Document:

UNDERLYING
      CERTIFICATE PURCHASE AGREEMENT

     

    
 

    Dated
      as of  May 31, 2006

     

    
 

    between

     

    
 

    FIRST
      HORIZON ASSET SECURITIES INC.,

    Purchaser,

     

    and

     

    UBS
      SECURITIES LLC

    Seller

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

     

    TABLE
      OF
      CONTENTS

    
      	 	 	
              Page

            
	
              ARTICLE
                I DEFINITIONS

            	
              1

            
	 	 
	
              Section
                1.1

            	
              Definitions

            	
              1

            
	 	 	 
	
              ARTICLE
                II CONVEYANCE OF THE CONVEYED ASSETS

            	
              2

            
	 	 
	
              Section
                2.1

            	
              Conveyance
                of the Conveyed Assets

            	
              2

            
	
              Section
                2.2

            	
              Closing

            	
              3

            
	 	 	 
	
              ARTICLE
                III REPRESENTATIONS, WARRANTIES AND COVENANTS

            	
              3

            
	 	 	 
	
              Section
                3.1

            	
              Representations,
                Warranties and Covenants of Seller

            	
              3

            
	
              Section
                3.2

            	
              Representations,
                Warranties and Covenants of Purchaser

            	
              5

            
	
              Section
                3.3

            	
              Additional
                Documents and Actions

            	
              6

            
	
              Section
                3.4

            	
              Costs
                and Expenses

            	
              6

            
	 	 	 
	
              ARTICLE
                IV MISCELLANEOUS

            	
              6

            
	 	 
	
              Section
                4.1

            	
              Notices

            	
              6

            
	
              Section
                4.2

            	
              Severability
                Clause

            	
              7

            
	
              Section
                4.3

            	
              Counterparts

            	
              7

            
	
              Section
                4.4

            	
              Place
                of Delivery and Governing Law

            	
              7

            
	
              Section
                4.5

            	
              Remedies
                Cumulative; No Waiver

            	
              7

            
	
              Section
                4.6

            	
              Miscellaneous

            	
              8

            
	
              Section
                4.7

            	
              Agreement
                of Seller

            	
              8

            
	
              Section
                4.8

            	
              Successors
                and Assigns

            	
              8

            
	
              Section
                4.9

            	
              Survival

            	
              8

            
	
              Section
                4.10

            	
              Intention
                of Parties

            	
              8

            

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

        
        

      

    

            THIS
      UNDERLYING CERTIFICATE PURCHASE AGREEMENT (this “Agreement”)
      is
      dated as of May 31, 2006 and is by and between UBS SECURITIES LLC, a Delaware
      corporation (“Purchaser”),
      and
      FIRST HORIZON ASSET SECURITIES INC., a Delaware corporation (“Seller”).

     

    RECITALS:

     

       
A. Subject
      to the terms and conditions of this Agreement, Seller hereby agrees to sell
      to
      Purchaser, and Purchaser hereby agrees to purchase from Seller, the Underlying
      Certificate (as defined below).

     

        B. The
      Underlying Certificate (including all distributions with respect thereto payable
      on and after the Closing Date) will be sold, transferred and assigned by
      Purchaser to a trust in exchange for the Class A-1 Certificates issued by First
      Horizon Alternative Mortgage Securities Trust 2006-RE2 (collectively, the
“Certificates”)
      on the
      Closing Date.

     

         C. The
      Certificates will be issued pursuant to a Pooling Agreement dated as of May
      1,
      2006 (the “Pooling
      Agreement”)
      between Purchaser, as depositor, and The Bank of New York, as trustee (the
      “Trustee”).
      Pursuant to the Pooling Agreement, Purchaser will assign certain of its rights
      under this Agreement to the Trustee.

     

            
      NOW, THEREFORE, in consideration of the premises and mutual covenants and
      agreements set forth herein, the parties hereto agree as follows:

     

    ARTICLE
      I

     

    DEFINITIONS

     

    Section
      1.1 Definitions.
       Initially
      capitalized terms used but not otherwise defined in this Agreement have the
      meanings assigned to them in the Pooling Agreement. Whenever used in this
      Agreement, the following words and phrases, unless the context otherwise
      requires, shall have the following meanings:

     

    Assigned
      Distributions:
      All
      distributions payable on the Underlying Certificate and all Underlying Yield
      Supplement Amounts payable in respect thereof, in each case on and after the
      Closing Date.

     

    Certificates:
      As
      defined in the Recitals to this Agreement.

     

    Closing
      Date:
      May 31,
      2006.

     

    Conveyed
      Assets:
      The
      Underlying Certificate and the Assigned Distributions.

     

    FHHLC:
      First
      Horizon Home Loan Corporation.

     

    Pooling
      Agreement:
      As
      defined in the Recitals to this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

           
      

    Trustee:
      The
      Bank of New York, not in its individual capacity, but solely in its capacity
      as
      trustee for the benefit of the certificate holders under the Pooling Agreement,
      and any
      successor thereto under the Pooling Agreement.

     

    Underlying
      Certificate:
      A
      68.2488509% interest in the Class I-A-1 Certificates issued by the Underlying
      Trust pursuant to the Underlying PSA.

     

    Underlying
      PSA:
      The
      Pooling and Servicing Agreement dated as of February 1, 2005 by and among First
      Horizon Asset Securities Inc., as depositor, FHHLC, as master servicer,
      and The Bank of New York, as trustee. 

     

    Underlying
      Trust:
      First
      Horizon Alternative Mortgage Securities Trust 2005-FA2, a common law trust
      created pursuant to the Underlying PSA.

     

    Underlying
      Yield Supplement Amount:
      68.2488509% of the “Class I-A-1 Yield Supplement Amount” as such term is defined
      in the Underlying PSA.

     

    Underwriter:
      UBS
      Securities LLC, in its capacity as such under the Underwriting
      Agreement.

     

    Underwriting
      Agreement:
      The
      Underwriting Agreement dated as of May 26, 2006 by and among the Purchaser,
      FHHLC and the Underwriter, as supplemented by a Terms Agreement
      with respect thereto dated as of May 26, 2006.

     

    ARTICLE
      II

     

    CONVEYANCE
      OF THE CONVEYED ASSETS 

     

    Section
      2.1 Conveyance
      of the Conveyed Assets. 

     

    
      	 	
              (a)

            	
              Seller
                hereby agrees to sell, transfer, assign, set over and otherwise convey
                to
                Purchaser, without recourse, all of the right, title and interest
                of
                Seller in and to the Conveyed
                Assets.

            

    

     

    
      	 	
              (b)

            	
              On
                or prior to the Closing Date, Seller shall take or cause to be taken
                all
                actions necessary to effect the transfer of the beneficial ownership
                of
                the Underlying Certificate to the Trustee on the book-entry records
                of The
                Depository Trust Company. Seller, effective as of the Closing Date,
                hereby
                acknowledges and agrees that any of the Assigned Distributions received
                by
                it shall be held in trust for the exclusive benefit of the Trustee
                and
                shall be immediately paid and delivered to the Trustee for deposit
                into
                the Distribution Account established pursuant to the Pooling
                Agreement.

            

    

     

    
      	 	
              (c)

            	
              As
                consideration for the sale of the Conveyed Assets to the Purchaser
                hereunder, on the Closing Date the Purchaser will deliver or cause
                to be
                delivered the Certificates to the Underwriter or its designee in
                accordance with the written instructions of the
                Seller.

            

    

     

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    
      	
            	
              (d)

            	
              The
                obligation of Seller to sell, and of Purchaser to purchase, the Conveyed
                Assets as set forth in this Section
                2.1
                is
                contingent upon the consummation, on the Closing Date, of the transactions
                pursuant to which the Purchaser sells Certificates to the Underwriter
                pursuant to the Underwriting
                Agreement.

            

    

     

    Section
      2.2 Closing.
      The
      closing for the sale of the Conveyed Assets shall occur on the Closing Date
      at
      such time and place and in such manner as the parties shall agree.

     

    ARTICLE
      III

     

    REPRESENTATIONS,
      WARRANTIES AND COVENANTS

     

    Section
      3.1 Representations,
      Warranties and Covenants of Seller.
      Seller
      hereby affirms to Purchaser and the Trustee that each of the following
      representations and warranties will be true and correct as of the Closing
      Date:

     

    
      	 	
              (a)

            	
              Seller
                is a corporation, duly incorporated, validly existing and in good
                standing
                under the laws of the State of Delaware, with corporate power and
                authority to execute and deliver this Agreement and to perform its
                obligations hereunder.

            

    

     

    
      	 	
              (b)

            	
              The
                execution and delivery of this Agreement by Seller, the consummation
                of
                the transactions contemplated hereby, and the fulfillment of and
                compliance with the terms and conditions hereof, will not (i) conflict
                with or result in a breach of or give rise to any default under any
                of the
                terms, conditions or provisions of Seller’s charter or by-laws or any term
                or provision of any material pooling agreement, deed of trust, contract
                or
                other agreement or instrument to which Seller is a party or is bound;
                or
                (ii) result in the violation of or conflict with any law, rule,
                regulation, order, judgment or decree of any court or governmental
                authority having jurisdiction over
                Seller.

            

    

     

    
      	 	
              (c)

            	
              This
                Agreement has been duly and validly authorized, executed and delivered
                by
                Seller and, assuming the due authorization, execution and delivery
                hereof
                by Purchaser, constitutes a legal, valid and binding obligation of
                Seller,
                enforceable against Seller in accordance with its terms, except as
                such
                enforcement may be limited by bankruptcy, insolvency, reorganization,
                receivership or moratorium or other similar laws affecting creditors’
                rights, and by the availability of equitable remedies (including
                specific
                performance and injunctive relief), regardless of whether such enforcement
                is considered in a proceeding in equity or at law, and except as
                enforcement of the indemnification provisions thereof may be limited
                by
                public policy.

            

    

     

    
      	 	
              (d)

            	
              Seller
                is not in default with respect to any order or decree of any court
                or any
                order, regulation or demand of any federal, state, municipal or
                governmental agency, which default would materially and adversely
                affect
                its performance of this Agreement.

            

    

     

    
      	 	
              (e)

            	
              There
                is no action, suit or proceeding before or by any court or governmental
                agency or body now pending or, to Seller’s knowledge, threatened, which,
                if determined adversely to Seller, would materially and adversely
                affect
                the ability of Seller to perform and comply with the terms of this
                Agreement.

            

    

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (f)

            	
              Seller
                has the full corporate power and authority to purchase, hold and
                transfer
                the Conveyed Assets and to execute and deliver, engage in the transactions
                contemplated by, and perform and observe the terms and conditions
                of, this
                Agreement.

            

    

     

    
      	 	
              (g)

            	
              No
                consent, approval, authorization or order of, or registration or
                filing
                with, or notice to, any court, governmental agency or body or supervisory
                agent, in each case which has not been obtained, made, or given,
                as
                applicable, is required for the execution, delivery and performance
                by
                Seller of or compliance by Seller with this Agreement or the consummation
                by Seller of the transactions contemplated by this
                Agreement.

            

    

     

    
      	 	
              (h)

            	
              Seller
                does not believe, nor does it have any reason or cause to believe,
                that it
                cannot perform each and every covenant of Seller contained in this
                Agreement.

            

    

     

    
      	 	
              (i)

            	
              The
                consummation of the transactions contemplated by this Agreement is
                being
                undertaken in the ordinary course of business of Seller and the transfer,
                assignment and conveyance of the Conveyed Assets pursuant to this
                Agreement are not subject to the bulk transfer or any similar statutory
                provisions in effect in any relevant
                jurisdiction.

            

    

     

    
      	 	
              (j)

            	
              From
                and after the Closing Date, Seller will record in its books and records
                and report the transfer of the Conveyed Assets to Purchaser as a
                sale for
                federal income tax purposes and pursuant to generally accepted accounting
                principles.

            

    

     

    
      	 	
              (k)

            	
              Seller
                has not dealt with any broker, investment banker or agent or other
                person
                other than the Underwriter that may be entitled to any commission
                or
                compensation in connection with the sale of the Conveyed Assets to
                Purchaser.

            

    

     

    
      	 	
              (l)

            	
              The
                consideration received by Seller upon the sale of the Conveyed Assets
                under this Agreement constitutes fair consideration and reasonably
                equivalent value to Seller for the Conveyed
                Assets.

            

    

     

    
      	 	
              (m)

            	
              Seller
                will be solvent at all relevant times prior to, and will not be rendered
                insolvent by, the sale of the Conveyed Assets. The Seller will not
                be left
                with unreasonably small capital to conduct its business as a result
                of the
                sale hereunder and Seller believes that it will be able to, and it
                intends
                to, pay its debts as they mature. The sale of the Conveyed Assets
                is not
                undertaken with the intent to hinder, delay, or defraud any of Seller’s
                creditors.

            

    

     

    
      	 	
              (n)

            	
              Seller
                hereby represents and warrants to Purchaser, as to each of the Conveyed
                Assets as of the Closing Date,
                that:

            

    

     

    
      	 	
              (i)

            	
              All
                steps necessary to transfer all of Seller’s right, title and interest in
                and to the Conveyed Assets have been taken by
                Seller;

            

    

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              Immediately
                prior to the transfer contemplated by this Agreement, Seller is the
                sole
                owner and holder of the Conveyed Assets free and clear of any and
                all
                liens, pledges, charges or security interests of any nature and has
                full
                right and authority, subject to no interest or participation of or
                agreement with any other party, to sell and assign the same pursuant
                to
                this Agreement;

            

    

     

    
      	 	
              (iii)

            	
              Seller
                has acquired the Conveyed Assets in the ordinary course of its business,
                in good faith, for value and without notice of any claim against
                or claim
                to the Conveyed Assets on the part of any person;
                and

            

    

     

    
      	 	
              (iv)

            	
              Seller
                has no actual or constructive knowledge or notice of any interest
                in the
                Conveyed Assets contrary to the Trustee’s interest under the Pooling
                Agreement. 

            

    

     

    
      	 	
              (o)

            	
              Seller
                hereby represents and warrants to Purchaser as to the Certificates,
                that:

            

    

     

    
      	 	
              (i)

            	
              If
                the Seller ever sells any of the Certificates, it will sell at least
                25%
                of its beneficial ownership interest in the Certificates to one or
                more
                unaffiliated third parties; and

            

    

     

    
      	 	
              (ii)

            	
              If
                Seller ever owns more than 75% of the beneficial ownership interest
                in the
                Certificates, it will own 100% of the
                Certificates.

            

    

     

    Section
      3.2 Representations,
      Warranties and Covenants of Purchaser.
      Purchaser hereby affirms to Seller and the Trustee that each of the following
      representations and warranties is true and correct as of the Closing
      Date:

     

    
      	 	
              (a)

            	
              Purchaser
                is a corporation, duly incorporated, validly existing and in good
                standing
                under the laws of the State of Delaware, with corporate power and
                authority to execute and deliver this Agreement and to perform its
                obligations hereunder.

            

    

     

    
      	 	
              (b)

            	
              The
                execution and delivery of this Agreement by Purchaser, the consummation
                of
                the transactions contemplated hereby, and the fulfillment of and
                compliance with the terms and conditions hereof, will not (i) conflict
                with or result in a breach of or give rise to any default under any
                of the
                terms, conditions or provisions of Purchaser’s charter or by-laws or any
                term or provision of any material pooling agreement, deed of trust,
                contract or other agreement or instrument to which Purchaser is a
                party or
                is bound; or (ii) result in the violation of or conflict with any
                law,
                rule, regulation, order, judgment or decree of any court or governmental
                authority having jurisdiction over
                Purchaser.

            

    

     

    
      	 	
              (c)

            	
              This
                Agreement has been duly and validly authorized, executed and delivered
                by
                Purchaser and, assuming the due authorization, execution and delivery
                hereof by Seller, constitutes a legal, valid and binding obligation
                of
                Purchaser, enforceable against Purchaser in accordance with its terms,
                except as such enforcement may be limited by bankruptcy, insolvency,
                reorganization, receivership or moratorium or other similar laws
                affecting
                creditors’ rights, and by the availability of equitable remedies
                (including specific performance and injunctive relief), regardless
                of
                whether such enforcement is considered in a proceeding in equity
                or at
                law, and except as enforcement of the indemnification provisions
                thereof
                may be limited by public policy.

            

    

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (d)

            	
              Purchaser
                is not in default with respect to any order or decree of any court
                or any
                order, regulation or demand of any federal, state, municipal or
                governmental agency, which default would materially and adversely
                affect
                its performance of this Agreement.

            

    

     

    
      	 	
              (e)

            	
              There
                is no action, suit or proceeding before or by any court or governmental
                agency or body now pending or, to Purchaser’s knowledge, threatened,
                which, if determined adversely to Purchaser, would materially and
                adversely affect the ability of Purchaser to perform and comply with
                the
                terms of this Agreement.

            

    

     

    
      	 	
              (f)

            	
              Purchaser
                has the full corporate power and authority to execute and deliver,
                engage
                in the transactions contemplated by, and perform and observe the
                terms and
                conditions of, this Agreement.

            

    

     

    
      	 	
              (g)

            	
              No
                consent, approval, authorization or order of, or registration or
                filing
                with, or notice to, any court, governmental agency or body or supervisory
                agent, in each case which has not been obtained, made, or given,
                as
                applicable, is required for the execution, delivery and performance
                by
                Purchaser of or compliance by Purchaser with this Agreement or the
                consummation by the Purchaser of the transactions contemplated by
                this
                Agreement.

            

    

     

    
      	 	
              (h)

            	
              Purchaser
                does not believe, nor does it have any reason or cause to believe,
                that it
                cannot perform each and every covenant of Purchaser contained in
                this
                Agreement.

            

    

     

    Section
      3.3 Additional
      Documents and Actions.
      Seller
      agrees to use its best efforts to furnish (or cause to be furnished) such
      information and to execute, deliver and file, or cause to be executed, delivered
      and filed, such documents or instruments as the Purchaser may reasonably request
      in connection with the transactions herein contemplated and the issuance of
      the
      Certificates, including, but not limited to, officers’ certificates, financing
      statements, transfer instructions, opinions of counsel and letters of
      accountants in order to effectuate the purposes, terms and conditions of this
      Agreement. Seller shall pay, or take all such actions as may be necessary to
      cause to be paid, all Assigned Distributions to the Trustee for deposit into
      the
      Distribution Account established pursuant to the Pooling Agreement.

     

    Section
      3.4 Costs
      and Expenses.
      Seller
      will pay all costs and expenses in connection with the transfer and delivery
      of
      the Conveyed Assets in the manner contemplated herein.

     

    ARTICLE
      IV

     

    MISCELLANEOUS

     

    Section
      4.1 Notices.
      

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    All
      demands, notices and communications hereunder shall be in writing and shall
      be
      deemed to have been duly given if mailed by registered or certified mail, return
      receipt requested, or, if by other means, when received by the other party
      or at
      the following addresses or such other address as may hereinafter be furnished
      to
      the other party by like notice. 

     

    
      	
                                Seller: 

            	 	
              UBS
                Securities LLC

              1285
                Avenue of the Americas, 11th
                Floor

              New
                York, NY 10019 

              Attn:
                Agnes Teng

            

    

     

    
      	
              Purchaser: 

            	 	
              First
                Horizon Asset Securities Inc.

              4000
                Horizon Way

              Irving,
                Texas 75063

              Attn:
                Alfred Chang

            

    

       

           
      Any such demand, notice or communication hereunder shall be deemed to have
      been
      given on the date delivered to the premises of the addressee (as evidenced,
      in
      the case of registered or certified mail, by the date noted on the return
      receipt).

     

    Section
      4.2 Severability
      Clause.

     

    Any
      part,
      provision, representation or warranty of this Agreement which is prohibited
      or
      which is held to be void or unenforceable shall be ineffective to the extent
      of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof. To the extent permitted by applicable law, the parties hereto
      waive any provision of law which prohibits or renders void or unenforceable
      any
      provision hereof.

     

    Section
      4.3 Counterparts.

     

     For
      the purpose of facilitating the execution and proving of this Agreement, as
      herein provided and for other purposes, this Agreement may be executed
      simultaneously in any number of counterparts, each of which counterparts shall
      be deemed to be an original, and such counterparts shall constitute but one
      and
      the same instrument.

     

    Section
      4.4 Place
      of Delivery and Governing Law.

     

     The
      Agreement shall be construed in accordance with the laws of the State of New
      York (without regard to conflict of laws principles and the application of
      the
      laws of any other jurisdiction) and the obligations, rights and remedies of
      the
      parties hereunder shall be determined in accordance with such laws.

     

    Section
      4.5 Remedies
      Cumulative; No Waiver.

     

     All
      rights and remedies of each party or any successor or assignee of such party
      shall, to the extent permitted by law, be deemed cumulative and not exclusive
      of
      any thereof or of any other rights and remedies available to such party or
      such
      successors or assigns; and no failure to exercise any right or power accruing
      upon any default occurring and continuing as aforesaid shall impair any such
      right or power, or shall be construed to be a waiver of any such default or
      an
      acquiescence therein; and every right and remedy arising under this Agreement
      or
      by law to a party or such successors or assigns may be exercised from time
      to
      time, and as often as shall be deemed expedient, by such party or such
      successors or assigns.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    Section
      4.6 Miscellaneous.

     

     This
      Agreement may be amended or supplemented from time to time only with the written
      consent of Seller, Purchaser and any assignee of Purchaser. This Agreement
      contains the entire understanding and agreement of the parties and supersedes
      and incorporates all prior negotiations, understandings and agreements which
      are
      fully merged herein.

     

    Section
      4.7 Agreement
      of Seller.

     

     Seller
      agrees to execute and deliver such instruments and take such actions as
      Purchaser may, from time to time, reasonably request in order to effectuate
      the
      purposes and to carry out the terms of this Agreement.

     

    Section
      4.8 Successors
      and Assigns.

     

     This
      Agreement shall bind and inure to the benefit of and be enforceable by and
      against Seller, Purchaser, and their respective successors and assigns. Each
      party hereto shall have the right to assign its rights, but not its obligations,
      hereunder without the consent of the other parties.

     

    Section
      4.9 Survival.

     

     Article
      IV
      hereto
      shall survive the consummation of the transactions contemplated
      hereby.

     

    Section
      4.10 Intention
      of Parties.

     

     It
      is the intention of Seller and Purchaser that the sale, transfer, assignment
      and
      conveyance herein contemplated constitute a sale of the Conveyed Assets
      conveying good title thereto, free and clear of any liens and encumbrances,
      from
      Seller to Purchaser and that the Conveyed Assets not be part of Seller’s estate
      in the event of an insolvency, and any filing of any financing statement under
      the Uniform Commercial Code, as in effect in any applicable jurisdiction, should
      not be construed as a conclusion that a sale has not occurred. In the event
      that
      such conveyance is deemed by any court of competent jurisdiction to be a loan
      or
      financing notwithstanding the express intent of the parties to the contrary,
      then and only in such event, the parties intend that Seller shall be deemed
      to
      have granted to Purchaser a security interest in all of Seller’s right, title
      and interest in the Conveyed Assets, that such loan or financing shall be
      non-recourse, that the Conveyed Assets and the proceeds of the Conveyed Assets
      constituting the sole source for the repayment of such loan and that this
      Agreement shall constitute a security agreement under applicable
      law.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

        
        

      

    

         
IN
      WITNESS WHEREOF, Seller and
      Purchaser have caused their names to be signed hereto by their respective
      officers thereunto duly authorized, all as of the day and year first above
      written.

    

      	 	 	 
	 	
              SELLER:

               

               

              UBS SECURITIES LLC

            
	 
 	 
 	 
 
	 	By:  	 
	 	
              Name:

            	 
	 	Title:	 

    

    
      	 	 	 
	 	
               

               

              PURCHASER:

               

               

              FIRST HORIZON ASSET SECURITIES INC.

            
	 
 	 
 	 
 
	 	
              By: 

            	 
	 	
              Name:

            	 Alfred Chang
	 	Title:	 Vice President-7-

                                                                   EXHIBIT 10.34

                                 AMENDMENT NO. 5

       AMENDMENT NO. 5 dated as of May 6, 2006 (this "Amendment") by and among
Quaker Fabric Corporation of Fall River, a Massachusetts corporation (the
"Borrower"), Quaker Fabric Corporation, a Delaware corporation (the "Parent" and
together with the Borrower and the Guarantors signatory hereto, the "Loan
Parties"), Bank of America, N.A. and the other lenders party hereto
(collectively, the "Lenders", and individually, a "Lender") and Bank of America,
N.A., as Administrative Agent, Issuing Bank and Cash Management Bank.

       WHEREAS, the Parent, the Borrower, the Lenders party thereto, the
Administrative Agent, the Issuing Bank and the Cash Management Bank are parties
to that certain Revolving Credit and Term Loan Agreement, dated as of May 18,
2005 (as amended and in effect from time to time, the "Credit Agreement");

       WHEREAS, the Loan Parties have requested that the Administrative Agent
and the Lenders amend certain of the terms and provisions of the Credit
Agreement, as specifically set forth in this Amendment; and

       WHEREAS, the Loan Parties have informed the Administrative Agent and the
Lenders that the Loan Parties have engaged Alvarez and Marsal Securities, LLC
("AMS") to provide certain additional services to the Loan Parties, as set forth
in an engagement letter, dated June __, 2006, between the Parent and AMS.

       NOW THEREFORE, in consideration of the premises and the mutual agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

       Section l. Definitions. Except as otherwise defined in this Amendment,
terms defined in the Credit Agreement are used herein as defined therein.

       Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 3 herein, the Credit Agreement shall be amended
as follows:

       (a)    Section 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Applicable Margin" contained therein and substituting in lieu
thereof the following:

              "Applicable Margin. With respect to Revolving Loans that are Base
       Rate Loans, 3.00%, with respect to Revolving Loans that are LIBOR Rate
       Loans, 4.50%, with respect to all or a portion of the Term Loan that is a
       Base Rate Loan, 3.75%, and with respect to all or a portion of the Term
       Loan that is a LIBOR Rate Loan, 5.25%."

       (b)    Section 1.1 of the Credit Agreement is hereby further amended by
deleting the definition of "Availability Reserve" contained therein and
substituting in lieu thereof the following new definition:

<PAGE>

                                       -8-

       "Availability Reserve. At any time during a period set forth in the table
below, the dollar amount set forth opposite such period in the table below:

--------------------------------------------------------------------------------
                Period                                 Availability Reserve
--------------------------------------------------------------------------------
May 6, 2006 through May 25, 2006                            $7,500,000
--------------------------------------------------------------------------------
May 26, 2006 through June 24, 2006                          $6,250,000
--------------------------------------------------------------------------------
June 25, 2006 through July 1, 2006                          $4,250,000
--------------------------------------------------------------------------------
July 2, 2006 through July 8, 2006                           $3,250,000
--------------------------------------------------------------------------------
July 9, 2006 through August 19, 2006                        $2,250,000
--------------------------------------------------------------------------------
August 20, 2006 through September 17, 2006                  $3,500,000
--------------------------------------------------------------------------------
September 18, 2006 through December 15, 2006                $4,000,000
--------------------------------------------------------------------------------
December 16, 2006 and thereafter                            $5,000,000
--------------------------------------------------------------------------------

       (c)    Section 1.1 of the Credit Agreement is hereby further amended by
deleting the definition of "Consolidated EBITDA" contained therein and
substituting in lieu thereof the following:

              "Consolidated EBITDA. For any period, (a) the net income (or
       deficit) of the Parent and its Subsidiaries (determined on a consolidated
       basis without duplication in accordance with GAAP) for such period, plus
       (b) to the extent deducted in calculating net income (i) income taxes
       accrued during such period, (ii) interest and fees in respect of
       Indebtedness (including amounts accrued or paid in respect of Derivative
       Agreements) during such period (whether or not actually paid in cash
       during such period), (iii) depreciation, amortization and other non-cash
       charges (including asset impairment charges) accrued for such period,
       (iv) Eligible Non-Recurring Charges for such period, (v) extraordinary
       losses during such period, (vi) costs and expenses incurred by the Loan
       Parties and their Subsidiaries in connection with the Parent's retention
       of the Additional Financial Consultant (as defined in ss.7.21), (vii)
       severance charges incurred by the Loan Parties, (viii) up to $300,000 per
       month of plant consolidation expenses specifically identified to the
       satisfaction of the Administrative Agent, and (ix) transaction costs
       incurred in connection with the Fifth Amendment, minus (c) to the extent
       such items were added in calculating net income (i) extraordinary gains
       during such period and (ii) proceeds received during such period in
       respect of Casualty Events and dispositions of any property (other than
       dispositions in the ordinary course of business on ordinary business
       terms)."

       (d)    Section 1.1 of the Credit Agreement is hereby further amended by
inserting the following new definitions in appropriate alphabetical order:

       "Bleachery Pond Property. That certain parcel of land located in Fall
River, Massachusetts, as more specifically described on Schedule 8.5.2."

<PAGE>

                                       -9-

              "Consolidated Net Cash Flow. For any period, an amount equal to
       the difference of total cash receipts of the Borrower (excluding proceeds
       from the sale of Real Estate and equipment permitted hereunder, Revolving
       Loans and any other incurrence of Indebtedness) for such period, minus,
       cash disbursements for operating expenses (excluding Consolidated
       Interest Expense paid in cash during such period, fees paid in cash to
       the Additional Financial Consultant during such period and plant
       consolidation expenses (provided that such plant consolidation expenses
       shall not exceed $300,000 per month), specifically identified to the
       satisfaction of the Administrative Agent) of the Borrower for such
       period, minus Capital Expenditures made during such period, minus
       scheduled principal payments of Term Loan made during such period."

              "Fifth Amendment. That certain Amendment No. 5, dated as of May 6,
       2006, by and among the parties hereto."

              "Plant D. That certain plant located in Fall River, Massachusetts,
       as more specifically described on Schedule 8.5.2."

              "Plant I. That certain plant located in Somerset, Massachusetts,
       as more specifically described on Schedule 8.5.2."

              "Projections. Those certain treasury cash flow forecasts of
       receipts and disbursements delivered to the Administrative Agent pursuant
       to Section 3(e) of the Fifth Amendment, as such forecasts may be updated
       from time to time pursuant to Section 7.4(n)."

       (e)    Section 3.2.1(c)(i) of the Credit Agreement is hereby amended by
deleting the text "in excess of $100,000 in any Fiscal Year or $500,000 in the
aggregate during the term of this Credit Agreement, which have not been utilized
by the Parent or such Subsidiary to replace the assets disposed of within sixty
(60) days of such Asset Sale".

       (f)    Section 3.2.1(c) of the Credit Agreement is hereby amended by
inserting the following text immediately after the last paragraph contained
therein:

              "Notwithstanding anything contained in this clause (c) to the
       contrary, (a) with respect to a disposition of the Bleachery Pond Land,
       the Borrower shall only be required to pay to the Administrative Agent
       seventy-five percent (75%) of the net cash proceeds received from such
       disposition pursuant to this clause (c); (b) with respect to a
       disposition of Plant I, the Borrower shall only be required to pay to the
       Administrative Agent fifty percent (50%) of the net cash proceeds
       received from such disposition pursuant to this clause (c); and (c) with
       respect to a disposition of Plant D the Borrower shall only be required
       to pay to the Administrative Agent, twenty-five percent (25%) of the net
       cash proceeds received from such disposition pursuant to this clause (c),
       so long as, in each case, the net cash proceeds retained by the Borrower
       are used for working capital purposes of the Borrower."

<PAGE>

                                      -10-

       (g)    The Credit Agreement is hereby further amended by deleting Section
8.5.2 thereof and substituting in lieu thereof the following:

              "Neither the Parent nor the Borrower will, or will permit any of
       their Subsidiaries to, become a party to or agree to or effect any
       disposition of any assets, other than (a) the sale of inventory, the
       licensing of intellectual property and the disposition of obsolete
       assets, in each case in the ordinary course of business consistent with
       past practices and (b) the sales of the real property, fixtures,
       machinery and equipment located at the facilities identified on Schedule
       8.5.2 hereto; provided that (i) the amount of net cash proceeds received
       by the Borrower from such sale is acceptable to the Administrative Agent
       and (ii) all of the net cash proceeds from such sale are applied,
       contemporaneously upon receipt, in accordance with ss.3.2.1. In
       connection with any disposition of assets permitted under this ss.8.5.2,
       each of the Lenders authorizes the Administrative Agent to execute and
       deliver any collateral releases necessary to release its liens on such
       assets."

       (h)    Section 7.4 of the Credit Agreement is hereby amended by deleting
the text "and" contained immediately after subsection (k) thereof, deleting the
period contained at the end of subsection (l) thereof and substituting in lieu
thereof the text "; and" and by inserting the following new subsections:

              "(m) On Wednesday of each week, a comparison of actual results for
       the immediately prior one week period to the previously projected results
       for such one week period as set forth in the Projections; and

              (n) Within five (5) Business Days after the end of each month, an
       updated treasury cash flow forecast reflecting any changes to the
       previously provided Projections."

       (i)    The Credit Agreement is hereby further amended by deleting Section
9.1 thereof and substituting in lieu thereof the following:

              "9.1. Minimum Consolidated EBITDA. The Parent and the Borrower
       shall not permit Consolidated EBITDA, determined as at the end of each
       month set forth in the table below for the period of the two (2)
       consecutive prior months then ending, to be less than the amount set
       forth opposite such month in such table:

--------------------------------------------------------------------------------
                 Month                           Minimum Consolidated EBITDA
--------------------------------------------------------------------------------
             April of 2006                             ($1,275,000)
--------------------------------------------------------------------------------
             May of 2006                                 ($750,000)
--------------------------------------------------------------------------------
             June of 2006                                 ($55,000)
--------------------------------------------------------------------------------
             July of 2006                              ($2,100,000)
--------------------------------------------------------------------------------
             August of 2006                            ($1,750,000)
--------------------------------------------------------------------------------

<PAGE>

                                      -11-

--------------------------------------------------------------------------------
             September of 2006                            $950,000
--------------------------------------------------------------------------------
             October of 2006                            $1,300,000
--------------------------------------------------------------------------------
             November of 2006                           $1,550,000
--------------------------------------------------------------------------------
             December of 2006                           $1,200,000
--------------------------------------------------------------------------------
             January of 2007                            $1,200,000
--------------------------------------------------------------------------------
             February of 2007                           $1,200,000
--------------------------------------------------------------------------------

       (j)    The Credit Agreement is hereby further amended by deleting Section
9.2 thereof and substituting in lieu thereof the following:

              "9.2. Fixed Charge Coverage Ratios.

              (a)    Fixed Charge Coverage Ratio. The Parent and the Borrower
       shall not permit the Fixed Charge Coverage Ratio, determined as of the
       end of each Fiscal Quarter, commencing with FQ1 of 2007, to be less than
       1.15:1.00.

              (b)    Two Quarter Fixed Charge Coverage Ratio. The Parent and the
       Borrower shall not permit the Two Quarter Fixed Charge Coverage Ratio,
       determined as of the end of FQ1 of 2007, to be less than 1.0:1.0."

       (k)    The Credit Agreement is hereby further amended by inserting the
following new Section immediately after Section 9.3 contained therein:

              "9.4. Minimum Consolidated Net Cash Flow. The Parent and the
       Borrower will not permit the negative variance between (a) actual
       Consolidated Net Cash Flow for any period of four (4) weeks (measured as
       at the end of each week (commencing with the week ending July 1, 2006)
       for the four (4) week period then ending) and (b) projected Consolidated
       Net Cash Flow for such period (as set forth in the Projections delivered
       to the Administrative Agent pursuant to Section 3(e) of the Fifth
       Amendment or, only if such updated Projections are acceptable to the
       Administrative Agent, pursuant to Section 7.4(n)) to be more than an
       amount equal to the greater of (x) $150,000 and (y) fifteen percent (15%)
       of such projected Consolidated Net Cash Flow)."

       (l)    The Credit Agreement is hereby further amended by adding Schedule
8.5.2, as attached hereto, in its entirety, immediately after Schedule 8.3.1.

       (m)    The Credit Agreement is hereby further amended by deleting Section
3(k) contained in the Waiver and Amendment No. 4, dated as of March 22, 2005, by
and among the parties hereto, in its entirety.

<PAGE>

                                      -12-

       Section 3. Conditions Precedent. The Administrative Agent, the Lenders,
and each of the Loan Parties agree that this Amendment shall become effective as
of May 6, 2006 upon the satisfaction of the following conditions precedent, each
in form and substance reasonably satisfactory to the Agent:

       (a)    The Loan Parties and the Required Lenders shall have executed and
delivered to the Administrative Agent this Amendment;

       (b)    After giving effect to this Amendment, the representations and
warranties of each of the Loan Parties in each of the Loan Documents to which it
is a party shall be true and correct on and as of the date hereof, except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date;

       (c)    As of the date hereof, after giving effect to this Amendment,
there shall be no Default or Event of Default existing;

       (d)    The Administrative Agent and the Lenders shall have received
payment for all fees and expenses including, without limitation, reasonable
legal fees and expenses, for which invoices or reasonable estimates therefor
have been provided to the Borrower on or prior to the date hereof; and

       (e)    The Administrative Agent and the Lenders shall have received a
treasury cash flow forecast for the remaining months of Fiscal Year 2006 in
reasonable detail (including, without limitation, a projection of disbursements
and receipts for each 13 week period contained therein), in form and substance
satisfactory to the Administrative Agent (the Administrative Agent and the
Lenders confirm receipt of such satisfactory forecast).

       Section 4. Amendment Fee. The Borrower hereby covenants and agrees to pay
to the Administrative Agent, for the pro rata account of each Lender executing
this Amendment, an amendment fee in the amount of $469,900 (the "Amendment
Fee"). The parties hereto hereby acknowledge and agree that the Amendment Fee
shall be fully earned on the date hereof and shall be payable in monthly
installments of $25,000 on each of June 1, 2006, July 1, 2006, August 1, 2006,
September 1, 2006, October 1, 2006, November 1, 2006 and December 1, 2006, with
the balance of $294,900, due and payable on December 31, 2006.

       Section 5. Additional Financial Consultant. The Borrower shall continue
the engagement of the Additional Financial Consultant on terms and conditions
satisfactory to the Administrative Agent.

       Section 6. Representations and Warranties. Each of the Loan Parties
hereby represents and warrants to the Lenders as follows:

       (a)    The execution and delivery by the Borrower and each Guarantor and
the performance by each of the Borrower and each Guarantor of each of its

<PAGE>

                                      -13-

obligations and agreements under this Amendment and the Credit Agreement and the
other Loan Documents, as amended hereby, are within the organizational authority
of each such Person, have been duly authorized by all necessary proceedings on
behalf of each such Person, and do not and will not contravene any provision of
law, statute, rule or regulation to which any such Person is subject or any of
such Person's organizational documents or of any agreement or other instrument
binding upon any such Person;

       (b)    This Amendment and the Credit Agreement and the other Loan
Documents, as amended hereby, constitute legal, valid and binding obligations of
each of the Borrower and each Guarantor, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of
creditors' rights in general, and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);

       (c)    No approval or consent of, or filing with, any governmental agency
or authority is required to make valid and legally binding the execution,
delivery or performance by the Borrower and/or each Guarantor of this Amendment
or the Credit Agreement and the other Loan Documents as amended hereby, except
for such filings which have been made prior to the date hereof and are in full
force and effect;

       (d)    After giving effect to this Amendment, the representations and
warranties contained in Section 6 of the Credit Agreement are true and correct
at and as of the date made and as of the date hereof, except to the extent of
changes resulting from transactions contemplated or permitted by the Credit
Agreement and the other Loan Documents and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially adverse,
and to the extent that such representations and warranties relate expressly to
an earlier date; and

       (e)    Each of the Borrower and each Guarantor has performed and complied
in all material respects with all terms and conditions herein required to be
performed or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists no Event
of Default or Default.

       Section 7. Affirmation and Acknowledgment.

       (a)    The Borrower hereby ratifies and confirms all of its Obligations
to the Administrative Agent and the Lenders and the Borrower hereby affirms its
absolute and unconditional promise to pay to the Lenders the Loans and all other
amounts due under the Credit Agreement, as amended hereby. The Borrower hereby
confirms that the Obligations are and remain secured pursuant to the Security
Documents, and pursuant to all other instruments and documents executed and
delivered by the Borrower as security for the Obligations.

       (b)    Each Guarantor hereby acknowledges the provisions of this
Amendment and hereby confirms and ratifies all of its obligations under the
Guaranty and each Loan Document (as amended hereby) to which such Guarantor is a
party. Each Guarantor hereby confirms (i) that the Guaranties and each of the
other Loan Documents remain in full force and effect and (ii) that its
obligations under the Guaranty to which it is a party are and remain secured
pursuant to the Security Documents to which it is a party.

<PAGE>

                                      -14-

       Section 8. No Waiver. Except as otherwise expressly provided for in this
Amendment, all of the terms and conditions of the Credit Agreement and the other
Loan Documents shall remain in full force and effect without modification or
waiver.

       Section 9. Expenses. The Borrower agrees to pay to the Administrative
Agent and the Lenders upon written demand therefor an amount equal to any and
all reasonable out-of-pocket costs, expenses, and liabilities incurred or
sustained by the Administrative Agent and the Lenders in connection with the
preparation of this Amendment, and the on-going administration of the Loan
Documents after the date hereof (including, without limitation, travel expenses
and reasonable fees and expenses of legal counsel). Amounts payable pursuant to
this Section 9 shall be subject to the provisions of Section 15 of the Credit
Agreement, as fully as if set forth therein.

       Section 10. Miscellaneous.

       (a)    This Amendment shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts.

       (b)    This Amendment shall constitute a Loan Document under the Credit
Agreement, and all obligations included in this Amendment (including, without
limitation, all obligations for the payment of principal, interest, fees, and
other amounts and expenses) shall constitute obligations under the Loan
Documents and be secured by the collateral security for the Obligations.

       (c)    This Amendment may be executed in any number of counterparts, and
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.

                  [Remainder of page intentionally left blank]

<PAGE>

       IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.

                                        QUAKER FABRIC CORPORATION OF
                                        FALL RIVER
                                        QUAKER FABRIC CORPORATION
                                        QUAKER TEXTILE CORPORATION
                                        QUAKER FABRIC MEXICO, S.A. de C.V.

                                        By:
                                            ------------------------------------
                                            Name: Paul J. Kelly
                                            Title: Vice President Finance

<PAGE>

                                        BANK OF AMERICA, N.A. individually and
                                        as Administrative Agent, Issuing Bank
                                        and Cash Management Bank

                                        By:
                                            ------------------------------------
                                            Name: Matthew T. O'Keefe
                                            Title: Senior Vice President

                                        WELLS FARGO FOOTHILL, LLC

                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

                                        MERRILL LYNCH CAPITAL, A DIVISION OF
                                        MERRILL LYNCH BUSINESS FINANCIAL
                                        SERVICES INC.

                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

<PAGE>

                                                                  Schedule 8.5.2
                                                                  --------------

       Property

Plant D - Land and buildings located at 537 Quequechan Street, Fall River MA.
Land 4.83 acres. Book/Page 1401-17

Plant I - Land and building located at 3129 County Street, Somerset Ma.
Assessors parcel E5-333

Bleachery Pond - Approximately 66 acres of land located at Hiatt Street, Fall
River MA. Book/Page 3650-182

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