Document:

EXHIBIT 10.43

                        ENVIRONMENTAL INDEMNITY AGREEMENT

                  THIS  ENVIRONMENTAL  INDEMNITY  AGREEMENT (this  "AGREEMENT"),
made as of  November  9,  2006,  Quaker  Fabric  Corporation  of Fall  River,  a
Massachusetts  corporation  (the  "BORROWER"),  Quaker  Textile  Corporation,  a
Massachusetts  corporation  ("QUAKER  TEXTILE"),  Quaker Fabric Mexico,  S.A. de
C.V., a Mexico corporation ("QUAKER MEXICO"),  and Quaker Fabric Corporation,  a
Delaware corporation (the "PARENT",  and together with Quaker Textile and Quaker
Mexico,  the "GUARANTORS")  (each of the Borrower and Guarantors being sometimes
referred to herein as an "INDEMNITOR" and collectively,  as the  "INDEMNITORS"),
to GB Merchant Partners, LLC, as Administrative Agent and 1903 Debt Fund, LP and
the other financial  institutions from time to time party thereto (collectively,
the "LENDERS" and the Administrative  Agent,  collectively,  together with their
officers, directors, employees,  shareholders,  members, successors and assigns,
the "INDEMNITEES").

                                    RECITALS

                  WHEREAS,  Indemnitor  is the owner  and/or  lessee of the Real
Property described on Exhibit A attached hereto,  together with all improvements
dated  thereon (the "REAL  PROPERTY")  and has the  exclusive  rights to manage,
control and operate the Real Property;

                  WHEREAS,  pursuant to that certain Term Loan Agreement,  dated
as of the date hereof, by and among the Borrower, the Parent, the Administrative
Agent,  the Lenders and the Indemnitees (as amended,  modified and  supplemented
and in effect from time to time, the "CREDIT  AGREEMENT",  all capitalized terms
used herein without  definitions shall have the respective  meanings ascribed to
such  terms in the  Credit  Agreement),  at the  request  of the  Borrower,  the
Indemnitees agreed to make loans (the "Term Loans") to the Borrower,  which Term
Loans are secured,  in part,  by those certain  mortgages,  dated as of the date
hereof, by the Borrower to the Indemnitees encumbering the Real Property (as the
same may be amended, modified,  supplemented or restated and in effect from time
to time, collectively, the "SECURITY INSTRUMENTS") ;

                  WHEREAS,  the Borrower has  disclosed to the  Indemnitees  the
existence of certain Environmental Conditions at the Real Property; and

                  WHEREAS,  the Indemnitees are unwilling to make the Term Loans
unless the Indemnitors  indemnify the Indemnitees  against  liabilities  arising
under  Environmental  Laws (as herein defined),  relating to those disclosed and
any undisclosed Environmental Conditions at the Real Property.

                  NOW,  THEREFORE,  in  consideration  of the making of the Term
Loans by the  Indemnitees  and the covenants,  agreements,  representations  and
warranties set forth in this Agreement and the Term Loan Agreement,  the parties
hereby covenant, agree, represent and warrant as follows:
<PAGE>

                  1.  Defined  Terms.  Unless the  context  otherwise  requires,
capitalized  terms used but not otherwise defined herein shall have the meanings
provided  therefore in the Term Loan  Agreement,  and the following  terms shall
have the following meanings:

                  "ENVIRONMENTAL CLAIM" means any notice,  notification,  claim,
administrative, regulatory or judicial action, suit, judgment, demand, decree or
other communication by any Person or Governmental Authority requiring,  alleging
or asserting  liability  with respect to the  Indemnitors  or the Real  Property
pursuant   to   Environmental   Laws,   whether   for   damages,   contribution,
indemnification,  cost recovery, compensation, injunctive relief, investigatory,
assessment,  monitoring, response, remedial or cleanup costs, damages to natural
resources,  real property damage, personal injuries,  fines or penalties arising
out of,  based on or  resulting  from or related to (a) the  presence or alleged
presence,  Use,  Release  or  threatened  Release  of any  Hazardous  Substances
originating,  at or from, migrating to or from or otherwise affecting,  the Real
Property  or  any  part  thereof,  (b)  any  fact,  circumstance,  condition  or
occurrence  forming the basis of any  violation,  or alleged  violation,  of any
Environmental Law by the Indemnitors,  the Real Property or any part thereof, or
(c) any alleged injury or threat of injury to health,  safety or the environment
by the Indemnitors or relating the Real Property or any part thereof.

                  "ENVIRONMENTAL  CONDITIONS" means any environmental  condition
(a) constituting or which with the passage of time or lack of Remediation  would
or would likely constitute a violation of Environmental Laws,  including but not
limited to the presence of any Hazardous  Substances  requiring reporting and/or
the  performance of response  actions under  Massachusetts  General Laws Chapter
21E, or (b) that  requires  reporting,  investigation,  assessment,  monitoring,
remediation or other response actions or would allow any Governmental  Authority
to record a lien or  encumbrance  in the land  records  with respect to the Real
Property or an Environmental Claim.  Submission to the Massachusetts  Department
of Environmental  Protection of a Class A or B Response Action Outcome Statement
by a Licensed  Site  Professional  (as defined in Mass.  Gen. L. ch. 21E,  ss.2)
pursuant to, and in compliance with, the Massachusetts Contingency Plan (310 CMR
40.0000)  shall  be  deemed  confirmation  that any  Environmental  Condition(s)
addressed in such Response Action Outcome Statement no longer exists.

                  "ENVIRONMENTAL LAWS" means any judgment,  decree,  order, law,
license,  rule,  permit  or  regulation  pertaining  to  environmental  matters,
including without limitation,  those arising under the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive  Environmental  Response,  Compensation
and Liability Act of 1980 as amended  ("CERCLA"),  the Superfund  Amendments and
Reauthorization  Act of 1986 ("SARA"),  the Federal Clean Water Act, the Federal
Clean Air Act, the Toxic  Substances  Control  Act, or any other  state,  local,
foreign or common law,  statute,  regulation,  ordinance,  order,  decree or any
other binding  requirement  of any  Governmental  Authority  relating to health,
safety or the environment.

                  "FORECLOSURE  DATE" has the meaning  provided in Section  2(e)
hereof.
<PAGE>

                  "HAZARDOUS SUBSTANCE" means any hazardous waste, as defined by
42 U.S.C.  Section  6903(5),  any  hazardous  substances as defined by 42 U.S.C.
Section 9601(14),  any pollutant or contaminant as defined by 42 U.S.C.  Section
9601(33) and any toxic substances, oil or hazardous materials or other chemicals
or substances regulated by any Environmental Laws

                  "KNOWN  ENVIRONMENTAL  CONDITIONS" has the meaning provided in
Section 2(d) hereof.

                  "LOSSES" has the meaning provided in Section 2(a) hereof.

                  "PERSON" means any individual,  corporation, limited liability
company, partnership,  joint venture, estate, trust, unincorporated association,
or any other entity, any federal,  state, county or municipal  government or any
bureau,  department or agency thereof and any fiduciary  acting in such capacity
on behalf of any of the foregoing.

                  "RELEASE" means any past or present release,  spill, emission,
leaking, pumping,  injecting,  pouring,  emptying,  escaping,  dumping, deposit,
disposal, discharge,  dispersal,  leaching, migration into the indoor or outdoor
environment of Hazardous Substances, including, without limitation, the movement
of Hazardous  Substances  through ambient air, soil,  surface water,  sediments,
ground water, wetlands, land or subsurface strata.

                  "REMEDIATION"  The  investigation,   assessment,   monitoring,
removal,  abatement,  treatment,  risk assessment,  institutional controls, deed
restrictions  and/or  activity  and use  limitations,  containment,  payment  of
compliance  or  oversight  fees,  and  all  other   activities   required  under
Environmental Laws to respond to an Environmental Condition.

                  "USE" means,  with  respect to any  Hazardous  Substance,  the
generation,  manufacture,  processing,  distribution,  handling, use, treatment,
recycling or storage of such Hazardous  Substances or  transportation to or from
the Real Property by any Person of such Hazardous Substances.

                  2. Indemnification.

                           (a) The  Indemnitors  agree to indemnify,  reimburse,
defend (with counsel reasonably satisfactory to Indemnitees), and hold
harmless the Indemnitees from and against all demands, claims, actions or causes
of action, assessments, losses, damages, liabilities, interest, reasonable costs
and expenses,  including, without limitation,  interest,  penalties,  reasonable
attorneys' fees, reasonable disbursements and expenses,  diminution in the value
of  the  Real  Property   (subject  to  subsection  (e)  below)  and  reasonable
consultants' and expert witness fees, disbursements,  fines, penalties, fees and
expenses, including costs of reporting,  investigation,  assessment, monitoring,
remediation or other response  actions  (collectively,  the "LOSSES"),  asserted
against,  resulting  to,  imposed  on, or incurred  by  Indemnitees  directly or
indirectly in connection with any of the following:
<PAGE>

                           (i) any events,  circumstances,  or conditions  which
         relate to, form or are  alleged to form the basis for an  Environmental
         Claim;

                           (ii)  the  presence,   Use,  Release,  or  threatened
         Release of Hazardous  Substances  at, on, in, under,  from or otherwise
         affecting the Real Property;

                           (iii)  any   violation   or  alleged   violation   of
         Environmental  Laws by the  Indemnitors  or with  respect  to the  Real
         Property, or any act or omission causing an Environmental Condition;

                           (iv)  the  material  breach  of  any  representation,
         warranty or covenant set forth in Sections 6.19,  7.5.6,  7.15.4,  8.9,
         and 16 of the Term Loan Agreement relating to Environmental  Claims; or

                           (v) any  reasonable  costs  and  expenses,  including
         reasonable attorneys' fees and disbursements incurred by any Indemnitee
         in (x)  exercising  any  right,  power  or  remedy  conferred  by  this
         Agreement,  or (y)  enforcing  the  Indemnitors'  obligations  pursuant
         hereto.

                           (b) The indemnity  provided in this  Agreement is not
intended to be and shall not be included in any exculpation of the
Indemnitors  from personal  liability  provided in the Term Loan Agreement or in
any of the other Loan  Documents.  Nothing in this Agreement  shall be deemed to
deprive the  Indemnitees of any rights or remedies  provided to the  Indemnitees
elsewhere in this Agreement or in the Loan  Documents or otherwise  available to
them under law or at equity.

                           (c) The Indemnitors waive and release the Indemnitees
from any rights or defenses the Indemnitors may have under common law
or  Environmental  Laws for any  liability  arising from or  resulting  from the
presence,  Use or Release of  Hazardous  Substances,  except with  respect to an
Indemnitee to the extent directly and solely caused by that  Indemnitee's  gross
negligence, criminal acts, fraud or willful misconduct.

                           (d)  Indemnitors   acknowledge   that   Environmental
Conditions have been identified at or with respect to certain Real Properties as
set forth on the Environmental  Report  (collectively,  the "KNOWN ENVIRONMENTAL
CONDITIONS").

                  In addition to and without  limiting  any of the  Indemnitors'
obligations  hereunder,  Indemnitors  shall undertake a Remediation of the Known
Environmental   Conditions  to  the  extent  required  by  Environmental   Laws.
Submission  to the  Massachusetts  Department of  Environmental  Protection of a
Class A or B Response Action Outcome  Statement by a Licensed Site  Professional
(as defined in Mass. Gen. L. ch. 21E, ss.2) pursuant to, and in compliance with,
the   Massachusetts   Contingency   Plan  (310  CMR  40.0000)  shall  be  deemed
confirmation  that any  Environmental  Condition(s)  addressed in such  Response
Action Outcome Statement no longer exists for the purposes of this Section 2(d).
<PAGE>

                           (e) With respect to any Losses which are attributable
to a  diminution  in value of the  Real  Property,  such  Losses  shall:  (i) be
calculated  based upon the value of the Real Property  determined as of the date
of foreclosure of the applicable Security Instrument,  exercise of power of sale
under the Security  Instrument,  or conveyance  in lieu thereof (such date,  the
"Foreclosure Date"), and (ii) in no event be greater than the excess, if any, of
(x) the amount of the unpaid principal balance of the Term Loans,  together with
unpaid interest thereon (including  interest accruing at the Default Rate), fees
and  prepayment  premiums  (if any),  and all  other  costs,  amounts,  fees and
expenses  (including  reasonable  attorney's  fees) due and owing under the Loan
Documents on the  Foreclosure  Date,  over (y) the value of the Real Property on
the Foreclosure Date; provided, that if an Environmental Claim or Release is not
existing or known on the Foreclosure  Date (but only comes into existence and/or
becomes  known  thereafter),  then  the  value  of  the  Real  Property  on  the
Foreclosure Date shall be deemed to have not been affected by such Environmental
Claim or Release.

                  3.  Payment.  All payments due to the  Indemnitees  under this
Agreement shall be payable to the Indemnitees within ten (10) days after written
demand therefor,  and shall bear interest at the Default Rate from the date such
payment is due until the date of payment.

                  4.  Governing  Law. The parties agree that this Agreement is a
contract under the laws of the Commonwealth of Massachusetts (excluding the laws
applicable  to  conflicts of law or choice of law) and the  obligations  arising
hereunder  shall be governed by, and construed in accordance  with,  the laws of
the Commonwealth of Massachusetts and any applicable law of the United States of
America.

                  5. Court  Proceeding.  Any legal  suit,  action or  proceeding
against  the  Indemnitees  or  Indemnitors  arising  out of or  relating to this
Agreement shall be instituted in any federal or state court in the  Commonwealth
of Massachusetts,  and the Indemnitors waive any objection which they may now or
hereafter  have to the laying of venue of any such suit,  action or  proceeding,
and the Indemnitors  hereby  irrevocably  submit to the jurisdiction of any such
court in any suit, action or proceeding.

                  6.   Modification,   Waiver  in  Writing.   No   modification,
amendment, extension, discharge,  termination or waiver of any provision of this
Agreement or consent to any  departure by the  Indemnitors  therefrom,  shall be
effective unless the same shall be in a writing signed by the party against whom
enforcement is sought, and shall be effective only in the specific instance, and
for the purpose, for which given. Except as otherwise expressly provided herein,
no notice to or demand on the  Indemnitors  shall entitle the Indenmitors to any
other or future notice or demand in the same, similar or other circumstances.

                  7. Delay Not a Waiver.  Neither  any  failure nor any delay on
the part of the  Indemnitees to enforce the demand or strict  performance of any
term,  condition,  covenant or agreement or exercise any right, power, remedy or
privilege hereunder,  shall operate as or constitute a waiver thereof, nor shall
a single or partial exercise thereof preclude any other future exercise,  or the
exercise of any other right, power, remedy or privilege. In particular,  and not
by way of  limitation,  by  accepting  payment  after the due date of any amount
payable under this Agreement, the Indemnitees shall not be deemed to have waived
any right either to require  prompt  payment  when due of all other  amounts due
under this  Agreement,  or to  declare a default  for  failure to effect  prompt
payment of any such other amount.
<PAGE>

                  8.  Notices.  All notices,  consents,  approvals  and requests
required or permitted hereunder shall be given in writing and shall be effective
for all purposes if hand delivered or sent by (a) hand  delivery,  with proof of
attempted  delivery,  (b)  certified or registered  United States mail,  postage
prepaid,  (c) expedited  prepaid delivery  service,  either commercial or United
States Postal Service,  with proof of attempted  delivery,  or (d) by telecopier
(with answerback acknowledged) provided that such telecopied notice must also be
delivered by one of the means set forth in (a), (b) or (c) above, addressed

          If to Indemnitees:        GB Merchant Partners, LLC,
                                    as Administrative Agent
                                    101 Huntington Avenue
                                    Boston, MA 02109
                                    Attn:  D. Michael Murray
                                    Telecopy No.: (617) 210-7141

          If to Indenmitors:        Quaker Fabric Corporation of Fall River
                                    941 Grinnell Street
                                     Fall River, MA 02721
                                    Attn:  Chief Financial Officer
                                    Telecopy No.: (508) 678-2656

                  or at such other  address  and  Person as shall be  designated
from time to time by any party hereto,  as the case may be, in a written  notice
to the other  parties  hereto in the manner  provided  for in this  Section 8. A
notice shall be deemed to have been given: (i) in the case of hand delivery,  at
the time of delivery;  (ii) in the case of  registered or certified  mail,  when
delivered or the first  attempted  delivery on a Business Day; (iii) in the case
of expedited  prepaid  delivery upon the first attempted  delivery on a Business
Day; or (iv) in the case of telecopier, upon receipt of answerback confirmation,
provided  that such  telecopied  notice was also  delivered  as required in this
Section 8. A party  receiving  a notice who does not comply  with the  technical
requirements for notice under this Section 8 may elect to waive any deficiencies
and treat the notice as having been properly given.

                  9. Trial by Jury. EACH OF THE INDEMNITORS AND THE INDEMNITEES,
TO THE FULLEST  EXTENT THAT IT MAY  LAWFULLY DO SO,  WAIVES TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY
INSTRUMENT,  DOCUMENT OR AGREEMENT  DELIVERED IN CONNECTION  HEREWITH AND AGREES
THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT A JURY.

                  10.  Heading.  The  Section  headings  in this  Agreement  are
included  herein for  convenience  of reference  only and shall not constitute a
part of this Agreement for any other purpose.
<PAGE>

                  11. Assignment. The Indemnitees shall have the right to assign
this Agreement and the  obligations  hereunder to any Person who is from time to
time  the  holder  of the Term  Loans,  but not  otherwise.  All  references  to
"Indemnitees" hereunder shall be deemed to include the successors and assigns of
the Indemnitees, including any trustee or servicer.

                  12.  Severability.  Wherever possible,  each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provision or the remaining provisions of this Agreement.

                  13.  Heading and Recitals.  The  information  set forth in the
recitals hereof are hereby  incorporated herein as a part of this Agreement with
the same effect as if set forth in the body hereof.

                  14. Estoppel  Certificates.  Indemnitors and Indemnitees  each
hereby agree at any time,  but not more than one time each calendar year (unless
a  Default  or Event of  Default  exists or is  continuing,  in which  case,  as
required by the Administrative Agent in its sole discretion),  and upon not less
than thirty (30) days prior  written  notice by  Indemnitor  or  Indemnitees  to
execute,  acknowledge  and  deliver to the party  specified  in such  notice,  a
statement, in writing,  certifying that this Agreement is unmodified and in full
force and  effect  (or if there  have  been  modifications,  that the  same,  as
modified, is in full force and effect and stating the modifications hereto), and
stating  whether or not, to the best knowledge of such certifying  party,  there
exists any matter giving rise to a claim under Section 2, and, if so, specifying
each such matter.

                  15. Waiver. Indemnitors hereby waive each of the following, to
the fullest extent allowed by applicable law:

                           (a) laches as a defense to any action  brought by any
Indemnitee against the Indemnitors;

                           (b) any defense based upon:

                                    (i) the  unenforceability  or  invalidity of
         all or any part of any security or other  indemnity for the obligations
         of the  Indemnitors  hereunder or the lack of any perfection or failure
         of priority of any  security  for the  obligations  of the  Indemnitors
         hereunder; or

                                    (ii) any act or  omission of  Indemnitor  or
         any other Person that directly or  indirectly  results in the discharge
         or release of the  Indemnitors  or any other Person or any security for
         the  obligations  of the  Indemnitors  hereunder,  other than the gross
         negligence,   willful  misconduct,   criminal  acts  or  fraud  of  the
         Indemnitees, any deed of trust trustee or any other Indemnitee; or

                                    (iii) any disability or any other defense of
         any  Person  with  respect  to  its  obligations   hereunder,   whether
         consensual or arising by operation of law or any bankruptcy, insolvency
         or debtor-relief proceeding, or from any similar cause;

<PAGE>

                           (c) any right (whether now or hereafter  existing) to
require any Indemnitee, as a condition to the enforcement of this
Agreement,  to proceed  against  any other  indemnitor,  guarantor  or any other
Person, or to proceed against or exhaust any security for the obligations of the
Indemnitors hereunder;

                           (d) all  suretyship  defenses  and  rights  of  every
nature otherwise available under any requirement of law;

                           (e) all defenses  arising as a result of the exercise
of nonjudicial or judicial remedies against the Indemnitors, or any
other Person, or any security for the obligations of the Indemnitors  hereunder,
or arising out of any impairment of the Indemnitors' or any other Person's right
of subrogation,  reimbursement  or  contribution  against the Indemnitors or any
other Person,  or any security for the obligations of the Indemnitors  hereunder
that may arise from the exercise of any such remedies;

                           (f) without  limiting the generality of the foregoing
or any other provision hereof, any and all benefits under any
requirement of Law,  except any rights of subrogation  which the Indemnitors may
have,  provided  that the  indemnity  provided for  hereunder  shall  neither be
contingent  upon the existence of any such rights of  subrogation  or subject to
any claims or defenses  whatsoever  which may be asserted in connection with the
enforcement  or attempted  enforcement  of such  subrogation  rights  including,
without  limitation,  any claims that such subrogation  rights were abrogated by
any acts of any Indemnitee,  provided that the Indemnitors agree to postpone any
subrogation rights with respect to any Collateral  securing the Term Loans until
the Term Loans shall have been paid in full.

                  16. Survival.  The indemnity  provided in this Agreement shall
survive the repayment in full of the Obligations, or transfer of title to any of
the Real Property to the  Indemnitees  or other  transferee  (to the extent such
transferee is not an Affiliate of  Indemnitors),  in  foreclosure  or otherwise.
Notwithstanding  anything contained herein or in any of the other Loan Documents
to the contrary, the Indemnitors will not be liable under this Agreement for any
Environmental  Claims which give rise to liability under Section 2(a) where such
event first occurs  following the  effective  date of a transfer of title of any
parcel of Real Property to the  Indemnitees  or other  transferee (to the extent
such  transferee  is  not  an  Affiliate  of  Indemnitors),  in  foreclosure  or
otherwise.

                  17. Time of the Essence.   Time is of the essence with respect
to each and every covenant,  agreement and obligation of the Indemnitors  under
this Agreement.
<PAGE>

                  18. Liability.

                           (a)  The  liability  of the  Indemnitors  under  this
         Agreement  shall in no way be limited or impaired by (i) any amendment,
         modification,  or restatement  of or supplement to the Loan  Documents,
         (ii)  any  extensions  of time for or  acceleration  or  alteration  of
         payment or  performance  required by any of the Loan  Documents  or any
         waiver  of such  payment  or  performance,  or  (iii)  the  release  or
         substitution in whole or in part, of any security for the  Obligations;
         and in any of  such  cases,  whether  with  or  without  notice  to the
         Indemnitors and with or without consideration.

                           (b) The obligations of the Indemnitors  hereunder are
         independent of the obligations of any other Person, including any other
         indemnitor,  and any Indemnitee may enforce any of its rights hereunder
         independently  of any other right or remedy it or any other  Indemnitee
         may at any  time  hold  with  respect  to the  obligations  indemnified
         against  hereby  or any  other  security  or other  indemnity  for such
         obligations.  The  obligations  of the  Indemnitors  set  forth  herein
         constitute the full recourse obligations of the Indemnitors enforceable
         against  the  Indemnitors  to the full  extent  of all its  assets  and
         properties, notwithstanding any provisions in the Loan Documents to the
         contrary.

                  19. Counterparts. This Agreement may be executed in any number
of  counterparts,  each of which  when so  executed  and  delivered  shall be an
original,  but  all  of  which  shall  together  constitute  one  and  the  same
instrument.

                       [SIGNATURES ON THE FOLLOWING PAGE]

<PAGE>

                  IN WITNESS WHEREOF,  the parties have caused this Agreement to
be duly executed by their duly authorized representatives, all as of the day and
year first above written.

                             INDEMNITORS:

                             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

<PAGE>

                             ON BEHALF OF THE INDEMNITEES:

                             GB MERCHANT PARTNERS, LLC,
                             As Administrative Agent

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

<PAGE>

                                    EXHIBIT A

                           SCHEDULE OF REAL PROPERTIES

1. 941 Grinnell Street, Fall River, MA
2. 1092 Davol Street, Fall River, MA
3. 81 Ferry Street, Fall River, MA
4. 1450 Brayton Ave, Fall River, MA
5. 387 Quarry Street, Fall River, MA
6. Godfrey Road, Verona, MS
7. 994 Jefferson Street (Bleachery Pond), Fall River, MA
8. 81 Commerce Drive, Fall River, MAEXHIBIT 10.44

                             INTERCREDITOR AGREEMENT

         INTERCREDITOR AGREEMENT (this "INTERCREDITOR  AGREEMENT"),  dated as of
November 9, 2006, among Bank of America, N.A., in its capacity as administrative
agent  (the  "REVOLVING  AGENT")  for  the  Revolving  Lenders  (as  hereinafter
defined),  GB Merchant  Partners,  LLC, in its capacity as agent (the "TERM LOAN
AGENT")  for the Term Loan  Lenders  (as  hereinafter  defined),  Quaker  Fabric
Corporation  of Fall River (the  "BORROWER"),  Quaker  Fabric  Corporation  (the
"PARENT")  and the other credit  parties  named on the  signature  pages of this
Intercreditor  Agreement (together with the Borrower and the Parent, the "CREDIT
PARTIES").

         WHEREAS, pursuant to an Amended and Restated Revolving Credit Agreement
dated as of the  date  hereof  (as  amended  and in  effect  from  time to time,
including any  replacement  agreement or  agreements  therefor,  the  "REVOLVING
CREDIT AGREEMENT"), among the lending institutions party thereto (the "REVOLVING
LENDERS"),  the  Revolving  Agent,  the Borrower and the Parent,  the  Revolving
Lenders  have  agreed,  upon the terms and subject to the  conditions  contained
therein, to make loans and otherwise to extend credit to the Borrower; and

         WHEREAS, pursuant to a Term Loan Agreement, dated as of the date hereof
(as amended and in effect from time to time, including any replacement agreement
or agreements  therefor,  the "TERM LOAN  AGREEMENT"),  among the Borrower,  the
Parent,  the Term Loan Agent and the lending  institutions  party  thereto  (the
"TERM LOAN  LENDERS"),  the Term Loan Lenders  have  agreed,  upon the terms and
subject to the conditions contained therein, to make term loans in the aggregate
amount of $24,600,000 to the Borrower; and

         WHEREAS,  it  is  a  condition  precedent  to  the  Revolving  Lenders'
willingness to make loans and otherwise  extend credit to the Borrower  pursuant
to the Revolving Credit Agreement and the Term Loan Lenders' willingness to make
term loans to the Borrower  pursuant to the Term Loan  Agreement that the Credit
Parties,   the  Revolving  Agent  and  the  Term  Loan  Agent  enter  into  this
Intercreditor Agreement; and

         WHEREAS,  in order to induce  the  Revolving  Lenders to make loans and
otherwise  extend  credit  to the  Borrower  pursuant  to the  Revolving  Credit
Agreement  and the Term  Loan  Lenders  to make the term  loans to the  Borrower
pursuant to the Term Loan Agreement, the Credit Parties, the Revolving Agent and
the Term Loan Agent have agreed to enter into this Intercreditor Agreement;

         NOW,  THEREFORE,   in  consideration  of  the  foregoing,   the  mutual
agreements  herein  contained  and other good and  valuable  consideration,  the
receipt and  adequacy  of which are hereby  acknowledged,  the  parties  hereto,
intending to be legally bound, hereby agree as follows:

1.  DEFINITIONS.  Terms not otherwise  defined  herein have the same  respective
meanings  given to them in the  Revolving  Credit  Agreement.  In addition,  the
following terms shall have the following meanings:

         AGREEMENTS.  Collectively,  the Revolving Credit Agreement and the Term
Loan Agreement.

         BANK DEBT. At any time, as reasonably calculated by the Revolving Agent
at such time,  all  "Obligations"  under and as defined in the Revolving  Credit
Agreement at such time. Bank Debt shall  expressly  include any and all interest
accruing  or out of  pocket  costs or  expenses  incurred  after the date of any
filing by or against any Credit Party of any petition under any Insolvency  Law,
regardless of whether the  Revolving  Agent's or any  Revolving  Lender's  claim
therefor is allowed or allowable in the Insolvency Proceeding.

<PAGE>

         BANK LOAN  TERMINATION  DATE. The first date on which (a) the Revolving
Lenders have received  payment in full in cash of all of the Priority Bank Debt,
(b) the  Revolving  Agent or the  Revolving  Lenders  shall have  received  cash
collateral (or, in connection with Letters of Credit,  "back-to-back" Letters of
Credit from a  financial  institution  acceptable  to  Revolving  Agent) in such
amounts as the Revolving Agent determines is reasonably  necessary to secure the
Revolving  Lenders (and their  affiliates) in connection with (i) any issued and
outstanding  Letters of Credit  constituting  Priority  Bank Debt but not in any
event in an amount  greater  than 103% of the  aggregate  undrawn face amount of
such Letters of Credit (or such  Letters of Credit  shall have been  returned to
the Issuing Bank for cancellation) and (ii) Derivative Agreements but not in any
event  in  an  amount  greater  than  100%  of  the  applicable  Credit  Party's
obligations  to the  Revolving  Agent  and  the  Revolving  Lenders  (and  their
affiliates)  under such  Derivative  Agreements,  and (c) the  commitment of the
Revolving Lenders to make any loans or provide other financial accommodations to
the Borrower shall have been terminated.

         COLLATERAL.  All assets and  properties  of any kind  whatsoever of any
Credit  Party that is at any time  subject  to a lien in favor of the  Revolving
Agent or the Term Loan Agent.

         EXCLUDED  BANK  DEBT.  At  any  time,  (i)  the  aggregate  outstanding
principal  amount of Revolving  Loans and the  aggregate  undrawn face amount of
Letters  of Credit  made,  issued or  incurred  pursuant  to the Loan  Documents
intentionally  and with actual  knowledge  of the account  officers of Revolving
Agent active on the account of the Credit Parties that such making,  issuance or
incurrence  would cause such amount of Revolving  Loans and Letters of Credit to
exceed the Maximum Bank Debt at the time of such making,  issuance or incurrence
at such time and (ii) any prepayment or early  termination  fee set forth in the
Revolving Credit Agreement;  PROVIDED THAT, Excluded Bank Debt shall not include
any interest,  costs, fees, expenses,  or indemnities incurred by or owed to the
Revolving  Agent or the Revolving  Lenders  pursuant to the Loan Documents which
are charged to a Credit Party's loan account  through the advance of a Revolving
Loan.

         EXCLUDED  TERM LOAN DEBT. At any time,  (i) the  aggregate  outstanding
principal amount of indebtedness  under the Term Loan Documents in excess of the
result of  $24,600,000  MINUS all  repayments  and  prepayments of the principal
thereof as of such date and (ii) any  prepayment  or early  termination  fee set
forth in the Term Loan Agreement;  PROVIDED THAT,  Excluded Term Loan Debt shall
not include (a) any interest,  costs, fees, expenses, or indemnities incurred by
or owed to the Term Loan  Agent or the Term Loan  Lenders  pursuant  to the Loan
Documents  and (b) any amounts not to exceed  $2,500,000 in the aggregate at any
time advanced by the Term Loan Agent, in its reasonable business judgment in the
performance  of its duties  under the Term Loan  Agreement,  which the Term Loan
Agent determines to be reasonably  necessary to (1) preserve or protect the Term
Loan Primary  Collateral,  or any portion thereof, or (2) enhance the likelihood
of, or to maximize the amount of, repayment of the Term Loan Debt.

         INSOLVENCY  LAWS. (i) The U.S.  Bankruptcy  Code, (ii) any successor to
such statute,  (iii) any statute dealing with the  reorganization or liquidation
of debtors, and (iv) any other applicable insolvency or other similar law of any
jurisdiction  including,   without  limitation,  any  law  of  any  jurisdiction
permitting  a debtor  to  obtain a stay or a  compromise  of the  claims  of its
creditors against it.

         INSOLVENCY  PROCEEDING.  (a) Any  case or  proceeding  commenced  by or
against  any Person  under any  provision  of any  Insolvency  Laws,  or (b) any
proceeding  seeking  the  appointment  of  any  trustee,  receiver,  liquidator,
custodian or other insolvency  official with similar powers with respect to such
Person or any of its assets, or (c) any proceeding for liquidation,  dissolution
or other winding up of the business of such Person,  or (d) any  assignment  for
the benefit of creditors or any marshalling of assets of such Person.

                                      -2-
<PAGE>

         LIEN  ENFORCEMENT  ACTION.  (a) Any  action by  Revolving  Agent or any
Revolving  Lender or the Term Loan Agent or any Term Loan Lender to foreclose on
the  lien of such  Person  in any  Collateral,  (b)  any  action,  as part of an
exercise  of rights or  remedies,  by either  Revolving  Agent or any  Revolving
Lender or the Term Loan  Agent or any Term Loan  Lender to take  possession  of,
exercise   exclusive  or  partial  control  over,  sell  or  otherwise   realize
(judicially  or  non-judicially)   upon  any  Collateral   (including,   without
limitation,  by setoff or  notification  of  account  debtors  or other  Persons
obligated on Collateral),  and/or (c) the commencement by Revolving Agent or any
Revolving  Lender  or the Term Loan  Agent or any Term Loan  Lender of any legal
proceedings  against  any  Credit  Party or with  respect to any  Collateral  to
facilitate  the actions  described in (a) and (b) above;  PROVIDED that, for the
avoidance  of  doubt  but  without  limitation,  none  of  the  following  shall
constitute  a Lien  Enforcement  Action:  (i)  declaring  a default  or event of
default  under the Revolving  Credit  Agreement or the Term Loan  Agreement,  or
making demand for payment or accelerating  the maturity of any Bank Debt or Term
Loan Debt,  (ii) the receipt of payments of principal of or interest on the Bank
Debt or the Term Loan Debt, or payments of other  obligations  arising under the
Loan  Documents or the Term Loan  Documents,  except as otherwise  expressly set
forth in this  Intercreditor  Agreement,  (iii) the  implementation  of reserves
under the Revolving Credit Agreement,  (iv) the reduction of advance rates under
the Revolving  Credit  Agreement,  (v) the termination of the Commitments or the
cessation (whether temporary or permanent) of lending under the Revolving Credit
Agreement due to the existence of a Default or Event of Default, (vi) sending by
the  Revolving  Agent,  any Revolving  Lender or any of their  Affiliates of any
"activation"  notice  under a deposit  control  agreement to block access to any
deposit account of a Credit Party, or (vii) the exercise by Revolving Agent, any
Revolving  Lender or any of their  respective  Affiliates of any right of offset
with respect to Bank Debt not arising under the Revolving Credit Agreement.

         MAXIMUM REVOLVING CREDIT AMOUNT. On any date of determination  thereof,
an amount equal to the sum of (a) the lesser of (i) the Revolving Borrowing Base
Amount at such time and (ii) $25,000,000 less permanent  reductions in the Total
Commitment under the Revolving Credit Agreement (other than in connection with a
refinancing  in total of the Bank Debt and other than a reduction or termination
occurring after an Event of Default), PLUS (b) $2,500,000.

         MAXIMUM  BANK DEBT.  On any date of  determination  thereof,  an amount
equal to the Maximum Revolving Credit Amount on such date, regardless of whether
allowed or allowable in any Insolvency Proceeding;  PROVIDED,  HOWEVER, that the
Maximum Bank Debt shall be calculated  without giving effect to any decreases in
the Maximum  Revolving  Credit Amount  occurring  after the making,  issuance or
incurrence  of any  Revolving  Loans or Letters  of  Credit,  as a result of (i)
Accounts  Receivable or inventory  that are deemed by the Revolving  Agent to be
eligible on any date  thereafter  becoming or being deemed,  with the passage of
time,  ineligible  (whether  as a result of aging,  obsolescence,  disputes,  or
non-payment by account debtors or otherwise),  the return of uncollected  checks
or other items of payment applied to the reduction of Revolving  Loans, or other
similar  involuntary  or  unintentional   actions;  (ii)  the  Revolving  Agents
exercising  discretion  under the  Revolving  Credit  Agreement  to (x)  declare
Accounts  Receivable  previously  deemed to be Eligible  Accounts  Receivable or
inventory  previously deemed to be Eligible Inventory as no longer  constituting
Eligible Accounts Receivable or Eligible Inventory,  (y) reduce advance rates or
(z) impose,  release,  increase or  decrease  the amount of reserves  (except as
otherwise  expressly  set  forth in this  Intercreditor  Agreement);  (iii)  any
failure  of the  Credit  Parties to report  accurately  the  amount of  Eligible
Accounts Receivable or Eligible Inventory on any Borrowing Base Certificate;  or
(iv) any revaluations or re-appraisals of Collateral.

                                      -3-
<PAGE>

         OCCUPANCY  COMMENCEMENT DATE. The earlier to occur of (a) the Term Loan
Agent's  commencement of any Lien Enforcement  Action or (b) the commencement of
an Insolvency Proceeding.

         PRIORITY BANK DEBT.  All Bank Debt other than Excluded Bank Debt.

         PRIORITY TERM LOAN DEBT.  All Term Loan Debt other than  Excluded Term
Loan Debt.

         REVOLVING  BORROWING  BASE AMOUNT.  At any time, an amount equal to the
Borrowing Base (as defined in the Revolving  Credit  Agreement and as determined
by the Revolving  Agent from time to time);  PROVIDED  that the  Borrowing  Base
shall be calculated without giving effect to (a) any amendments or modifications
to the  definition of  "Borrowing  Base",  or any of the  component  definitions
thereof after the Closing Date, (b) any increase in the percentage advance rates
under the Revolving  Credit  Agreement  above the rates in effect on the Closing
Date,  or (c)  any  release  in  whole  or in  part  of,  or  decrease  in,  the
Availability Reserve after the Closing Date, in the case of (a), (b) and (c), in
a manner which would result in a greater  amount of credit being provided to the
Borrower as an advance  against the  Borrowing  Base as in effect on the Closing
Date;  PROVIDED,  HOWEVER,  the Revolving  Credit  Agent's  discretion to reduce
advance  rates,  establish  and release  reserves  (other than the  Availability
Reserve) and to determine eligibility pursuant to the Revolving Credit Agreement
shall not be limited.

         REVOLVING PRIMARY COLLATERAL.  All the Collateral  other than the Term
Loan Primary Collateral.

         REVOLVING   RELEASE   EVENT.   After  the  occurrence  and  during  the
continuance  of an  Event  of  Default,  but  prior  to the  commencement  of an
Insolvency  Proceeding,  the written request of the Revolving Agent delivered to
the Term Loan Agent  requesting that the Term Loan Agent release its lien on any
Revolving Primary  Collateral to be sold or otherwise  disposed of, such written
request to be delivered to the Term Loan Agent not less than five (5) days prior
to the proposed sale or disposition of any Revolving Primary Collateral.

         TERM LOAN DEBT. At any time, as reasonably  calculated by the Term Loan
Agent at such  time,  all  "Obligations"  under and as  defined in the Term Loan
Agreement  at such time.  Term Loan Debt  shall  expressly  include  any and all
interest  accruing or out of pocket costs or expenses incurred after the date of
any filing by or against any Credit Party of any petition  under any  Insolvency
Law, regardless of whether the Term Loan Agent's or any Term Loan Lender's claim
therefor is allowed or allowable in the Insolvency Proceeding.

         TERM LOAN DOCUMENTS. Collectively, the "Loan Documents" as such term is
defined in the Term Loan Agreement.

         TERM LOAN EVENT OF  DEFAULT.  An  "Event  of Default" as  such  term is
defined in the Term Loan Agreement.

         TERM LOAN PRIMARY  COLLATERAL.  All of the Real Estate,  Equipment  (as
defined in the UCC) and Fixtures  (as defined in the UCC) of the Credit  Parties
which is subject to a mortgage,  lien or security  interest pursuant to the Term
Loan Documents, together with all identifiable proceeds of the foregoing.

         TERM  LOAN  RELEASE   EVENT.   After  the  occurrence  and  during  the
continuance of a Term Loan Event of Default, but prior to the commencement of an
Insolvency  Proceeding,  the written request of the Term Loan Agent delivered to
the Revolving Agent  requesting that the Revolving Agent release its lien on any
Term Loan Primary  Collateral to be sold or otherwise  disposed of, such written
request to be delivered to the Revolving Agent not less than five (5) days prior
to the proposed sale or disposition of any Term Loan Primary Collateral.

                                      -4-
<PAGE>

         TERM LOAN  TERMINATION  DATE.  The first date on  which  the  erm Loan
Lenders have  received  payment in full in cash of all of the Priority Term Loan
Debt.

         UCC. The Uniform  Commercial  Code, as the same may, from time to time,
be enacted and in effect in the Commonwealth of Massachusetts; PROVIDED, that to
the  extent  that the UCC is used to  define  any term  herein  and such term is
defined  differently  in  different  Articles  or  Divisions  of  the  UCC,  the
definition of such term contained in Article or Division 9 shall govern.

                           2. SECURITY INTERESTS; PRIORITIES.

         2.1.  ACKNOWLEDGEMENT  OF  LIENS.  Subject  to the  provisions  of this
Intercreditor  Agreement,  the Revolving Agent hereby acknowledges that the Term
Loan Agent has been  granted  Liens upon all of the  Collateral  pursuant to the
Term Loan  Documents to secure the Term Loan Debt and further  acknowledges  and
agrees  that the Term Loan Debt is  entitled  to be secured on a first  priority
basis by the Term Loan Primary  Collateral.  Subject to the  provisions  of this
Intercreditor  Agreement,  the Term  Loan  Agent  hereby  acknowledges  that the
Revolving  Agent has been granted Liens upon all of the  Collateral  pursuant to
the Loan Documents to secure the Bank Debt, and further  acknowledges and agrees
that the Bank Debt is  entitled to be secured on a first  priority  basis in all
the Revolving Primary Collateral.

         2.2. PRIORITIES.

         (a) The parties  agree that,  at all times,  whether  before  during or
after any  Insolvency  Proceeding,  liens on the  Revolving  Primary  Collateral
securing  the Priority  Bank Debt shall be senior to the liens on the  Revolving
Primary  Collateral  securing  the Term  Loan Debt  irrespective  of the time or
manner of perfection or the execution, delivery or issuance of any thereof.

         (b) The parties  agree that,  at all times,  whether  before  during or
after  any  Insolvency  Proceeding,  liens on the Term Loan  Primary  Collateral
securing  the  Priority  Term Loan Debt shall be senior to the liens on the Term
Loan  Primary  Collateral  securing  the Bank Debt  irrespective  of the time or
manner of perfection or the execution, delivery or issuance of any thereof.

         2.3. APPLICATION OF COLLATERAL PROCEEDS.

         (a) All  proceeds  of the  Revolving  Primary  Collateral  received  or
collected by any Credit Party,  the Revolving Agent or the Term Loan Agent shall
be applied:  FIRST,  to the payment of the  Priority  Bank Debt,  including  the
provision of cash collateral in an amount equal to 103% of the undrawn amount of
any Letters of Credit constituting  Priority Bank Debt and in an amount equal to
100% of the obligations in respect of Cash Management  Obligations  constituting
Priority Bank Debt, and to the payment of interest,  costs,  fees,  expenses and
indemnities  constituting  Priority Bank Debt; SECOND,  after a Lien Enforcement
Action, to the payment of the Priority Term Loan Debt,  including the payment of
interest,  costs, fees, expenses and indemnities constituting Priority Term Loan
Debt,  in each case,  to the extent due and  payable;  THIRD,  to the payment of
Excluded Bank Debt and, with respect to Excluded Bank Debt  consisting of issued
and outstanding  Letters of Credit,  the provision of cash collateral in respect
of such  Letters  of Credit (in an amount  not to exceed  103% of the  aggregate
undrawn  face  amount of such  Letters  of  Credit);  and  FOURTH,  after a Lien
Enforcement Action, to the payment of Excluded Term Loan Debt.

         (b) All  proceeds  of the Term  Loan  Primary  Collateral  received  or
collected by any Credit Party,  the Term Loan Agent or the Revolving Agent shall
be applied:  FIRST,  to the payment of the Priority  Term Loan Debt,  and to the
payment of interest, costs, fees, expenses and indemnities constituting Priority
Term Loan Debt, in each case, to the extent then due and payable;  SECOND, after
a Lien Enforcement  Action, to the payment of the Priority Bank Debt,  including
the payment of interest,  costs,  fees,  expenses and  indemnities  constituting
Priority Bank Debt, in each case, to the extent then due and payable;  THIRD, to
the payment of Excluded  Term Loan Debt;  and FOURTH,  after a Lien  Enforcement
Action, to the payment of Excluded Bank Debt.

                                      -5-
<PAGE>

         2.4. FURTHER ASSURANCES.

         (a) The Term Loan Agent hereby  agrees,  upon request of the  Revolving
Agent at any time and from time to time,  to  execute  such other  documents  or
instruments  as may be requested by the  Revolving  Agent further to evidence of
public  record or otherwise  the senior  priority of the liens on the  Revolving
Primary Collateral securing the Priority Bank Debt as contemplated hereby.

         (b) The Revolving  Agent hereby  agrees,  upon request of the Term Loan
Agent at any time and from time to time,  to  execute  such other  documents  or
instruments  as may be requested  by the Term Loan Agent  further to evidence of
public  record or  otherwise  the senior  priority of the liens on the Term Loan
Primary Collateral securing the Priority Term Loan Debt as contemplated hereby.

         2.5.  BOOKS AND RECORDS.  The Term Loan Agent and the  Revolving  Agent
further agree to maintain on their  respective  books and records such notations
as the Revolving Agent or the Term Loan Agent may reasonably  request to reflect
the lien subordination contemplated hereby and to perfect or preserve the rights
of the Revolving Agent and the Term Loan Agent hereunder.

         2.6. LIEN  VALIDITY.  The  subordination  provisions  contained  herein
relate solely to the priority of liens  granted to the  Revolving  Agent and the
Term  Loan  Agent  by  the  Credit   Parties.   It  is  the  Revolving   Agent's
responsibility  to ensure the validity,  perfection  and  enforceability  of the
liens granted by the Credit  Parties to the  Revolving  Agent for the benefit of
itself and the Revolving Lenders. It is the Term Loan Agent's  responsibility to
ensure the validity,  perfection and  enforceability of the liens granted by the
Credit  Parties  to the Term Loan  Agent for the  benefit of itself and the Term
Loan Lenders.  Except as expressly  set forth herein,  (a) neither the Revolving
Agent nor any  Revolving  Lender shall have any duties to the Term Loan Agent or
the Term Loan Lenders with  respect to the  Collateral  and (b) neither the Term
Loan Agent nor any Term Loan Lender shall have any duties to the Revolving Agent
or the Revolving Lenders with respect to the Collateral. The Term Loan Agent and
the Term Loan Lenders agree that they will not contest the validity, perfection,
priority  or  enforceability  of the  claims  of the  Revolving  Agent  and  the
Revolving  Lenders with respect to the Priority  Bank Debt or the liens upon the
Collateral  in  favor  of the  Revolving  Agent.  The  Revolving  Agent  and the
Revolving  Lenders  agree that they will not contest the  validity,  perfection,
priority  or  enforceability  of the  claims of the Term Loan Agent and the Term
Loan Lenders  with respect to the Priority  Term Loan Debt or the liens upon the
Collateral in favor of the Term Loan Agent.

         2.7. NOT DEBT SUBORDINATION.

         (a)  Nothing  in  this  Intercreditor  Agreement  shall  be  deemed  to
subordinate  the right of Term Loan  Lenders  to receive  payment  from a source
other  than the  Revolving  Primary  Collateral  (whether  before  or after  the
occurrence of any default, event of default or Insolvency Proceeding),  it being
the  intent  of  the  parties  hereto  that,  to the  extent  provided  in  this
Intercreditor  Agreement,  the lien of the Term Loan Agent  with  respect to the
Revolving Primary  Collateral shall be junior to the lien of the Revolving Agent
with respect to the Revolving Primary Collateral to the extent of the respective
lien priorities provided for in this Intercreditor Agreement.

                                      -6-
<PAGE>

         (b)  Nothing  in  this  Intercreditor  Agreement  shall  be  deemed  to
subordinate  the right of  Revolving  Lenders to receive  payment  from a source
other  than the Term  Loan  Primary  Collateral  (whether  before  or after  the
occurrence of any default, event of default or Insolvency Proceeding),  it being
the  intent  of  the  parties  hereto  that,  to the  extent  provided  in  this
Intercreditor  Agreement,  the lien of the  Revolving  Agent with respect to the
Term Loan Primary  Collateral shall be junior to the lien of the Term Loan Agent
with respect to the Term Loan Primary Collateral to the extent of the respective
lien priorities provided for in this Intercreditor Agreement.

         2.8. COLLATERAL RELEASE.

         (a) Following the  occurrence of a Revolving  Release  Event,  upon the
request of the Revolving Agent with respect to the Revolving Primary  Collateral
identified in such request  (which  request shall specify the proposed  terms of
the  proposed  transfer,  sale or other  disposition  and the type and amount of
consideration  to be received in connection  therewith),  the Term Loan Agent on
behalf of the Term Loan Lenders shall:

                  (i) release or otherwise terminate its liens on such Revolving
         Primary  Collateral (to the same extent that the Revolving  Agent shall
         release or terminate its liens on such Collateral),  to the extent such
         Revolving  Primary  Collateral  is to be sold or otherwise  disposed of
         either by (i) the  Revolving  Agent or its  agents,  or (ii) any Credit
         Party with the consent of the requisite Revolving Lenders;

                  (ii) deliver such release documents as the Revolving Agent may
         reasonably  require  in  connection  therewith;  PROVIDED  that  if the
         closing of the sale or disposition of such Revolving Primary Collateral
         is not consummated  within thirty (30) days of receipt by the Revolving
         Agent of such release documents from the Term Loan Agent, the Revolving
         Agent  shall  promptly  return all release  documents  to the Term Loan
         Agent; and

                  (iii)  be  deemed  to  have  consented  under  the  Term  Loan
         Agreement to such sale or other disposition;  PROVIDED that such deemed
         consent  shall lapse in the event such sale or other  disposition  does
         not occur within thirty (30) days of receipt by the Revolving  Agent of
         the relevant release documents from the Term Loan Agent.

         (b) The effectiveness of any such release,  termination  and/or consent
by the Term Loan Agent  under  clause (a) above shall be subject to (i) the sale
or other  disposition  of the  Revolving  Primary  Collateral  described in such
request on the terms described in such request or on substantially similar terms
and in a commercially  reasonable manner, (ii) the application of all of the net
proceeds of such sale or other  disposition  promptly by the Revolving  Agent or
the Term Loan Agent as  specified in SECTION  2.3(A)  hereof and Section 12.4 of
the Revolving  Credit  Agreement (as in effect on the date hereof) to reduce the
Priority  Bank Debt,  and (iii) the rights of the Term Loan Agent under  SECTION
2.9(A).

         (c) Following the  occurrence  of a Term Loan Release  Event,  upon the
request of the Term Loan Agent with respect to the Term Loan Primary  Collateral
identified in such request  (which  request shall specify the proposed  terms of
the  proposed  transfer,  sale or other  disposition  and the type and amount of
consideration  to be received in connection  therewith),  the Revolving Agent on
behalf of the Revolving Lenders shall:

                                      -7-
<PAGE>

                  (i) release or otherwise terminate its liens on such Term Loan
         Primary  Collateral  (to the same extent that the Term Loan Agent shall
         release or terminate its liens on such Collateral),  to the extent such
         Term Loan Primary  Collateral  is to be sold or  otherwise  disposed of
         either by (i) the Term Loan  Agent or its  agents,  or (ii) any  Credit
         Party with the consent of the requisite Term Loan Lenders;

                  (ii) deliver such release documents as the Term Loan Agent may
         reasonably  require  in  connection  therewith;  PROVIDED  that  if the
         closing of the sale or disposition of such Term Loan Primary Collateral
         is not consummated  within thirty (30) days of receipt by the Term Loan
         Agent of such release documents from the Revolving Agent, the Term Loan
         Agent shall  promptly  return all release  documents  to the  Revolving
         Agent; and

                  (iii) be deemed to have consented  under the Revolving  Credit
         Agreement to such sale or other disposition;  PROVIDED that such deemed
         consent  shall lapse in the event such sale or other  disposition  does
         not occur within  thirty (30) days of receipt by the Term Loan Agent of
         the relevant release documents from the Revolving Agent.

         (d) The effectiveness of any such release,  termination  and/or consent
by the  Revolving  Agent under clause (c) above shall be subject to (i) the sale
or other  disposition  of the Term Loan  Primary  Collateral  described  in such
request on the terms described in such request or on substantially similar terms
and in a commercially  reasonable manner, (ii) the application of all of the net
proceeds  of such sale or other  disposition  promptly by the Term Loan Agent or
the  Revolving  Agent as specified in SECTION  2.3(B) hereof and Section 12.4 of
the Term Loan Agreement (as in effect on the date hereof) to reduce the Priority
Term Loan Debt and (iii) the rights of the Revolving Agent under SECTION 2.9(B).

         2.9. CONSENT TO USE OF INTELLECTUAL PROPERTY; ACCESS TO AND USE OF TERM
LOAN PRIMARY COLLATERAL.

         (a) If so requested at any time by the Term Loan Agent,  the  Revolving
Agent shall  deliver  its written  consent  (given  without any  representation,
warranty or obligations whatsoever) to any grant by any Credit Party to the Term
Loan Agent of a non-exclusive royalty-free license to use any patent, trademark,
copyright,  proprietary  information or other intellectual  property (including,
without  limitation,  proprietary and  non-proprietary  software included in, or
used or  useful  in  connection  with,  any  equipment  constituting  Term  Loan
Collateral) of such Credit Party that constitutes  Revolving Primary Collateral,
in connection  with the  enforcement  of any lien held by the Term Loan Agent on
any equipment  constituting Term Loan Primary  Collateral and to the extent that
the use of such patent,  trademark,  copyright  or  proprietary  information  is
necessary or reasonably appropriate,  in the good faith opinion of the Term Loan
Agent, to operate,  repair remove or sell any such equipment in a lawful manner.
In the  event  that the  Revolving  Agent  sells or  otherwise  disposes  of any
software  that  is  necessary  for  the  operation  of  any  Term  Loan  Primary
Collateral,  absent the consent of the Term Loan Agent,  the  purchaser  of such
software shall expressly  acknowledge in writing that its purchase is subject to
the Term Loan  Agent's  rights (to the extent such rights  remain in effect) and
obligations under this SECTION 2.9(A).

         (b) The Term Loan  Agent and the  Credit  Parties  covenant,  agree and
confirm that the Revolving Agent and its  representatives,  designees and agents
shall have full and  complete  access  to, and a license to occupy and use,  the
Term  Loan  Primary  Collateral,  until  that  date  which is 90  calendar  days
following   the  Occupancy   Commencement   Date,  as  necessary  or  reasonably
appropriate  (i) in  connection  with any Lien  Enforcement  Action  and (ii) to
protect,  secure, store, maintain,  assemble,  manufacture and otherwise enforce
the rights of the Credit Parties or the Revolving  Agent in and to the Revolving
Primary Collateral, in each case, subject to following terms and conditions:

                                      -8-

<PAGE>

                  (i) All physical damage (other than  reasonable  ordinary wear
         and tear) to the Term Loan Primary  Collateral  caused by the Revolving
         Agent or its  representatives,  designees  or agents  shall be promptly
         repaired to the condition  comparable to that immediately prior to such
         damage  being  caused by the  Revolving  Agent or such  representative,
         designee or agent by the Revolving  Agent at its sole  expense.  To the
         extent that the Revolving Agent has not repaired such Term Loan Primary
         Collateral  as provided  in this  CLAUSE  (I),  the Term Loan Agent may
         repair  such damage to the  condition  comparable  to that  immediately
         prior  to such  damage  being  caused  by the  Revolving  Agent or such
         representative,  designee or agent,  and Revolving Agent shall promptly
         reimburse the Term Loan Agent for the reasonable  cost of the same upon
         delivery of documentation  evidencing such expenses, such documentation
         to be in form,  scope  and  substance  reasonably  satisfactory  to the
         Revolving Agent and the Term Loan Agent.  The Revolving Agent shall not
         have any  liability  to the Term Loan  Agent or Term Loan  Lenders as a
         result of any condition (including  environmental  condition,  claim or
         liability)  on or with respect to the Term Loan Primary  Collateral  or
         damage to any Term Loan Primary  Collateral  which existed prior to the
         Revolving  Agent or its agents use of the Term Loan Primary  Collateral
         and the Revolving Agent shall have no duty or liability to maintain the
         Term Loan Primary  Collateral in a condition or manner better than that
         in which it was  maintained  prior to the use thereof by the  Revolving
         Agent.

                  (ii) In the event that the Term Loan Agent sells or  otherwise
         disposes  of all or any  portion  of the Term Loan  Primary  Collateral
         prior to the expiration of the 90 calendar day period  described above,
         absent the consent of the Revolving  Agent,  any purchaser of such Term
         Loan Primary Collateral shall expressly acknowledge in writing that its
         purchase is subject to the Revolving Agent's rights (to the extent such
         rights remain in effect) and obligations under this SECTION 2.9(B).

         (c) The Term Loan Agent hereby  agrees not to interfere  with the right
of the Revolving  Agent under Section 7.15 of the Credit  Agreement to visit and
inspect the  properties of the Credit  Parties and to conduct  examinations  and
verifications of all the Collateral.

         (d) The Revolving  Agent hereby agrees not to interfere  with the right
of the Term Loan Agent under  Section  7.15 of the Term Loan  Agreement to visit
and inspect the properties of the Credit Parties and to conduct examinations and
verifications of all the Collateral.

         (e) Notwithstanding the inclusion of software and intellectual property
assets in the  Revolving  Primary  Collateral,  in the event  that the Term Loan
Agent sells any Term Loan Primary  Collateral  containing any embedded  software
constituting  Revolving  Primary  Collateral,  (i)  the  Term  Loan  Agent  may,
notwithstanding  anything  contained herein to the contrary,  sell such software
and intellectual property assets and the Revolving Agent shall release its liens
on such  Collateral  pursuant to the  provisions of SECTION  2.8(C) and (ii) the
proceeds thereof shall be applied pursuant to SECTION 2.3(B).

         (f) Each of the Credit Parties hereby agrees and acknowledges the terms
of this SECTION 2.9.

                                      -9-
<PAGE>

         3.       OBLIGATIONS OF THE CREDIT PARTIES; REMEDY STANDSTILL.

         3.1. OBLIGATIONS.

         (a) Nothing contained herein shall impair as between the Credit Parties
and the Term Loan Lenders,  the  obligation of the Credit  Parties to pay to the
Term Loan  Lenders all  amounts  payable in respect of the Term Loan Debt as and
when the same shall become due and payable in  accordance  with the terms of the
Term  Loan  Agreement,  subject  to the  rights of the  Revolving  Agent and the
Revolving Lenders hereunder.  Nothing in this Intercreditor Agreement shall have
any effect on the right of the Term Loan Agent, for the benefit of the Term Loan
Lenders,  to accelerate  the maturity date of the Term Loan Debt pursuant to the
terms of the Term Loan  Agreement  or,  except as expressly set forth in SECTION
3.2, to exercise all other rights,  powers and remedies  otherwise  permitted by
applicable law or under the Term Loan Documents or this Intercreditor Agreement.
Any Lien  Enforcement  Action  taken by the Term  Loan  Lenders  will be done in
accordance with the provisions of this Intercreditor Agreement.

         (b) Nothing contained herein shall impair as between the Credit Parties
and the Revolving  Lenders,  the  obligation of the Credit Parties to pay to the
Revolving  Lenders all  amounts  payable in respect of the Bank Debt as and when
the same  shall  become  due and  payable  in  accordance  with the terms of the
Revolving Credit Agreement, subject to the rights of the Term Loan Agent and the
Term Loan Lenders hereunder.  Nothing in this Intercreditor Agreement shall have
any effect on the right of the Revolving Agent, for the benefit of the Revolving
Lenders,  to accelerate the maturity date of the Bank Debt pursuant to the terms
of the Revolving  Credit  Agreement or, except as expressly set forth in SECTION
3.2, to exercise all other rights,  powers and remedies  otherwise  permitted by
applicable law or under the Loan Documents or this Intercreditor  Agreement. Any
Lien  Enforcement  Action  taken  by the  Revolving  Lenders  will  be  done  in
accordance with the provisions of this Intercreditor Agreement.

         3.2. REMEDY STANDSTILL.

         (a) Until the Bank Loan  Termination  Date, the Term Loan Agent may not
exercise any remedy  (including any Lien Enforcement  Action) against  Revolving
Primary Collateral in respect of the Term Loan Debt or notify account debtors or
other Persons obligated on Revolving Primary Collateral of the assignment of any
Credit  Party's  Accounts  Receivable to the  Revolving  Agent and the Term Loan
Agent.  After the Bank Loan  Termination  Date, the Term Loan Agent may exercise
any remedy  against  Revolving  Primary  Collateral  in respect of the Term Loan
Debt.

         (b) Until the Term Loan  Termination  Date, the Revolving Agent may not
exercise any remedy  (including any Lien  Enforcement  Action) against Term Loan
Primary  Collateral in respect of the Bank Debt. After the Term Loan Termination
Date,  the  Revolving  Agent may exercise  any remedy  against Term Loan Primary
Collateral in respect of the Bank Debt.

                                 4. COLLATERAL.

         4.1. PAYMENTS HELD IN TRUST.

         (a) Until the Bank Loan Termination Date, the Term Loan Agent will hold
in trust and  immediately pay over to the Revolving Agent for the account of the
Revolving Lenders and the Revolving Agent and for application in accordance with
SECTION 2.3(A) hereof,  in the same form of payment  received,  with appropriate
endorsements,  any  amounts  that the Term Loan  Agent or the Term Loan  Lenders
receive constituting proceeds of Revolving Primary Collateral that the Term Loan
Lenders  are not then  entitled  to apply to the Term Loan Debt  pursuant to the
provisions  hereof;  PROVIDED  that the  Revolving  Agent will hold in trust and
immediately  pay over to the Term Loan  Agent,  for the account of the Term Loan
Lenders and the Term Loan Agent,  any  proceeds in excess of the  Priority  Bank
Debt to be applied to the Priority Term Loan Debt. No payments or  distributions
to the  Revolving  Agent or the  Revolving  Lenders  of any  cash,  property  or
securities  to which the Term Loan  Lenders  would be  entitled  except  for the
provisions of this Intercreditor Agreement, and no payment over to the Revolving
Agent or the Revolving Lenders pursuant to this  Intercreditor  Agreement by the
Term Loan Agent as between  any Credit  Party,  its  creditors  (other  than the
Revolving  Agent and the  Revolving  Lenders) and the Term Loan Agent,  shall be
deemed to be a payment by the  Credit  Parties to or on account of the Term Loan
Debt.

                                      -10-
<PAGE>

         (b) Until the Term Loan Termination Date, the Revolving Agent will hold
in trust and  immediately pay over to the Term Loan Agent for the account of the
Term Loan Lenders and the Term Loan Agent and for application in accordance with
SECTION 2.3(B) hereof,  in the same form of payment  received,  with appropriate
endorsements,  any amounts that the  Revolving  Agent or the  Revolving  Lenders
receive constituting proceeds of Term Loan Primary Collateral that the Revolving
Lenders  are not  then  entitled  to  apply to the  Bank  Debt  pursuant  to the
provisions  hereof;  PROVIDED  that the Term Loan  Agent  will hold in trust and
immediately  pay over to the Revolving  Agent,  for the account of the Revolving
Lenders and the  Revolving  Agent,  any proceeds in excess of the Priority  Term
Loan Debt to be applied to the Priority Bank Debt. No payments or  distributions
to the Term  Loan  Agent or the Term  Loan  Lenders  of any  cash,  property  or
securities  to which the  Revolving  Lenders  would be  entitled  except for the
provisions of this Intercreditor Agreement, and no payment over to the Term Loan
Agent or the Term Loan Lenders pursuant to this  Intercreditor  Agreement by the
Revolving Agent as between any Credit Party,  its creditors (other than the Term
Loan Agent and the Term Loan Lenders) and the Revolving  Agent,  shall be deemed
to be a payment by the Credit Parties to or on account of the Bank Debt.

         4.2.  APPOINTMENT  OF  REVOLVING  AGENT AS AGENT.  The Term Loan  Agent
hereby  appoints the  Revolving  Agent as its agent to perfect by  possession or
control  its lien in any of the  Collateral  (a) which  lien is capable of being
perfected by  possession  or control and (b) that is, at any time,  delivered to
and in the possession,  or is under the control of the Revolving Agent,  subject
always to the rights of the Revolving Agent as prior lien holder.  The Revolving
Agent  acknowledges  that it holds such  Collateral  for the benefit of the Term
Loan  Agent  upon and  subject  to the  terms  contained  in this  Intercreditor
Agreement.  The Revolving  Agent agrees to turn over to the Term Loan Agent with
appropriate endorsements any Revolving Primary Collateral in its possession upon
payment in full of the Priority  Bank Debt in cash.  The  Revolving  Agent shall
provide a written notice to the Term Loan Agent promptly following the Revolving
Agent's  receipt of a notice  delivered  pursuant to a landlord  agreement  of a
default by a Credit Party under the applicable  lease,  but failure to give such
notice shall not alter the rights or obligations of the parties hereto or result
in any liability of the Revolving Agent.

         4.3.  APPOINTMENT  OF TERM LOAN  AGENT AS AGENT.  The  Revolving  Agent
hereby  appoints  the Term Loan Agent as its agent to perfect by  possession  or
control  its  lien in any of the  Collateral  which  lien is  capable  of  being
perfected by  possession  or control and,  notwithstanding  the intention of the
parties that the Revolving Agent hold such item for perfection,  is delivered to
and in the possession,  or is under the control of the Term Loan Agent. The Term
Loan Agent  acknowledges  that it holds such  Collateral  for the benefit of the
Revolving  Agent upon and subject to the terms  contained in this  Intercreditor
Agreement.  The Term Loan Agent agrees to turn over to the Revolving  Agent with
appropriate endorsements any Term Loan Primary Collateral in its possession upon
payment in full of the Priority Term Loan Debt in cash.

         4.4. NO MARSHALING.

         (a) The Term Loan Agent agrees not to assert and hereby waives,  to the
fullest  extent  permitted  by law,  any  right  to  demand,  request,  plead or
otherwise assert or otherwise claim against the Revolving Agent or the Revolving
Lenders the benefit of any marshaling right that a junior secured creditor might
have under applicable law with respect to the Revolving Primary Collateral.

                                      -11-
<PAGE>

         (b) The Revolving Agent agrees not to assert and hereby waives,  to the
fullest  extent  permitted  by law,  any  right  to  demand,  request,  plead or
otherwise assert or otherwise claim against the Term Loan Agent or the Term Loan
Lenders the benefit of any marshaling right that a junior secured creditor might
have under applicable law with respect to the Term Loan Primary Collateral.

                           5. DEFENSE TO ENFORCEMENT.

         (a) If the Term  Loan  Agent,  in  contravention  of the  terms of this
Intercreditor Agreement,  shall commence,  prosecute or participate in any suit,
action or proceeding against any Revolving Primary  Collateral,  then the Credit
Parties  may  interpose  as a defense or plea the  making of this  Intercreditor
Agreement,  and the Revolving  Agent or any  Revolving  Lender may intervene and
interpose such defense or plea in its name or in the name of such Credit Party.

         (b) If the  Revolving  Agent,  in  contravention  of the  terms of this
Intercreditor Agreement,  shall commence,  prosecute or participate in any suit,
action or proceeding against any Term Loan Primary  Collateral,  then the Credit
Parties  may  interpose  as a defense or plea the  making of this  Intercreditor
Agreement,  and the Term Loan Agent or any Term Loan  Lender may  intervene  and
interpose such defense or plea in its name or in the name of such Credit Party.

              6. RESTRICTIONS ON ADVANCES; ADDITIONAL AGREEMENTS.

         6.1.  ADVANCES  RESULTING  IN  TERM  LOAN  AGREEMENT  BREACHES.  If the
Revolving  Agent or any Revolving  Lender should honor a request by the Borrower
for a loan, advance or other financial  accommodation under the Revolving Credit
Agreement or  otherwise,  whether or not the  Revolving  Agent or any  Revolving
Lender has  knowledge  that the honoring of such request  would result in a Term
Loan Event of Default,  or act,  condition or event which with notice or passage
of time or both would constitute a Term Loan Event of Default, in no event shall
the Revolving Agent or any Revolving  Lender have any liability to the Term Loan
Agent or any Term Loan Lender as a result of such breach,  and, without limiting
the generality of the  foregoing,  the Term Loan Agent and the Term Loan Lenders
agree that the  Revolving  Lenders  shall not have any  liability  for  tortious
interference  with  contractual  relations or for  inducement  by the  Revolving
Lenders  of any  Credit  Party to  breach  of  contract  or  otherwise.  Nothing
contained in this SECTION 6.1 shall limit, impair or waive (i) the provisions of
SECTION 2.3 hereof and the limitations on Priority Bank Debt contained herein or
(ii) any right  that the Term  Loan  Agent  and the Term  Loan  Lenders  have to
enforce  any of the  provisions  of the Term Loan  Documents  against any Credit
Party.

         6.2.   MODIFICATIONS  TO  REVOLVING   CREDIT   AGREEMENT   RELATING  TO
AVAILABILITY.  Without the prior  written  consent of the Term Loan  Agent,  the
Revolving  Agent  and  the  Revolving  Lenders  shall  not  make  amendments  or
modifications  to the  definition of "Borrowing  Base",  or any of the component
definitions  thereof,  or increase the percentage advance rates thereunder above
the rates in effect on the Closing Date, or release or decrease the Availability
Reserve,  in each case,  in a manner which would  result in a greater  amount of
credit being provided to the Borrower as an advance  against the Borrowing Base;
PROVIDED,  however,  the Revolving  Agent's  discretion to establish and release
reserves (other than the Availability  Reserve),  decrease advances rates and to
determine eligibility shall not be limited.

                                      -12-
<PAGE>

                        7. LENDERS' FREEDOM OF DEALING.

         7.1.  MODIFICATIONS TO REVOLVING CREDIT AGREEMENT.  The Term Loan Agent
agrees,  with respect to the Bank Debt, the Revolving  Credit  Agreement and the
other Loan Documents and any and all collateral  therefor or guaranties thereof,
that the Credit Parties and the Revolving Lenders may, subject to the provisions
of  SECTION  6.2,  agree to modify  the terms of any of the Bank  Debt,  and the
Revolving  Lenders  may,  subject  to  the  provisions  of  SECTION  6.2,  grant
extensions  of the time of  payment  or  performance  to and  make  compromises,
including releases of Collateral or guaranties,  and settlements with the Credit
Parties and all other persons, in each case without the consent of the Term Loan
Agent or the Credit  Parties and without  affecting  the  agreements of the Term
Loan Agent contained in this Intercreditor  Agreement.  If the Revolving Lenders
should amend or waive any  provision of the Loan  Documents,  whether or not any
Revolving  Lender has knowledge  that such amendment or waiver would result in a
breach  of any Term Loan  Documents  or a Term Loan  Event of  Default,  or act,
condition or event which with notice or passage of time or both would constitute
a Term Loan Event of Default,  in no event shall any  Revolving  Lender have any
liability  to the Term Loan  Agent or any Term  Loan  Lender as a result of such
breach.

         7.2. MODIFICATIONS TO TERM LOAN AGREEMENT.  The Revolving Agent agrees,
with respect to the Term Loan Debt,  the Term Loan  Agreement and the other Term
Loan Documents and any and all collateral therefor or guaranties  thereof,  that
the Credit  Parties  and the Term Loan  Lenders may agree to modify the terms of
any of the Term Loan Debt, and the Term Loan Lenders may grant extensions of the
time of payment or performance to and make  compromises,  including  releases of
Collateral or guaranties,  and settlements with the Credit Parties and all other
persons,  in each case without the consent of the Revolving  Agent or the Credit
Parties and without affecting the agreements of the Revolving Agent contained in
this Intercreditor Agreement. If the Term Loan Lenders should amend or waive any
provision of the Term Loan Agreement,  whether or not the Term Loan Agent or any
Term Loan Lender has knowledge  that such  amendment or waiver would result in a
breach of any Loan Documents or an Event of Default,  or act, condition or event
which  with  notice or  passage  of time or both  would  constitute  an Event of
Default,  in no event shall the Term Loan Agent or any Term Loan Lender have any
liability to the  Revolving  Agent or any  Revolving  Lender as a result of such
breach.

         7.3. NOTIFICATIONS OF MODIFICATIONS TO AGREEMENTS.

         (a) The Revolving Agent shall provide prompt written notice to the Term
Loan Agent of any amendment or modification  to the Loan Documents,  but failure
to give such  notice  shall not alter the rights or  obligations  of the parties
hereto.

         (b) The Term Loan Agent  shall  provide  prompt  written  notice to the
Revolving Agent of any amendment or modification to the Term Loan Documents, but
failure to give such  notice  shall not alter the rights or  obligations  of the
parties hereto.

         7.4. NOTIFICATIONS OF DEFAULTS.

         (a) The Term Loan Agent shall provide a written notice to the Revolving
Agent promptly following the occurrence of a Term Loan Event of Default of which
the Term Loan Agent is aware,  but failure to give such  notice  shall not alter
the rights or obligations of the parties hereto.

         (b) The Revolving Agent shall provide a written notice to the Term Loan
Agent  promptly  following  the  occurrence  of an Event of Default of which the
Revolving  Agent is aware,  but failure to give such notice  shall not alter the
rights or obligations of the parties hereto.

                                      -13-

<PAGE>

         7.5. APPRAISALS, ETC.

         (a) The  Revolving  Agent shall provide the Term Loan Agent with copies
of all  appraisals,  environmental  exams or similar reports and bank statements
and other account information received by the Revolving Agent in connection with
the Revolving Credit Agreement and the other Loan Documents  (collectively,  the
"REVOLVING  CREDIT  MATERIALS")  and the Credit  Parties  irrevocably,  by their
execution  hereof,  direct and authorize the Revolving  Agent to do so. The Term
Loan Agent agrees that such  Revolving  Credit  Materials are delivered  without
representation  or warranty by, and without recourse to, the Revolving Agent and
the Revolving Lenders.

         (b) The Term Loan Agent shall provide the  Revolving  Agent with copies
of all  appraisals,  environmental  exams or similar reports and bank statements
and other account information received by the Term Loan Agent in connection with
the Term Loan  Agreement and the other Term Loan  Documents  (collectively,  the
"TERM LOAN  MATERIALS") and the Credit Parties  irrevocably,  by their execution
hereof,  direct and authorize the Term Loan Agent to do so. The Revolving  Agent
agrees that such Term Loan  Materials are delivered  without  representation  or
warranty  by,  and  without  recourse  to, the Term Loan Agent and the Term Loan
Lenders.

                              8. SALE OF THE DEBT.

         (a)  No  Term  Loan  Lender  will  sell,  transfer,   pledge,   assign,
hypothecate  or  otherwise  dispose  of any or all of the Term  Loan Debt to any
person other than a person who agrees in writing to become a party hereto and to
succeed  to the rights  and to be bound by all of the  obligations  of such Term
Loan Lender hereunder.

         (b)  No  Revolving  Lender  will  sell,   transfer,   pledge,   assign,
hypothecate  or  otherwise  dispose of any or all of the Bank Debt to any person
other  than a person  who  agrees in  writing  to become a party  hereto  and to
succeed  to the  rights  and to be  bound  by all  of the  obligations  of  such
Revolving Lender hereunder.

                             9. BANKRUPTCY MATTERS.

         9.1.  INSOLVENCY.  This  Intercreditor  Agreement  and  the  priorities
provided for herein shall be  applicable  with respect to all liens  obtained by
the Revolving Agent, any Revolving Lender,  the Term Loan Agent or any Term Loan
Lender  (whether  obtained  before or after the  filing  of any  petition  by or
against any Credit Party under  applicable  Insolvency Laws and all converted or
succeeding cases in respect thereof). The relative rights of the Revolving Agent
and any  Revolving  Lenders and the Term Loan Agent and the Term Loan Lenders in
or to any  distributions  from or in respect of any  Collateral  or  proceeds of
Collateral shall continue after the filing of any such Insolvency  Proceeding on
the same basis as prior to the  commencement of any such Insolvency  Proceeding,
subject to any Court order approving  Post-Petition  Financing by  Post-Petition
Lenders  in  favor  of,  or use of cash  collateral  by,  any  Credit  Party  as
debtor-in-possession.

         9.2. POST-PETITION FINANCING.

         (a) Subject to SECTION 9.5(B), if any Credit Party shall become subject
to an  Insolvency  Proceeding  and  any of the  Credit  Parties  or any  trustee
therefore  moves for  approval of  financing to be provided in good faith by the
Revolving  Agent or the  Revolving  Lenders (in such  capacity,  the  "REVOLVING
POST-PETITION  LENDERS")  under  applicable  Insolvency  Laws or the use of cash
collateral with the consent of the Revolving Agent under  applicable  Insolvency
Laws  (such  use of cash  collateral  and any  such  financing  provided  by the
Revolving Post-Petition Lenders, the "REVOLVING POST-PETITION  FINANCING"),  the
Term Loan Agent and the Term Loan Lenders agree that no objection will be raised
by them to any such financing so long as: (i) the interest rate,  fees,  advance
rates, lending sublimits and limits and other terms are commercially  reasonable
under  the  circumstances,  (ii) the Term Loan  Agent and the Term Loan  Lenders
retain a lien on the pre-petition Collateral (including proceeds thereof arising
after the  commencement  of such  proceeding)  with the same priority as existed
prior to the  commencement of the case under  applicable  Insolvency Laws, (iii)
the Term Loan Agent and the Term Loan Lenders receive, as adequate protection, a
replacement  lien on  post-petition  assets to the same  extent  granted  to the
Revolving Post-Petition Lenders, such replacement lien to be subordinate only to
(A) the  lien of  such  Revolving  Post-Petition  Lenders,  (B) the  lien of the
Revolving  Agent and the  Revolving  Lenders  with  respect to the  pre-petition
obligations and (C) any adequate protection lien provided to the Revolving Agent
and the  Revolving  Lenders,  (iv) without  limiting the  provisions  of SECTION
9.5(B),  any lien on the Term Loan Primary  Collateral  granted to the Revolving
Post-Petition Lenders to secure the Revolving  Post-Petition Financing or to the
Revolving Agent or Revolving Lenders as adequate protection for the pre-petition
Bank  Debt,  shall  be  subject  and  subordinate  to  the  adequate  protection
replacement  lien of the Term Loan Agent and Term Loan  Lenders on the Term Loan
Primary Collateral, (v) the Revolving Post-Petition Lenders agree that they will
not make,  issue or incur loans or letter of credit  accommodations  pursuant to
such post-petition  financing that would intentionally and with actual knowledge
cause the sum of (x) the aggregate  outstanding  principal  amount of such loans
and  letter  of  credit  accommodations  made  pursuant  to  such  post-petition
financing PLUS (y) the outstanding  principal  amount of pre-petition  Revolving
Loans and Letters of Credit to exceed the sum of (i) the Maximum  Bank Debt plus
(ii) $750,000,  and (vi) such financing or use of cash  collateral is subject to
the terms of this Intercreditor Agreement. The Term Loan Agent and the Term Loan
Lenders  agree  that  any  objection  will  be  limited  to  the  extent  of any
non-compliance  with the provisions of clauses (i) through (vi) in the preceding
sentence.

                                      -14-
<PAGE>

         (b) Subject to SECTION 9.5(A), if any Credit Party shall become subject
to an  Insolvency  Proceeding  and  any of the  Credit  Parties  or any  trustee
therefore  moves for  approval of  financing to be provided in good faith by the
Term Loan  Agent or the Term Loan  Lenders  (in such  capacity,  the "TERM  LOAN
POST-PETITION  LENDERS" and together with the Revolving  Post-Petition  Lenders,
the " POST-PETITION  LENDERS") under applicable  Insolvency Laws (such financing
provided by the Term Loan  Post-Petition  Lenders,  the "TERM LOAN POST-PETITION
FINANCING"  and  together  with  the  Revolving  Post-Petition   Financing,  the
"POST-PETITION FINANCING"),  the Revolving Agent and the Revolving Lenders agree
that no objection  will be raised by them to any such  financing so long as: (i)
the interest rate, fees,  advance rates,  lending sublimits and limits and other
terms are commercially  reasonable under the  circumstances,  (ii) the Revolving
Agent and the Revolving  Lenders  retain a lien on the  pre-petition  Collateral
(including  proceeds  thereof arising after the commencement of such proceeding)
with the same  priority as existed prior to the  commencement  of the case under
applicable  Insolvency Laws, (iii) the Revolving Agent and the Revolving Lenders
receive, as adequate  protection,  a replacement lien on post-petition assets to
the same extent granted to the Term Loan Post-Petition Lenders, such replacement
lien to be  subordinate  only to (A) the lien of such  Term  Loan  Post-Petition
Lenders,  (B) the lien of the Term Loan  Agent and the Term  Loan  Lenders  with
respect to the  pre-petition  obligations  and (C) any adequate  protection lien
provided to the Term Loan Agent and the Term Loan Lenders, (iv) without limiting
the provisions of SECTION 9.5(A),  any lien on the Revolving Primary  Collateral
granted  to the  Term  Loan  Post-Petition  Lenders  to  secure  the  Term  Loan
Post-Petition  Financing  or to the Term  Loan  Agent or Term  Loan  Lenders  as
adequate  protection  for the  pre-petition  Bank  Debt,  shall be  subject  and
subordinate to the adequate  protection  replacement lien of the Revolving Agent
and Revolving  Lenders on the Revolving  Primary  Collateral,  (v) the Term Loan
Post-Petition  Lenders  agree that they will not make,  issue or incur  loans or
letter of credit  accommodations  pursuant to such post-petition  financing that
would  intentionally  and with actual knowledge cause the aggregate  outstanding
principal amount of such loans and letter of credit accommodations made pursuant
to such post-petition  financing to exceed the sum of (x) the outstanding amount
of  pre-petition  Priority  Term Loan Debt PLUS (y) $750,000 PLUS (z) the amount
not already advanced, if any, of the $2,500,000 of additional permitted Priority
Term Loan Debt  referred  to in clause (b) of the proviso in the  definition  of
"Excluded  Term Loan Debt",  and (vi) such  financing is subject to the terms of
this  Intercreditor  Agreement.  The Revolving  Agent and the Revolving  Lenders
agree that any  objection  will be  limited to the extent of any  non-compliance
with the provisions of clauses (i) through (vi) in the preceding sentence.

         9.3. VOTING.

         (a) In any such Insolvency Proceeding, the Term Loan Agent and the Term
Loan Lenders shall not vote with respect to any plan or take any other action in
any way so as to contest (a) the validity of any Priority  Bank Debt  (including
any claim for  post-petition  interest  thereon) or any collateral or guaranties
thereof,  (b) the relative rights and duties of any holders of any Priority Bank
Debt established in any instruments or agreements  creating or evidencing any of
the Bank Debt with respect to any of such  collateral  or  guaranties or (c) the
Term Loan Agent's and the Term Loan  Lenders'  obligations  and  agreements  set
forth in this Intercreditor Agreement.

                                      -15-
<PAGE>

         (b) In any such  Insolvency  Proceeding,  the  Revolving  Agent and the
Revolving  Lenders  shall  not vote with  respect  to any plan or take any other
action in any way so as to contest (a) the  validity of any  Priority  Term Loan
Debt (including any claim for post-petition  interest thereon) or any collateral
or guaranties thereof,  (b) the relative rights and duties of any holders of any
Priority Term Loan Debt established in any instruments or agreements creating or
evidencing  any of the Term Loan Debt with respect to any of such  collateral or
guaranties or (c) the Revolving Agent's and the Revolving  Lenders'  obligations
and agreements set forth in this Intercreditor Agreement.

         9.4. ALTERNATIVE FINANCINGS.

         (a) Subject to SECTION 9.5(B),  the provisions  hereof shall not impair
(i) the right of the  Revolving  Agent  and the  Revolving  Lenders  in any such
Insolvency Proceeding to provide Revolving Post-Petition Financing or consent to
the use of cash  collateral on terms other than as set forth herein or (ii) with
respect to any  Revolving  Post-Petition  Financing  which is  provided on terms
other than those set forth in SECTION 9.2(A),  the rights of the Term Loan Agent
and the  Term  Loan  Lenders  to  object  to any  such  Revolving  Post-Petition
Financing on any basis, including failure to provide "adequate protection".

         (b) Subject to SECTION 9.5(A),  the provisions  hereof shall not impair
(i) the right of the Term  Loan  Agent  and the Term  Loan  Lenders  in any such
Insolvency  Proceeding  to provide  Term Loan  Post-Petition  Financing on terms
other  than  as  set  forth  herein  or  (ii)  with  respect  to any  Term  Loan
Post-Petition Financing which is provided on terms other than those set forth in
SECTION 9.2(B),  the rights of the Revolving Agent and the Revolving  Lenders to
object to any such Term Loan  Post-Petition  Financing  on any basis,  including
failure to provide "adequate protection".

         9.5. CERTAIN AGREEMENTS.

         (a) In any such Insolvency Proceeding,  the Term Loan Agent agrees, for
itself  and the other Term Loan  Lenders,  that it shall not:  (i)  directly  or
indirectly,  provide or offer to provide any Term Loan  Post-Petition  Financing
secured by a lien senior to or pari passu with the liens of the Revolving  Agent
and the Revolving  Lenders on the  Revolving  Primary  Collateral,  (ii) seek or
request any adequate protection with respect to the Revolving Primary Collateral
(other  than  replacement  liens  pursuant  to SECTION  9.2(A)) or object to any
adequate  protection with respect to the Revolving Primary Collateral awarded to
the Revolving  Agent and the Revolving  Lenders,  or (iii) object to any sale or
other  disposition of Revolving  Primary  Collateral in accordance with Sections
363 or 365 of the U.S.  Bankruptcy  Code (or any similar  provision of any other
Insolvency Laws) approved by the Revolving Agent.

         (b) In any such Insolvency Proceeding,  the Revolving Agent agrees, for
itself and the other  Revolving  Lenders,  that it shall not:  (i)  directly  or
indirectly,  provide or offer to provide any Revolving  Post-Petition  Financing
secured by a lien  senior to or pari passu with the liens of the Term Loan Agent
and the Term Loan  Lenders  on the Term Loan  Primary  Collateral,  (ii) seek or
request any adequate protection with respect to the Term Loan Primary Collateral
(other  than  replacement  liens  pursuant  to SECTION  9.2(B)) or object to any
adequate  protection with respect to the Term Loan Primary Collateral awarded to
the Term Loan Agent and the Term Loan  Lenders,  or (iii)  object to any sale or
other  disposition of Term Loan Primary  Collateral in accordance  with Sections
363 or 365 of the U.S.  Bankruptcy  Code (or any similar  provision of any other
Insolvency Laws) approved by the Term Loan Agent.

                                      -16-
<PAGE>

         10. CREDIT PARTIES' OBLIGATIONS ABSOLUTE.

         (a) Nothing contained in this Intercreditor  Agreement shall impair, as
between the Credit  Parties and the Term Loan  Lenders,  the  obligation  of the
Credit Parties to pay to the Term Loan Lenders all amounts payable in respect of
the Term  Loan  Debt as and  when  the same  shall  become  due and  payable  in
accordance  with the terms  thereof,  or prevent the Term Loan Agent  (except as
expressly  otherwise  provided in SECTIONS 2, 3 or 5 hereof) from exercising all
rights,  powers and remedies otherwise  permitted by the Term Loan Documents and
by  applicable  law  upon  a  default  in  the  payment  or  performance  of its
obligations  in  relation  to the Term  Loan  Debt or under any of the Term Loan
Documents,  all,  however,  subject to the rights of the Revolving Agent and the
Revolving Lenders as set forth in this Intercreditor  Agreement.  The failure of
the Credit  Parties to make any  payment  with  respect to the Term Loan Debt in
accordance  with its  terms by  reason of the  operation  of this  Intercreditor
Agreement shall not be construed as preventing the occurrence of a default under
the Term Loan Documents.

         (b) Nothing contained in this Intercreditor  Agreement shall impair, as
between the Credit  Parties and the  Revolving  Lenders,  the  obligation of the
Credit Parties to pay to the Revolving Lenders all amounts payable in respect of
the Bank Debt as and when the same shall  become due and  payable in  accordance
with the terms  thereof,  or prevent the  Revolving  Agent  (except as expressly
otherwise  provided in SECTIONS 2, 3 or 5 hereof)  from  exercising  all rights,
powers and remedies otherwise  permitted by the Loan Documents and by applicable
law upon a default in the payment or performance of its  obligations in relation
to the Bank Debt or under any of the Loan Documents,  all,  however,  subject to
the rights of the Term Loan Agent and the Term Loan Lenders as set forth in this
Intercreditor  Agreement.  The failure of the Credit Parties to make any payment
with  respect  to the Bank  Debt in  accordance  with its terms by reason of the
operation of this  Intercreditor  Agreement shall not be construed as preventing
the occurrence of a default under the Loan Documents.

                        11. BANK LOAN TERMINATION DATE.

         (a) Upon the Bank Loan  Termination  Date,  the  Revolving  Agent shall
deliver all notices  and/or  certificates  evidencing  the transfer of Revolving
Primary  Collateral  under the control of the Revolving Agent from the Revolving
Agent to the Term Loan Agent.

         (b) Upon the Term Loan  Termination  Date,  the Term Loan  Agent  shall
deliver all notices  and/or  certificates  evidencing  the transfer of Term Loan
Primary  Collateral  under the control of the Term Loan Agent from the Term Loan
Agent to the Revolving Agent.

                                      -17-
<PAGE>

12. NOTICES.  All notices and other communications which are required and may be
given pursuant to the terms of this Intercreditor  Agreement shall be in writing
and shall be  sufficient  and  effective  in all respects if given in writing or
telecopied,  delivered  or mailed  by  registered  or  certified  mail,  postage
prepaid, as follows:

     If to the Revolving Agent:
                                        Bank of America, N.A.
                                        One Federal Street
                                        MA5-503-07-19
                                        Boston, MA  02110
                       Attention:       Matthew O'Keefe
                       Fax:             (617) 654-1167

     If to the Term Loan Agent:
                                        GB Merchant Partners, LLC
                                        101 Huntington Avenue, 10th Floor
                                        Boston, MA 02199
                       Attention:       D. Michael Murray
                       Fax:             (617) 210-7141

     If to the Credit Parties:
                                        c/o Quaker Fabric Corporation
                                        941 Grinnell Street
                                        Fall River, MA 84321
                       Attention:       Paul J. Kelly
                       Fax:             (508) 678-2656

or such other address or addresses as any party hereto shall have  designated by
written  notice to the other parties  hereto.  Notices shall be deemed given and
effective  upon the  earlier  to occur of (i) the  third day  following  deposit
thereof in the U.S.  mail or (ii)  receipt  by the party to whom such  notice is
directed.

13.  GOVERNING  LAW.  THIS  INTERCREDITOR  AGREEMENT  SHALL BE  GOVERNED  BY THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL BE A SEALED INSTRUMENT UNDER SUCH LAWS.

14. WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL  WITH  RESPECT  TO ANY  ACTION  OR CLAIM  ARISING  OUT OF ANY  DISPUTE  IN
CONNECTION  WITH  THIS  INTERCREDITOR   AGREEMENT,  ANY  RIGHTS  OR  OBLIGATIONS
HEREUNDER  OR  THE  PERFORMANCE  OF  SUCH  RIGHTS  AND  OBLIGATIONS.  EXCEPT  AS
PROHIBITED BY LAW, EACH OF THE PARTIES HEREBY 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 OF THE PARTIES (A)  CERTIFIES  THAT NO
REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,  SEEK
TO ENFORCE  THE  FOREGOING  WAIVERS AND (B)  ACKNOWLEDGES  THAT IT AND THE OTHER
PARTIES HAS BEEN INDUCED TO ENTER INTO THIS  INTERCREDITOR  AGREEMENT  BY, AMONG
OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.

                                      -18-
<PAGE>

15.  MISCELLANEOUS.  This  Intercreditor  Agreement  may be  executed in several
counterparts and by each party on a separate counterpart,  each of which when so
executed and delivered  shall be an original,  and all of which  together  shall
constitute one instrument. In proving this Intercreditor Agreement, it shall not
be necessary to produce or account for more than one such counterpart  signed by
the party against which  enforcement is sought.  The Revolving Agent may, in its
sole  and  absolute  discretion,  waive  any  provisions  of this  Intercreditor
Agreement  benefiting the Revolving Agent and the Revolving  Lenders;  PROVIDED,
HOWEVER,  that such waiver shall be  effective  only if in writing and signed by
the Revolving Agent and shall be limited to the specific provision or provisions
expressly  so  waived.  The Term  Loan  Agent  may,  in its  sole  and  absolute
discretion,  waive any provisions of this Intercreditor Agreement benefiting the
Term Loan Agent and the Term Loan Lenders;  PROVIDED,  HOWEVER, that such waiver
shall be  effective  only if in  writing  and  signed by the Term Loan Agent and
shall be limited to the specific  provision or  provisions  expressly so waived.
This Intercreditor Agreement shall be binding upon the successors and assigns of
the Term Loan Agent,  the Term Loan Lenders,  the Revolving Agent, the Revolving
Lenders and the Credit  Parties and shall inure to the benefit of the  Revolving
Agent,  the  Revolving  Lenders,  the Term Loan Agent and the Term Loan Lenders,
their  respective  successors  and assigns,  any lender or lenders  refunding or
refinancing  any of the Bank Debt or the Term  Loan  Debt and  their  respective
successors  and assigns,  but shall not otherwise  create any rights or benefits
for any third party. In the event of any  inconsistency  or conflict between the
Loan Documents or the Term Loan Documents and this Intercreditor Agreement, such
inconsistency  or conflict  will be governed by the terms of this  Intercreditor
Agreement and not the Loan Documents or the Term Loan Documents, as the case may
be. This  Intercreditor  Agreement  constitutes the entire agreement between the
parties  pertaining to the subject  matter  contained in it and  supersedes  all
prior and contemporaneous agreements,  representations and understandings of the
parties with respect to the same.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -19-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Intercreditor
Agreement under seal as of the date first above written.

          REVOLVING AGENT: BANK OF AMERICA, N.A., as Revolving Agent

          By: /s/ Matthew O'Keefe
          -------------------------------------------------
          Name: Matthew O'Keefe
          Title: Senior Vice President

          TERM LOAN AGENT: GB MERCHANT PARTNERS, LLC, as Term Loan Agent

          By:________________________________________________
          Name:
          Title:

            CREDIT PARTIES:  QUAKER FABRIC CORPORATION OF FALL RIVER
                             QUAKER FABRIC CORPORATION
                             QUAKER TEXTILE CORPORATION
                             QUAKER FABRIC MEXICO, S.A. DE C.V.

               By:________________________________________________
                     Name:
                     Title:

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