EXECUTION VERSION GUARANTY AGREEMENT

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EXECUTION VERSION

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT, dated as of March 31, 2005 (the "Guaranty

Agreement"), is made by QUAKER TEXTILE CORPORATION, a Massachusetts corporation

("Quaker Textile") and QUAKER FABRIC MEXICO, S.A. de C.V., a corporation

organized under the laws of Mexico ("Quaker Mexico" and together with Quaker

Textile, each a "Guarantor" and collectively, the "Guarantors") in favor of THE

PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey mutual insurance company

("Prudential"), PRUCO LIFE INSURANCE COMPANY, a New Jersey mutual insurance

company ("Pruco") and the other Purchasers from time to time party to the Note

Agreement (as defined below) (together with Prudential and Pruco, each a

"Purchaser" and collectively, the "Purchasers"). Terms not defined herein shall

have the meanings specified in the Note Agreement (as defined below).

WHEREAS, each of the Purchasers agreed to purchase those certain 7.09%

Senior Notes due October 10, 2005, in the aggregate principal amount of

$15,000,000 (the "7.09% Notes"), and those certain 7.18% Senior Notes due

October 10, 2007, in the aggregate principal amount of $30,000,000 (the "7.18 %

Notes", and together with the 7.09% Notes collectively, the "Notes") issued by

Quaker Fabric Corporation of Fall River (the "Company") pursuant to that certain

Note Purchase Agreement, dated as of October 10, 1997, by and between each of

the Purchasers and the Company (the "Note Agreement"); and

WHEREAS, pursuant to that certain Forbearance Agreement, dated as of

March 11, 2005, each of the Purchasers agreed to forbear from making demand of

payment on any amounts due and owing under the Notes and the Note Agreement and

to forbear from exercising and pursuing their rights and remedies under the Note

Agreement (the "Forbearance Agreement"); and

WHEREAS, it is a condition to the continued effectiveness of the

Forbearance Agreement, that the Guarantors execute and deliver this Guaranty

Agreement;

NOW THEREFORE, in consideration of the premises and the mutual

covenants hereinafter contained, and intending to be legally bound, each

Guarantor hereby covenants and agrees with, and represents and warrants to each

of the Purchasers as follows:

1. THE GUARANTY. Each Guarantor hereby irrevocably and unconditionally

guarantees to each holder from time to time of any of the Notes, the

due and punctual payment in full of (i) the principal of, the

Yield-Maintenance Amount, if any, and interest on, and any other

amounts due under, the Notes when and as the same shall become due and

payable (whether at stated maturity or by required or optional

prepayment or by acceleration or otherwise) and (ii) any other sums

which may become due under the terms and provisions of the Note

Agreement and the Notes (all such obligations described in clauses (i)

and (ii) above are herein called the "Guaranteed Obligations"). The

guaranty in the preceding sentence is ----------------------- an

absolute, present and continuing guaranty of payment and not of

collectibility and is in no way conditional or contingent upon any

attempt to collect from the Company or upon any other action,

occurrence or

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circumstance whatsoever. In the event that the Company shall fail so to

pay any of such Guaranteed Obligations, each Guarantor agrees to pay

the same when due to the holders of the Notes entitled thereto, without

demand, presentment, protest or notice of any kind, in the specified

Available Currency, at the place for payment specified in the Notes and

the Note Agreement. Each default in payment of principal of,

Yield-Maintenance Amount, if any, or interest on any Note shall give

rise to a separate cause of action hereunder and separate suits may be

brought hereunder as each cause of action arises. Each Guarantor hereby

agrees that the Notes issued in connection with the Note Agreement may

make reference to this guaranty.

Each Guarantor hereby agrees to pay and to indemnify and save the

holders of the Notes harmless from and against any damage, loss, cost

or expense (including attorneys' fees) which such holder may incur or

be subject to as a consequence, direct or indirect, of (i) any breach

by any Guarantor or by the Company of any warranty, covenant, term or

condition in, or the occurrence of any default under, this Guaranty

Agreement, the Notes or the Note Agreement, together with all expenses

resulting from the compromise or defense of any claims or liabilities

arising as a result of any such breach or default, and (ii) any legal

action commenced to challenge the validity of this Guaranty Agreement,

the Notes or the Note Agreement.

2. OBLIGATIONS ABSOLUTE. The obligations of each Guarantor hereunder shall

be primary, absolute, irrevocable and unconditional, irrespective of

the validity, regularity or enforceability of the Notes or of the Note

Agreement, shall not be subject to any counterclaim, setoff, deduction

or defense based upon any claim any Guarantor may have against the

Company or any holder of the Notes or otherwise, and shall remain in

full force and effect without regard to, and shall not be released,

discharged or in any way affected by, any circumstance or condition

whatsoever (whether or not any Guarantor shall have any knowledge or

notice thereof), including, without limitation: (a) any amendment,

modification of or supplement to the Note Agreement, the Notes or any

other instrument referred to therein (except that the obligations of

the Guarantors hereunder shall apply to the Note Agreement, the Notes

or such other instruments as so amended, modified or supplemented) or

any assignment or transfer of any thereof or of any interest therein,

or any furnishing, acceptance or release of any security for the Notes,

(b) any waiver, consent, extension, indulgence or other action or

inaction under or in respect of the Notes or in respect of the Note

Agreement; (c) any bankruptcy, insolvency, readjustment, composition,

liquidation or similar proceeding with respect to the Company or its

property; (d) any merger, amalgamation or consolidation of any

Guarantor or of the Company into or with any other corporation or any

sale, lease or transfer of any or all of the assets of any Guarantor or

of the Company to any person; (e) any failure on the part of the

Company for any reason to comply with or perform any of the terms of

any other agreement with any Guarantor; or (f) any other circumstance

which might otherwise constitute a legal or equitable discharge or

defense of a guarantor. Each Guarantor covenants that its obligations

hereunder will not be discharged except by payment in full of all of

the Guaranteed Obligations.

3. WAIVER. Each Guarantor unconditionally waives to the fullest extent

permitted by law, (a) notice of acceptance hereof, of any action taken

or omitted in reliance hereon and

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of any defaults by the Company in the payment of any amounts due under

the Notes or the Note Agreement, and of any of the matters referred to

in paragraph 2 hereof, (b) all notices which may be required by

statute, rule of law or otherwise to preserve any of the rights of each

holder from time to time of the Notes against each Guarantor,

including, without limitation, presentment to or demand for payment

from the Company or any Guarantor with respect to any Note, notice to

the Company or to any Guarantor of default or protest for nonpayment or

dishonor and the filing of claims with a court in the event of the

bankruptcy of the Company, (c) any right to the enforcement, assertion

or exercise by any holder of the Notes of any right, power or remedy

conferred in this Guaranty Agreement, the Note Agreement or the Notes,

(d) any requirement or diligence on the part of any holder of the Notes

and (e) any other act or omission or thing or delay to do any other act

or thing which might in any manner or to any extent vary the risk of

any Guarantor or which might otherwise operate as a discharge of such

Guarantor.

4. OBLIGATIONS UNIMPAIRED. Each Guarantor authorizes the holders of the

Notes, without notice or demand to any Guarantor and without affecting

its obligations hereunder, from time to time (a) to renew, compromise,

extend, accelerate or otherwise change the time for payment of, or

otherwise change the terms of, all or any part of the Notes, the Note

Agreement or any other instrument referred to therein, (b) to take and

hold security for the payment of the Notes, for the performance of this

Guaranty Agreement or otherwise for the indebtedness guaranteed hereby

and to exchange, enforce, waive and release any such security, (c) to

apply any such security and to direct the order or manner of sale

thereof as the holders of the Notes in their sole discretion may

determine; (d) to obtain additional or substitute endorsers or

guarantors; (e) to exercise or refrain from exercising any rights

against the Company and others and (f) to apply any sums, by whomsoever

paid or however realized, to the payment of the principal of,

Yield-Maintenance Amount, if any, and interest on the Notes and any

other Guaranteed Obligation hereunder. Each Guarantor waives any right

to require the holders of the Notes to proceed against any additional

or substitute endorsers or guarantors or to pursue or exhaust any

security provided by the Company, any Guarantor or any other person or

to pursue any other remedy available to such holders.

5. SUBROGATION. No Guarantor will exercise any rights which it may have

acquired by way of subrogation under this Guaranty Agreement, by any

payment made hereunder or otherwise, or accept any payment on account

of such subrogation rights, or any rights of reimbursement or indemnity

or any rights or recourse to any security for the Notes or this

Guaranty Agreement unless and until all of the obligations,

undertakings or conditions to be performed or observed by the Company

pursuant to the Notes and the Note Agreement at the time of such

Guarantor's exercise of any such right shall have been performed,

observed or paid in full.

For a period of one year after the payment in full of the Guaranteed

Obligations, each Guarantor hereby waives (x) all rights of subrogation

which it may at any time otherwise have as a result of this Guaranty

Agreement (whether, statutory or otherwise) to the claims of the

holders of the Notes against the Company or any other guarantor of the

Guaranteed Obligations (each referred to herein as the "Other Party")

and all contractual, statutory or common law rights of reimbursement,

contribution or indemnity from any

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Other Party which it may at any time otherwise have as a result of this

Guaranty Agreement; (y) any right to enforce any other remedy which the

holders of the Notes now have or may hereafter have against any Other

Party, any endorser or any other guarantor of all or any part of the

Guaranteed Obligations; and (z) all claims (as such term is defined in

the Bankruptcy Code) it may at any time otherwise have against any

Other Party arising from any transaction whatsoever, including without

limitation its right to assert or enforce any such claims.

6. REINSTATEMENT OF GUARANTY. This Guaranty Agreement shall continue to be

effective, or be reinstated, as the case may be, if and to the extent

at any time payment, in whole or in part, of any of the sums due to any

holder of the Notes for principal, Yield-Maintenance Amount, if any, or

interest on the Notes or any of the other Guaranteed Obligations is

rescinded or must otherwise be restored or returned by such holder upon

the insolvency, bankruptcy, dissolution, liquidation or reorganization

of the Company, or upon or as a result of the appointment of a

custodian, receiver, trustee or other officer with similar powers with

respect to the Company or any substantial part of its property, or

otherwise, all as though such payments had not been made. If an event

permitting the acceleration of the maturity of the principal amount of

the Notes shall at any time have occurred and be continuing and such

acceleration shall at such time be prevented or the right of any holder

of a Note to receive any payment under any Note shall at such time be

delayed or otherwise affected by reason of the pendency against the

Company of a case or proceeding under a bankruptcy or insolvency law,

each Guarantor agrees that, for purposes of this Guaranty Agreement and

its obligations hereunder, the maturity of such principal amount shall

be deemed to have been accelerated with the same effect as if the

holders of the Notes had accelerated the same in accordance with the

terms of the Note Agreement, and each Guarantor shall forthwith pay

such accelerated principal amount, accrued interest and

Yield-Maintenance Amount, if any, thereon and any other amounts

guaranteed hereunder.

7. RANK OF GUARANTY. Each Guarantor agrees that its obligations under this

Guaranty Agreement shall rank at least pari passu with all other

secured senior obligations of such Guarantor now or hereafter existing.

8. ADDITIONAL COVENANTS OF THE GUARANTORS.

(a) Maintenance of Corporate Existence, Etc. Each Guarantor

will at all times do or cause to be done all things necessary to

maintain and preserve its corporate existence and the corporate

existence of each subsidiary of such Guarantor, and maintain, preserve

and renew its and th