EXHIBIT 10.41
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of November 9, 2006, between (a) QUAKER
FABRIC CORPORATION OF FALL RIVER, a Massachusetts corporation (the "Borrower"),
(b) 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", and together
with Quaker Textile and Quaker Mexico, the "Guarantors") (the Borrower and each
of the Guarantors being sometimes referred to herein as a "Company" and
collectively, as the "Companies"), and (c) GB MERCHANT PARTNERS, LLC, as
administrative agent (hereinafter, the "Administrative Agent") for itself and
the other lending institutions (hereinafter, collectively the "Lenders") which
are or may become parties to a Term Loan Agreement of even date herewith (the
"Credit Agreement"), among the Borrowers, the Lenders and the Administrative
Agent.
WHEREAS, it is a condition precedent to the Lenders' making any loans
or otherwise extending credit to the Borrower under the Credit Agreement that
each Company execute and deliver to the Administrative Agent, for the benefit of
the Lenders and the Administrative Agent, a security agreement in substantially
the form hereof; and
WHEREAS, each Company wishes to grant a security interest in favor of
the Administrative Agent, for the benefit of the Lenders and the Administrative
Agent, as herein provided; and
WHEREAS, pursuant to the terms of that certain Amended and Restated
Revolving Credit Agreement dated as of even date herewith (as amended and in
effect from time to time, the "Revolving Credit Agreement" and, together with
all amendments, documents, instruments and agreements executed pursuant thereto,
collectively, the "Revolving Credit Documents"), by and among the Borrower, the
Parent, and Bank of America, N.A., as administrative agent (the "Revolving
Credit Agent") for itself and other lending institutions which are, or may in
the future become, parties thereto (collectively, the "Revolving Lenders"), the
Revolving Lenders have extended loans to the Borrower, and the Borrower is
obligated to the Revolving Credit Agent and the Revolving Lenders under the
Revolving Credit Documents, which obligations are secured by the collateral set
forth herein; and
WHEREAS, the Administrative Agent, the Revolving Credit Agent, the
Borrower and the Parent are parties to that certain Intercreditor Agreement of
even date herewith (as amended and in effect from time to time, the
"Intercreditor Agreement"), setting forth the relative priorities of liens held
by the Revolving Credit Agent for the benefit of the Revolving Lenders and the
Administrative Agent for the benefit of the Lenders with respect to the
collateral referred to therein, including, without limitation, the collateral
described herein, securing the respective obligations of the Parent and the
Borrower.
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 Credit Agreement.
The term "State", as used herein, means the Commonwealth of Massachusetts. 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 "electronic document" applies
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.
2. GRANT OF SECURITY INTEREST. Each Company hereby grants to the
Administrative Agent, for the benefit of the Lenders and the Administrative
Agent, to secure the payment and performance in full of all of the Obligations,
a continuing first priority security interest in and so pledges and assigns to
the Administrative Agent, for the benefit of the Lenders and the Administrative
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, subject solely to the Liens of the Revolving Credit Agent
under the Revolving Credit Documents (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 (including health care insurance receivables), 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. The Administrative 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 Section 4.7.
3. AUTHORIZATION TO FILE FINANCING STATEMENTS. Each Company hereby
irrevocably authorizes the Administrative 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 Administrative Agent
promptly upon request. Each Company also ratifies its authorization for the
Administrative 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.
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4. OTHER ACTIONS. Further to ensure the attachment, perfection and
first priority of, and the ability of the Administrative Agent to enforce, the
Administrative 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 (excluding promissory notes
in favor of employees of any Company not exceeding $300,000
individually or $500,000 in the aggregate), such Company shall
forthwith endorse, assign and deliver the same to the Administrative
Agent, accompanied by such instruments of transfer or assignment duly
executed in blank as the Administrative 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 with any
depositary bank after the obligations of the Companies to the Revolving
Credit Agent and Revolving Lenders arising under the Revolving Credit
Documents have been satisfied, each such Company shall deliver to the
Administrative Agent an Agency Account Agreement in favor of the
Administrative Agent, in form and substance satisfactory to the
Administrative Agent, executed by such depositary bank; provided, that
any Company may maintain such accounts that are not subject to an
Agency Account Agreement in favor of the Administrative Agent so long
as the aggregate balance maintained in all such accounts does not
exceed $750,000. The provisions of this paragraph shall not apply to
(i) a deposit account for which the Administrative Agent is the
depositary bank and is in automatic control and (ii) 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.
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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
Administrative Agent, accompanied by such instruments of transfer or
assignment duly executed in blank as the Administrative 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 Administrative Agent thereof and, at the Administrative
Agent's request and option, pursuant to an agreement in form and
substance satisfactory to the Administrative 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 Administrative
Agent as to such securities, or (b) arrange for the Administrative
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 Administrative Agent thereof and, at the
Administrative Agent's request and option, pursuant to an agreement in
form and substance satisfactory to the Administrative 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 Administrative 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 Administrative 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 Administrative Agent to become the entitlement holder
with respect to such investment property, with such Company being
permitted, only with the consent of the Administrative 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
Administrative 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 (excluding Collateral in the possession of dyers and contract
manufacturers in the ordinary course of the Companies' business
consistent with past practices that is designated as ineligible
inventory on the most recent Borrowing Base Certificate and/or
Collateral Update Certificate), the applicable Company or Companies
shall promptly notify the Administrative Agent thereof and, at the
Administrative Agent's request and option, such Company or Companies
shall promptly obtain an acknowledgement from the bailee, in form and
substance satisfactory to the Administrative Agent, that the bailee
holds such Collateral for the benefit of the Administrative Agent and
such bailee's agreement to comply, without further consent of such
Company or Companies, at any time with instructions of the
Administrative Agent as to such Collateral.
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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 Section 16 of the Uniform Electronic Transactions Act as in effect
in any relevant jurisdiction, such Company shall promptly notify the
Administrative Agent thereof and, at the request and option of the
Administrative Agent, shall take such action as the Administrative
Agent may reasonably request to vest in the Administrative Agent
control, under Section 9-105 of the Uniform Commercial Code of the
State or any other relevant jurisdiction, of such electronic chattel
paper, control, under Section 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,
Section 16 of the Uniform Electronic Transactions Act, as so in effect
in such jurisdiction, of such transferable record. The provisions of
this Section 4.5 relating to electronic documents and "control" under
UCC Section 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 (excluding trade
letters of credit) with a face amount equal to or greater than $500,000
individually, or $1,500,000 in the aggregate with all other letters of
credit under which such Company is beneficiary, now or hereafter, such
Company shall promptly notify the Administrative Agent thereof and, at
the request and option of the Administrative Agent, such Company shall,
pursuant to an agreement in form and substance satisfactory to the
Administrative 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 Administrative Agent of the proceeds of the
letter of credit or (b) arrange for the Administrative Agent to become
the transferee beneficiary of the letter of credit, with the
Administrative Agent agreeing, in each case, that the proceeds of the
letter of credit are to be applied as provided in the Credit 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 Administrative Agent in a writing
signed by such Company of the particulars thereof and grant to the
Administrative Agent, for the benefit of the Lenders and the
Administrative 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
Administrative Agent.
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4.8. OTHER ACTIONS AS TO ANY AND ALL COLLATERAL. Each Company
further agrees, upon the request of the Administrative Agent and at the
Administrative Agent's option, to take any and all other actions as the
Administrative Agent may determine to be necessary or useful for the
attachment, perfection and first priority of, and the ability of the
Administrative Agent to enforce, the Administrative 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) causing
the Administrative Agent's name to be noted as secured party on any
certificate of title for a titled good if such notation is a condition
to attachment, perfection or priority of, or ability of the
Administrative Agent to enforce, the Administrative Agent's security
interest in such Collateral, (c) 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 Administrative Agent to
enforce, the Administrative Agent's security interest in such
Collateral, (d) obtaining governmental and other third party waivers,
consents and approvals, in form and substance satisfactory to the
Administrative Agent, including, without limitation, any consent of any
licensor, lessor or other person obligated on Collateral, (e) obtaining
waivers from mortgagees and landlords in form and substance
satisfactory to the Administrative Agent and (f) taking all actions
under any earlier versions of the Uniform Commercial Code or under any
other law, as reasonably determined by the Administrative 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 supplement the provisions of any real estate mortgage or deed of trust
granted by the Companies to the Administrative Agent, for the benefit of the
Lenders and the Administrative Agent, and which secures the payment or
performance of any of the Obligations. Nothing contained in any such real estate
mortgage or deed of trust shall derogate from any of the rights or remedies of
the Administrative Agent or any of the Lenders hereunder. In addition, to the
provisions of this Agreement being so read and construed with any such mortgage
or deed of trust, the provisions of this Agreement shall be read and construed
with the other Security Documents referred to below in the manner so indicated.
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5.1. STOCK PLEDGE AGREEMENT. Concurrently herewith certain of
the Companies are executing and delivering to the Administrative Agent,
for the benefit of the Lenders and the Administrative Agent, a stock
pledge agreement pursuant to which each Company party thereto is
pledging to the Administrative Agent, for the benefit of the Lenders
and the Administrative Agent, all of its shares of capital stock in
certain of its 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
Administrative Agent, for the benefit of the Lenders and the
Administrative 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 Administrative Agent, for
the benefit of the Lenders and the Administrative 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 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 Administrative Agent or any of the Lenders 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
Administrative Agent, for the benefit of the Lenders and the
Administrative 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
Lenders and the Administrative 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 Administrative
Agent a certificate signed by the Company and entitled "Perfection Certificate"
(the "Perfection Certificate"). Each Company represents and warrants to the
Lenders and the Administrative 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.
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7. COVENANTS CONCERNING EACH COMPANY'S LEGAL STATUS. Each Company
covenants with the Lenders and the Administrative Agent as follows: (a) without
providing at least thirty (30) days prior written notice to the Administrative
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 Administrative Agent of such organizational identification
number, and (c) such Company will not change its type of organization,
jurisdiction of organization or other legal structure.
8. REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL, ETC. Each
Company further represents and warrants to the Lenders and the Administrative
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, except for the security
interest created by this Agreement and other Liens permitted by the Credit
Agreement, (b) none of the Collateral constitutes, or is the proceeds of, "farm
products" as defined in Section 9-102(a)(34) of the Uniform Commercial Code of
the State, (c) except as disclosed to the Administrative 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 Administrative Agent as follows: (a) the Collateral, to
the extent not delivered to the Administrative Agent pursuant to Section 4 or
the Revolving Credit Agent pursuant to the terms of the Revolving Loan
Documents, 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 Administrative Agent, (b)
except for the security interest herein granted and Liens permitted by Section
8.3 of the Credit 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 Administrative 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, or
become bound (as provided in Section 9 203(d) of the Uniform Commercial Code of
the State or any other relevant jurisdiction or otherwise) by a security
agreement in favor of any person as secured party, other than the Administrative
Agent except for Liens permitted by the Credit Agreement, (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) as provided in the Credit Agreement, such Company will permit the
Administrative 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 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 or other dispositions
expressly permitted under the Credit Agreement, and (i) such Company will not
file any amendment to or termination of any Uniform Commercial Code financing
statement naming such Company as debtor and the Administrative Agent as secured
party.
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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
Administrative Agent. In addition, all such insurance shall be payable
to the Administrative Agent as loss payee under a "standard" or "New
York" loss payee clause for the benefit of the Lenders and the
Administrative Agent. Without limiting the foregoing, the Company will
(a) keep all of its physical property insured with casualty or physical
hazard insurance on an "all risks" basis, with broad form flood and
earthquake coverages and electronic data processing coverage, with a
full replacement cost endorsement and an "agreed amount" clause in an
amount equal to 100% of the full replacement cost of such property, (b)
maintain all such workers' compensation or similar insurance as may be
required by law and (c) maintain, 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, general public liability
insurance against claims of bodily injury, death or property damage
occurring, on, in or about the properties of the Company; business
interruption insurance; and product liability insurance.
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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, be applied pursuant to
the terms of the Credit Agreement.
10.3. CONTINUATION OF INSURANCE. All policies of insurance
shall provide for at least thirty (30) days prior written cancellation
notice to the Administrative Agent. In the event of failure by any
Company to provide and maintain insurance as herein provided, the
Administrative Agent may, at its option, provide such insurance and
charge the amount thereof to the Companies. Each Company shall furnish
the Administrative 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 ADMINISTRATIVE AGENT. In the
Administrative Agent's discretion, the Administrative 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 Administrative Agent on demand
for all expenditures so made. The Administrative 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. ADMINISTRATIVE 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 Administrative Agent nor 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
Administrative Agent or any Lender of any payment relating to any of
the Collateral, nor shall the Administrative Agent or any Lender be
obligated in any 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
Administrative Agent or any Lender 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 Administrative Agent or to which
the Administrative Agent or any Lender may be entitled at any time or
times. The Administrative Agent's sole duty with respect to the
custody, safe keeping and physical preservation of the Collateral in
its possession, under Section 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 Administrative Agent deals with similar property for
its own account.
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12. SECURITIES AND DEPOSITS. The Administrative 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. Whether or not any Obligations are due, the
Administrative Agent may, following and during the continuance of an Event of
Default, demand, sue for, collect, or make any settlement or 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 Administrative Agent or any Lender to
any Company may at any time be applied to or set off against any of the
Obligations.
13. NOTIFICATION TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON
COLLATERAL. Each Company shall, following and during the continuance of an Event
of Default, at the request and option of the Administrative Agent, notify
account debtors and other persons obligated on any of the Collateral of the
security interest of the Administrative Agent in any account, chattel paper,
general intangible, instrument or other Collateral and that payment thereof is
to be made directly to the Administrative Agent or to any financial institution
designated by the Administrative Agent as the Administrative Agent's agent
therefor, and following and during the continuance of an Event of Default, the
Administrative 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 Administrative Agent, for the benefit of the Lenders and the
Administrative Agent, without commingling the same with other funds of such
Company and shall turn the same over to the Administrative Agent in the
identical form received, together with any necessary endorsements or
assignments. The Administrative Agent shall apply the proceeds of collection of
accounts, chattel paper, general intangibles, instruments and other Collateral
received by the Administrative Agent to the Obligations in accordance with the
Credit Agreement, such proceeds to be immediately credited after final payment
in cash or other immediately available funds of the items giving rise to them.
14. POWER OF ATTORNEY.
14.1. APPOINTMENT AND POWERS OF ADMINISTRATIVE AGENT. Each
Company hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with, subject to the provisions
of applicable law, 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 Administrative 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:
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(a) upon the occurrence and during the continuance of
an Event of Default, generally to sell, transfer, pledge, make
any agreement 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 any other
relevant jurisdiction and as fully and completely as though
the Administrative 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
Administrative Agent deems necessary or useful to protect,
preserve or realize upon the Collateral and the Administrative
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 Administrative 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 Section 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 Administrative
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.
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14.2. 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.
14.3. NO DUTY ON ADMINISTRATIVE AGENT. The powers conferred on
the Administrative Agent hereunder are solely to protect the interests
of the Administrative Agent and the Lenders in the Collateral and shall
not impose any duty upon the Administrative Agent to exercise any such
powers. The Administrative 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 Administrative Agent's own gross negligence or
willful misconduct.
15. RIGHTS AND REMEDIES. If an Event of Default shall have occurred and
be continuing, the Administrative 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 Administrative 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 Administrative
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 Administrative
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 Administrative 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 Administrative 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.
16. STANDARDS FOR EXERCISING RIGHTS AND REMEDIES. To the extent that
applicable law imposes duties on the Administrative Agent to exercise remedies
in a commercially reasonable manner, each Company acknowledges and agrees that
it is not commercially unreasonable for the Administrative Agent (a) to fail to
incur expenses reasonably deemed significant by the Administrative 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 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 Administrative Agent against risks of loss,
collection or disposition of Collateral or to provide to the Administrative
Agent a guaranteed return from the collection or disposition of Collateral, or
(l) to the extent deemed appropriate by the Administrative Agent, to obtain the
services of brokers, investment bankers, consultants and other professionals to
assist the Administrative Agent in the collection or disposition of any of the
Collateral. Each Company acknowledges that the purpose of this Section 16 is to
provide non-exhaustive indications of what actions or omissions by the
Administrative Agent would fulfill the Administrative Agent's duties under the
Uniform Commercial Code of the State or any other relevant jurisdiction in the
Administrative Agent's exercise of remedies against the Collateral and that
other actions or omissions by the Administrative Agent shall not be deemed to
fail to fulfill such duties solely on account of not being indicated in this
Section 16. Without limitation upon the foregoing, nothing contained in this
Section 16 shall be construed to grant any rights to any Company or to impose
any duties on the Administrative Agent that would not have been granted or
imposed by this Agreement or by applicable law in the absence of this Section
16.
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17. NO WAIVER BY ADMINISTRATIVE AGENT, ETC. The Administrative 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 Administrative Agent with the consent of the Required Lenders. No
delay or omission on the part of the Administrative 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 Administrative 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 Administrative Agent deems
expedient.
18. SURETYSHIP WAIVERS BY THE COMPANIES. Each Company waives demand,
notice (other than notices expressly provided for herein or in any other Loan
Document), 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 and at
such time or times as the Administrative Agent may deem advisable. The
Administrative 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 Section 11.2. Each Company further waives any
and all other suretyship defenses.
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19. MARSHALLING. Neither the Administrative 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 Administrative Agent or any Lender hereunder and of the
Administrative 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 Administrative 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.
20. PROCEEDS OF DISPOSITIONS; EXPENSES. Each Company shall pay to the
Administrative Agent on demand any and all expenses, including reasonable
attorneys' fees and disbursements, incurred or paid by the Administrative Agent
in protecting, preserving or, after and during the continuance of an Event of
Default, enforcing the Administrative 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 Credit 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.
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21. OVERDUE AMOUNTS. Until paid, all amounts due and payable by the
Companies hereunder shall be a debt secured by the Collateral and shall bear,
whether before or after judgment, interest at the Default Rate.
22. GOVERNING LAW; CONSENT TO JURISDICTION. 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 Section 19 of the Credit Agreement. 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.
23. 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 MASSACHUSETTS STATE COURT SITTING IN MASSACHUSETTS 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 23. 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 Administrative Agent, any
Lender or any representative, agent or attorney of the Administrative Agent or
any Lender has represented, expressly or otherwise, that the Administrative
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 Credit Agreement and the other Loan
Documents to which the Administrative Agent or any Lender is a party, the
Administrative Agent and the Lenders are relying upon, among other things, the
waivers and certifications contained in this Section 23.
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24. AMENDMENTS TO AGREEMENT AND DOCUMENTATION. This Agreement and the
provisions hereof may be amended, modified or waived only by a writing signed by
the Administrative Agent and each of the Companies.
25. 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.
26. NOTICES. All written communications provided for hereunder shall be
sent in accordance with the provisions of Section 19 of the Credit Agreement.
27. 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
Administrative 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.
28. INTERCREDITOR MATTERS.
Notwithstanding anything to the contrary contained herein, the rights
and remedies of the Administrative Agent and the Lenders, and the obligations of
the Companies as set forth herein are subject to the terms and conditions of the
Intercreditor Agreement. Without limiting the foregoing, to the extent that any
Company is required to deliver, endorse, pay over or otherwise provide
possession or control over any of the collateral set forth herein to the
Administrative Agent or Lenders hereunder, such obligations shall be subject to
the rights of the Revolving Credit Agent and Revolving Lenders to such
collateral, subject to in the Intercreditor Agreement. Further, any
representation, warranty or covenant by the Companies in this Agreement that the
Collateral is not and shall not be subject to any liens, encumbrances or other
restrictions, shall specifically be qualified by the liens and rights of the
Revolving Credit Agent for the benefit of the Revolving Lenders with respect to
the collateral pursuant to the Revolving Credit Documents and as set forth in
the Intercreditor Agreement. The limitations and qualifications set forth in
this paragraph are effective solely to recognize the rights and remedies of the
Revolving Credit Agent and Revolving Lenders and to qualify the obligations of
the Companies and shall not otherwise impair the pledge and security interests
granted by the Companies to the Administrative Agent pursuant to this Agreement.
The parties acknowledge that to the extent that the obligations of the Companies
to the Revolving Credit Agent and Revolving Lenders arising under the Revolving
Credit Documents have been indefeasibly satisfied in full and such parties have
no further obligations to make loans or advances to the Borrower thereunder, the
limitations and qualifications set forth in this paragraph shall be of no
further force or effect and the Companies covenant to take all such actions set
forth herein and necessary to give effect to the provisions of this Agreement.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
(Signature Page to Security Agreement)
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
QUAKER FABRIC CORPORATION
QUAKER TEXTILE CORPORATION
QUAKER FABRIC MEXICO, S.A. DE C.V.
By: /s/ Paul J. Kelly
-------------------------------------------------------------
Name: Paul J. Kelly
Title: Vice President Finance
Accepted:
GB MERCHANT PARTNERS, LLC,
as Administrative Agent
By: _____________________________________________
Name:
Title:
CERTIFICATE OF ACKNOWLEDGMENT
COMMONWEALTH OR STATE OF ______________________________________________)
_________ ) ss.
COUNTY OF _____________________________________________________________)
On this ___ day of November, 2006, before me, the undersigned notary
public, personally appeared Paul J. Kelly, proved to me through satisfactory
evidence of identification, which were _____________________________, to be the
person whose name is signed on the preceding document, and acknowledged to me
that he signed it voluntarily for its stated purpose as Vice President Finance
of Quaker Fabric Corporation, Quaker Fabric Corporation of Fall River, Quaker
Textile Corporation, and Quaker Fabric Mexico, S.A. de C.V.
------------------------------
(official signature and seal of notary)
My commission expires: