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ENVIRONMENTAL INDEMNITY AGREEMENT

Environmental Indemnity Agreement

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Quaker Fabric Corporation of Fall River | Quaker Textile Corporation | Quaker Fabric Corporation | BANK OF AMERICA, N.A

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Title: ENVIRONMENTAL INDEMNITY AGREEMENT
Governing Law: Massachusetts     Date: 11/15/2006
Industry: APPARL    

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EXHIBIT 10

                                                                   EXHIBIT 10.39

                        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 Bank of
America,  N.A.,  as  Administrative  Agent (as  defined in the Credit  Agreement
referred  to  below)  and the  lenders  from  time to time  party to the  Credit
Agreement  (the  Administrative  Agent  and the  Lenders,  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 Amended and Restated Revolving Credit
Agreement,  dated as of the date hereof, by and among the Borrower,  the Parent,
the Administrative Agent, and the Lenders (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 "REVOLVING LOANS") to the Borrower,  which
Revolving Loans are secured,  in part, by those certain  mortgages,  dated on or
prior to 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 Lenders are unwilling to make Revolving  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 Revolving Loans
by the Lenders and the covenants, agreements, representations and warranties set
forth in this Agreement and the Credit  Agreement,  the parties hereby covenant,
agree, represent and warrant as follows:

         1. DEFINED TERMS.  Unless the context otherwise  requires,  capitalized
terms used but not  otherwise  defined  herein shall have the meanings  provided
therefore  in the  Credit  Agreement,  and the  following  terms  shall have the
following meanings:
<PAGE>

         "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.
<PAGE>

         "FORECLOSURE DATE" has the meaning provided in SECTION 2(E) hereof.

         "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" means 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:

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

                           (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  Credit

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