SECURITY AGREEMENT
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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.
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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.
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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.
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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
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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
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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,
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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
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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
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Status.
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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.
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8. Representations and Warranties Concerning Collateral, Etc.
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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
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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.
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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.
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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.
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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
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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
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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
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Collateral.
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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: