors and the Purchasers that each Guarantor's obligations hereunder shall be in, but not in excess of, the maximum amount permitted by applicable federal bankruptcy, state insolvency, fraudulent conveyance or transfer or similar laws ("Applicable Laws"). To that end, but only to the extent such obligations would otherwise be subject to avoidance under Applicable Law, if after giving effect to the provisions of the preceding paragraph (a), any Guarantor is not deemed to have received valuable consideration, fair value or reasonably equivalent value for its obligations hereunder, such Guarantor's obligations hereunder shall be reduced to that -9- amount which, after giving effect thereto, would not render such Guarantor insolvent, or leave such Guarantor with unreasonably small capital to conduct its business, or cause such Guarantor to have incurred debts (or intended to have incurred debts) beyond its ability to pay such debts as they mature, at the time such obligations are deemed to have been incurred under Applicable Laws. As used herein, the terms "insolvent" and "unreasonably small capital" shall likewise be determined in accordance with Applicable Law. This Section is intended solely to preserve the rights of the Purchasers hereunder the maximum extent permitted by Applicable Law, and neither any Guarantor nor any other Person shall have any right or claim under this Section that would not otherwise be available under Applicable Law. [Signature Page Follows] -10- IN WITNESS WHEREOF, each Guarantor has caused this Guaranty Agreement to be duly executed and delivered as of the date and year first above written. QUAKER TEXTILE CORPORATION By ------------------------------------- Name: Title: QUAKER FABRIC MEXICO, S.A. de C.V. By ------------------------------------- Name: Title: -11- -----END PRIVACY-ENHANCED MESSAGE-----