10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005, or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   

Commission file number 1-14330

POLYMER GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	57-1003983
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
4055 Faber Place Drive, Suite 201	29405
North Charleston, South Carolina	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (843) 329-5151

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Title of Class

Class A common stock

Class B common stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer o                     Accelerated filer x                     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes o No x

Indicate by checkmark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o

The aggregate market value of the Company’s voting stock held by non-affiliates as of July 2, 2005 was approximately $97.1 million, based on the average of the closing bid and ask price of the Class A common stock on the Over-the-Counter Bulletin Board. Solely for the purposes of the foregoing calculation, affiliates are considered to be Directors, Executive Officers and greater than 10% beneficial owners of the Registrant’s common equity. As of March 14, 2006, there were 19,153,079 shares of Class A common stock, 153,549 shares of Class B common stock and 24,319 shares of Class C common stock outstanding. No shares of Class D or Class E common stock were outstanding as of such date. The par value for each class of common stock is $.01 per share.

Documents Incorporated By Reference

Portions of the Registrant’s Notice of 2006 Annual Meeting of Stockholders and Proxy Statement—Part III

POLYMER GROUP, INC.

FORM 10-K

For the Fiscal Year Ended December 31, 2005

INDEX

IMPORTANT INFORMATION REGARDING THIS FORM 10-K		3
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	97
Item 9A.	Controls and Procedures	97
Item 9B.	Other Information	100
PART III
Item 10.	Directors and Executive Officers of the Registrant	100
Item 11.	Executive Compensation	100
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	100
Item 13.	Certain Relationships and Related Transactions	101
Item 14.	Principal Accountant Fees and Services	101
PART IV
Item 15.	Exhibits and Financial Statement Schedules	102
	Signatures	107

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IMPORTANT INFORMATION REGARDING THIS FORM 10-K

Readers should consider the following information as they review this Form 10-K:

Fresh Start Accounting

In connection with Polymer Group, Inc.’s (the “Company” or “Polymer Group”) Chapter 11 reorganization, the Company has applied fresh start accounting to its Consolidated Balance Sheet as of March 1, 2003 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” as promulgated by the AICPA (Reference Item 1 in the Business section for additional information regarding the Company’s Chapter 11 reorganization). Under fresh start accounting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start reporting is applied. On March 5, 2003, the Company emerged from Chapter 11. For financial reporting purposes, March 1, 2003 is considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date. As a result of the application of fresh start accounting, the financial statements of the Successor Company (as defined herein) are not comparable to the Predecessor Company’s (as defined herein) financial statements.

Safe Harbor-Forward-Looking Statements

From time to time, the Company may publish forward-looking statements relative to matters such as, including, without limitation, anticipated financial performance, business prospects, technological developments, new product introductions, cost savings, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate” or other words that convey the uncertainty of future events or outcomes.

Various statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements speak only as of the date of this report. Unless required by law, the Company does not undertake any obligation to update these statements and cautions against any undue reliance on them. These forward-looking statements are based on current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. See Item 1A. “Risk Factors” below. There can be no assurance that these events will occur or that the Company’s results will be as estimated.

Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include:

·general economic factors including, but not limited to, changes in interest rates, foreign currency translation rates, consumer confidence, trends in disposable income, changes in consumer demand for goods produced, and cyclical or other downturns;

·substantial debt levels and potential inability to maintain sufficient liquidity to finance the Company’s operations and make necessary capital expenditures;

·inability to meet existing debt covenants;

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·information and technological advances;

·changes in environmental laws and regulations;

·cost and availability of raw materials, labor and natural and other resources and the inability to pass raw material cost increases along to customers;

·domestic and foreign competition;

·reliance on major customers and suppliers; and

·risks related to operations in foreign jurisdictions.

Fiscal Year-End

The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal 2005 ended December 31, 2005 and included the results of operations for a fifty-two week period. Fiscal 2004 ended January 1, 2005 and included the results of operations for a fifty-two week period. Fiscal 2003 ended January 3, 2004 and included the results of operations for a fifty-three week period, which as described in Item 1 to this Annual Report on Form 10-K is comprised of a two month period ended March 1, 2003 (9 weeks) and a ten month period ended January 3, 2004 (44 weeks). References herein to “2005,” “2004,” and “2003,” generally refer to fiscal 2005, fiscal 2004 and fiscal 2003, respectively, unless the context indicates otherwise.

Additional Information

The Company’s website is located at www.polymergroupinc.com. Through the website, the Company makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act. These reports are available as soon as reasonably practicable after they have been electronically filed with the Securities and Exchange Commission.

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PART I

ITEM 1.    BUSINESS

Polymer Group, Inc. was originally incorporated in the State of Delaware on June 16, 1994 and is a global manufacturer and marketer of nonwoven and oriented polyolefin products.

The Company and each of its domestic subsidiaries filed voluntary petitions for Chapter 11 reorganization under the United States Bankruptcy Code in the United States Bankruptcy Court for the District of South Carolina (the “Bankruptcy Court”) on May 11, 2002 (April 25, 2002 as to Bonlam (S.C.), Inc.). Upon having its Modified Plan, as defined, (the “Modified Plan”) approved by the Bankruptcy Court on January 16, 2003, the Company emerged from the Chapter 11 process effective March 5, 2003 (the “Effective Date”). For accounting purposes the Company recognized the emergence on March 1, 2003 and adopted “fresh-start accounting” as of that date. The Company’s emergence from Chapter 11 resulted in a new reporting entity, with the reorganization value of the Company allocated to the underlying assets and liabilities based on their respective fair values at the date of emergence. The initial allocation was based on preliminary estimates and has been revised as more recent information was received, as deemed appropriate, under generally accepted accounting principles in the United States. The revisions are reflected in the amounts included herein. References to “Predecessor” refer to the old Polymer Group and its subsidiaries on and prior to March 1, 2003 and references to “Successor” refer to Polymer Group and its subsidiaries on or after March 2, 2003, after giving effect to the implementation of fresh start accounting.

Additional details of the Company’s Chapter 11 process and recapitalization can be found in Notes 3 and 4 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.

Recent Developments

In 2005, the Company continued its efforts to strengthen its balance sheet and reaffirm its global leadership position in the industry. These items are discussed in more detail throughout this report, with highlights presented below to assist the reader:

·refinancing the Company’s long-term debt for the second time in nineteen months on November 22, 2005, resulting in greater financial flexibility and significant interest cost savings;

·completing the redemption and conversion of the Company’s 16% Series A Convertible Pay-in-kind Preferred Shares (the “PIK Preferred Shares”) for shares of the Company’s Class A Common Stock; and

·continuing to expand the Company’s global business presence as it initiated utilization of its new state-of-the-art spunbond line in Cali, Colombia as well as initiating additional spunmelt expansion projects in China and the United States.

General

The Company supplies engineered materials to a number of the largest consumer and industrial product manufacturers in the world. The Company has a global presence with an established customer base in both developed and emerging markets. The Company’s product offerings are sold principally to converters that manufacture a wide range of end-use products. The Company is one of the largest producers of spunmelt and spunlace products in the world, and employs the most extensive range of nonwovens technologies that allow it to supply products tailored to customers’ needs at competitive prices.

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The Company operates twenty-two manufacturing and converting facilities (including its joint venture/partnership-type operations in Argentina and China) located in ten countries. The Company believes that the quality of its manufacturing operations and the breadth of its nonwovens process technologies give it a competitive advantage in meeting the needs of its customers and in leading the development of an expanded range of applications. The Company has invested in advanced technologies in order to increase capacity, improve quality and develop new high-value fabric structures. Working as a developmental partner with its major customers, the Company utilizes its technological capabilities and depth of research and development resources to develop and manufacture new products to specifically meet their needs.

The Company has been built through a series of capital expansions and business acquisitions that have broadened the Company’s technology base, increased its product lines and expanded its global presence. Moreover, the Company’s worldwide resources have enabled it to better meet the needs of existing customers, to serve emerging geographic markets, and to exploit niche market opportunities through customer-driven product development.

Industry Overview

The Company competes primarily in the worldwide nonwovens market, which is approximately a $15.8 billion market with an average annual growth rate of 7.0% expected over each of the next five years, according to certain industry sources. The nonwovens industry began in the 1950’s when paper, textile and chemical technologies were combined to produce new fabrics and products with the attributes of textiles but at a significantly lower cost. Today, nonwovens are used in a wide variety of consumer and industrial products as a result of their superior functionality and relatively low cost.

The nonwovens industry has benefited from substantial improvements in technology over the past several years, which have increased the number of new applications for nonwovens and, therefore, increased demand. The Company believes, based on certain industry sources, that demand in the developed markets of North America, Western Europe and Japan will increase at an average rate of 3.5% in each of the next five years, while the emerging markets are forecasted to grow at an average rate of 14.0% per annum. In the developed markets, growth is expected to be driven primarily by new applications for nonwovens and by higher amounts of nonwovens used per application for such products as diapers. Growth in the emerging markets should be driven primarily by increased penetration of disposable products as per capita income rises, and by higher amounts of nonwovens used per application for such products as diapers, as these products become more sophisticated over time. According to certain industry sources, worldwide consumption of nonwovens has grown an average of 7.0% per year over the last ten years. The Company believes that future growth will depend upon the continuation of improvements in raw materials and technology, which should result in the development of high-performance nonwovens, leading to new uses and markets at a lower cost than alternative materials. Additionally, the Company’s growth rate may differ from the industry averages depending upon the regions the Company chooses to operate in and the technology available to the Company.

Nonwovens are categorized as either disposable (approximately 58.0% of worldwide industry sales with an average annual growth rate of 7.0%, according to industry sources) or durable (approximately 42.0% of worldwide industry sales and an average annual growth rate of 6.5%, according to industry sources). The composition of disposable products in emerging regions is expected to increase over the next five years as the growth rate for disposable products is expected to exceed that of durable products. The Company primarily competes in disposable products. The largest end uses for disposable nonwovens are for applications that include disposable diapers, feminine sanitary protection, baby wipes, adult incontinence products, and healthcare applications, including surgical gowns, drapes and wound care sponges and dressings. Other disposable end uses include wipes, filtration media, protective apparel and fabric softener sheets. Durable end uses

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include apparel interlinings, furniture and bedding, construction sheeting, cable wrap, electrical insulation, automotive components, geotextiles, roofing membranes, carpet backing, agricultural fabrics, and coated and laminated structures for wall coverings and upholstery.

The Company also competes in the North American market for oriented polyolefin products. Chemical polyolefin products include woven, slit-film fabrics produced by weaving narrow tapes of slit film and are characterized by high strength-to-weight ratios, and also include twisted slit film or monofilament strands. While the broad uncoated oriented polyolefin market is primarily focused on carpet backing fabric and, to a lesser extent, geotextiles and bags, the markets in which the Company primarily competes are made up of a large number of specialized products manufactured for niche applications. These markets include industrial packaging applications such as lumberwrap, steel wrap and fiberglass packaging, as well as high-strength protective coverings and specialized components that are integrated into a variety of industrial and consumer products. The Company also produces structural concrete reinforcement fiber using monofilament technology.

Business Strategy

The Company’s goals are to grow its core businesses while developing new technologies to capitalize on new product opportunities and expanded geographic markets. The Company strives to be a leading supplier in its chosen markets by delivering high-quality products and services at competitive prices. The Company is committed to continuous improvements throughout its business to increase product value by incorporating new materials and operating capabilities that enhance or maintain performance specifications. The Company seeks to expand its capabilities to take advantage of the penetration and growth of its core products internationally, particularly in emerging countries.

The Company develops, manufactures and sells a broad array of products. Sales are focused in two operating divisions: “Nonwovens” and “Oriented Polymers” that provide opportunities to leverage the Company’s advanced technology and substantial capacity. For financial information by business segment and geographic area, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 18 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.

Nonwovens Division

The Nonwovens division develops and sells products in various consumer and industrial markets. Major markets served by this division include hygiene, industrial, medical and wiping. Nonwovens division sales were approximately $763.8 million, $672.6 million and $624.1 million for fiscal 2005, 2004 and 2003, respectively, and represented approximately 80% of total Company net sales in each of those years.

The Company produces a variety of nonwoven materials for use in diapers, training pants, feminine sanitary protection, adult incontinence, baby wipes and consumer wiping products. The Company’s broad product offerings provide customers with a full range of specialized components for unique or distinctive products, including top sheet, transfer layer, backsheet fabric, leg cuff fabric, sanitary protective facings, absorbent pads for incontinence guard, panty shield, and absorbent core applications. In addition, the Company’s medical products are used in wound care sponges and dressings, disposable surgical packs, apparel such as operating room gowns and drapes, face masks and shoe covers.

Among the industrial applications of the product offerings are electrical insulation, housewrap, filtration, cable wrap, furniture and bedding applications and automotive. Wiping applications include products for the consumer as well as institutional and janitorial applications.

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The Company has significant relationships with several large consumer product companies and supplies a full range of products to these customers on a global basis. The Company’s marketing and research and development teams work closely with these customers in the development of next generation products. The Company believes that this technical support helps to ensure that the Company’s products will continue to be incorporated into such customers’ future product designs.

Oriented Polymers Division

The Oriented Polymers division provides flexible packaging products that utilize coated and uncoated oriented polyolefin fabrics. These include concrete fiber, housewrap, lumberwrap, fiberglass packaging tubes, balewrap for synthetic cotton and fibers, steel and aluminum wrap, coated bags for specialty chemicals and mineral fibers. Oriented Polymers division sales were approximately $185.1 million, $172.5 million and $154.2 million for fiscal 2005, 2004 and 2003, respectively, and represented approximately 20% of total Company net sales in each of those years.

Marketing and Sales

The Company sells to customers in the domestic and international marketplace. Approximately 47%, 19%, 17%, 12% and 5% of the Company’s 2005 net sales were from manufacturing facilities in the United States, Europe, Latin America, Canada and Asia, respectively. The Procter & Gamble Company, which is the Company’s largest customer, accounted for 14%, 12% and 13% of the Company’s net sales in 2005, 2004 and 2003, respectively. Sales to the Company’s top 20 customers represented approximately 51%, 45% and 47% of the Company’s net sales in 2005, 2004 and 2003, respectively.

The Company employs direct sales representatives who are active in the Company’s new product development efforts and are strategically located in the major geographic regions in which the Company’s products are utilized. The oriented polyolefin products are sold primarily through a well-established network of converters and distributors. Converters add incremental value to the Company’s products and distributors service the small order size requirements typical of many end users.

Manufacturing Processes

General.   The Company’s competitive strengths include high-quality manufacturing processes and a broad range of process technologies, which allow the Company to offer its customers the best-suited product for each respective application. Additionally, the Company has made significant capital investments in modern technology and has developed proprietary equipment processes and manufacturing techniques. The Company believes that it exceeds industry standards in productivity, reduction of variability and delivery lead-time. The Company has a wide range of manufacturing capabilities that allow it to produce specialized products that, in certain cases, cannot be reproduced in the market. Substantially all of the Company’s manufacturing sites have plant-wide real time control and monitoring systems that constantly monitor key process variables using a sophisticated closed loop system of computers, sensors and custom software.

Nonwovens.   The Company has a comprehensive array of nonwoven manufacturing technologies that encompass capabilities spanning the entire spectrum of nonwoven technologies. Nonwoven rollgoods typically have three process steps: web formation, web consolidation or bonding, and finishing. Web formation is the process by which previously prepared fibers, filaments or films are arranged into loosely held networks called webs, batts or sheets. In each process, the fiber material is laid onto a forming or conveying surface, which may be dry or molten. The dry-laid process utilizes fiber processing equipment, called “cards,” that have been specifically designed for high-capacity nonwoven production. The carding process converts bales of entangled fibers into uniform

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oriented webs that then feed into the bonding process. In a molten polymer-laid process, extrusion technology is used to transform polymer pellets into filaments, which are laid on a conveying screen and interlocked by thermal fusion. In this process, the fiber formation, web formation and web consolidation are generally performed as a continuous simultaneous operation, making this method very efficient from a manufacturing and cost perspective.

Web consolidation is the process by which fiber or film are bonded together using mechanical, thermal, chemical or solvent means. The bonding method greatly influences the end products’ strength, softness, loft and utility. The principal bonding processes are thermal bond, resin or adhesive bond, hydroentanglement or spunlace, binder fiber or through-air bond, calender, spunbond, meltblown, SMS (spunbond-meltblown-spunbond), ultrasonic bond and needlepunch. Thermal bond utilizes heated calender rolls with embossed patterns to point bond or fuse the fibers together. In the resin bond process, an adhesive, typically latex, is pad rolled onto the web to achieve a bond. Spunlace, or hydroentanglement, uses high pressure water jets to mechanically entangle the fibers. Through-air bonding takes place through the fusion of bi-component fibers in a blown hot air drum. Spunbond and meltblown take advantage of the melt properties of the resins and may use thermal fusion with the aid of calender rolls. SMS and SMMS (spunbond-meltblown-meltblown-spunbond) are integrated processes of combining spunbond and meltblown sheets in a laminated structure, creating very strong, lightweight and uniform fabrics. Ultrasonic bonding utilizes high-frequency sound waves that heat the bonding sites. Needlepunch is a mechanical process in which beds of needles are punched through the web, entangling the fibers.

Special Films and Composite Structures.   The Company has a proprietary continuous process for manufacturing unique reticulated films. These highly engineered films have unique capabilities due to the way precision holes are imparted during the process of forming the film. Since these films can be composed of two or more layers of different polymers, the functionality can be different on one side versus the other. These films are typically customized for each customer and are especially popular in Asia as a component for premium feminine hygiene products. The Company also manufactures composites which are combinations of different nonwoven and /or film structures where each structure lends its properties or attributes to the end product. An example is house wrap. House wrap is the result of mating an especially strong spunbond fabric with a highly engineered film. The resulting fabric is very strong, economical, and has excellent wind barrier properties while allowing humidity to pass through the fabric.

Finishing, or post-treatment, adds value and functionality to the product and typically includes surface treatments for fluid repellency, aperturing, embossing, laminating, printing and slitting. Spunlace and resin bond systems also have a post-treatment drying or curing step. Certain products also go through an aperturing process in which holes are opened in the fabric, improving absorbency.

Oriented Polyolefins.   The oriented/film process begins with plastic resin, which is extruded into a thin plastic film or into monofilament strands. The film is slit into narrow tapes. The slit tapes or monofilament strands are then stretched or “oriented,” the process through which it derives its high strength. The tapes are wound onto spools that feed weaving machines or twisters. In the finishing process, the product is coated for water or chemical resistance, ultraviolet stabilization and protection, flame retardancy, color and other specialized characteristics. In the twisting process, either oriented slit tapes or monofilament strands are twisted and packaged on tightly spooled balls for distribution as agricultural and commercial twine. The Company operates coating lines that have been equipped with the latest technology for gauge control, print treating, lamination, anti-slip finishes and perforation. The Company also laminates oriented products to paper and has the additional capability of printing multiple colors on a wide-width printing press located in North America.

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Competition

The Company’s primary competitors in its nonwoven product markets are E.I. du Pont de Nemours & Co., BBA Group plc, Avgol LTD., First Quality Enterprises, Inc., Grupo Providencia and Mitsui Chemicals, Inc. Japan and Intertape Polymer Group Inc. and Amoco Fabrics and Fibers Co. for oriented polymer products. Generally, product innovation and performance, quality, service, distribution and cost are the primary competitive factors, with technical support being highly valued by the largest customers.

Raw Materials

The primary raw materials used to manufacture most of the Company’s products are polypropylene resin, polyester fiber, polyethylene resin and, to a lesser extent, rayon, tissue paper and cotton. These primary raw materials are available from multiple sources and the Company purchases such materials from a variety of global suppliers. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas liquids. Historically, the prices of polypropylene and polyethylene resins and polyester fibers have fluctuated. The Company has historically been able to pass along at least a portion of raw material price increases to some of its customers, particularly those with contracts containing raw material price escalation clauses, although often with a delay between the time the Company is required to pay the increased raw material price and the time the Company is able to pass the increase on to its customers. To the extent the Company is not able to pass along all or a portion of such increased prices of raw materials, the Company’s cost of goods sold would increase and its operating income would correspondingly decrease. By way of example, if the price of polypropylene were to rise $.01 per pound and the Company was not able to pass along any of such increase to its customers, the Company would realize a decrease of approximately $3.0 million on an annualized basis in its reported pre-tax operating income. The prices of raw materials in the North American market rose substantially in the fourth quarter of 2005 as a direct result of the hurricanes that impacted the Gulf Coast. The raw material prices in the North American markets decreased slightly in late December 2005 and January 2006 as the refineries returned to normalized production, but there can be no assurance that the prices of polypropylene, polyethylene and polyester will not increase in the future or that the Company will be able to pass on any increases to its customers not covered by contracts with price escalation clauses. Material increases in raw material prices that cannot be passed on to customers could have a material adverse effect on the Company’s results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 to this Annual Report on Form 10-K and “Raw Material and Commodity Risks” included in Item 7A to this Annual Report on Form 10-K for additional discussion of the impact of raw material costs on the Company’s operations in 2005, 2004 and 2003.

The Company believes that the loss of any one or more of its suppliers would not have a long-term material adverse effect on the Company because other manufacturers with whom the Company conducts business would be able to fulfill the Company’s requirements. However, the loss of certain of the Company’s suppliers could, in the short-term, adversely affect the Company’s business until alternative supply arrangements were secured or alternative suppliers were qualified with customers. The Company has not experienced, and does not expect, any significant disruptions in supply as a result of shortages in raw materials.

Environmental

The Company is subject to a broad range of federal, foreign, state and local laws and regulations relating to the pollution and protection of the environment. Among the many environmental requirements applicable to the Company are laws relating to air emissions, wastewater discharges and the handling, disposal and release of solid and hazardous substances and wastes. Based on

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continuing internal review, the Company believes that it is currently in substantial compliance with applicable environmental requirements.

The Company is also subject to laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), that may impose liability retroactively and without fault for releases or threatened releases of hazardous substances at on-site or off-site locations. The Company is not aware of any releases for which it may be liable under CERCLA or any analogous provision.

Patents and Trademarks

The Company considers its patents and trademarks, in the aggregate, to be important to its business and seeks to protect this proprietary know-how in part through United States and foreign patent and trademark registrations. The Company maintains over 185 registered trademarks worldwide and over 170 patents in the United States. The Company has approximately 417 patents under application worldwide and maintains certain trade secrets for which, in order to maintain the confidentiality of such trade secrets, it has not sought patent protection.

Inventory and Backlogs

Inventories at December 31, 2005 were $119.7 million, an increase of $13.4 million from inventories of $106.3 million at January 1, 2005. The increase in total inventory during 2005 versus 2004 primarily relates to the increases in raw material costs during the current year. The Company had approximately 54 days of inventory on hand at both December 31, 2005 and January 1, 2005. Unfilled orders as of December 31, 2005 and January 1, 2005 amounted to approximately $65.4 million and $49.8 million, respectively. The level of unfilled orders is affected by many factors, including the timing of orders and the delivery time for the specific products. Consequently, the Company does not consider the amount of unfilled orders a meaningful indicator of levels of future sales.

Research and Development

The Company’s investment in research and development approximated $11.5 million, $11.2 million and $12.4 million during 2005, 2004 and 2003, respectively.

Seasonality

Use and consumption of the Company’s products do not fluctuate significantly due to seasonality.

Employees

As of December 31, 2005, the Company had approximately 3,331 employees. Of this total, approximately 1,399 employees are represented by labor unions or trade councils that have entered into separate collective bargaining agreements with the Company. Approximately 29% of the Company’s labor force is covered by collective bargaining agreements that will expire within one year. During 2005 there were no known unionizing attempts. The Company believes that it generally has good relationships with both its union and non-union employees.

Business Restructuring

The Company initiated a comprehensive business restructuring in the latter half of 2001, involving manufacturing initiatives and workforce reductions which continued into 2002, 2003 and 2004. There were no significant restructuring efforts in 2005.

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In 2004, the restructuring efforts included the completion of the line curtailment and headcount reduction in Europe that had been announced in 2003 and the initiation of a new restructuring effort in the Canadian operations of the Oriented Polymers division to better balance plant capacity with market demands. In Canada, the Company eliminated several lines and sold certain equipment. Total headcount was reduced by approximately 160 employees. The total pre-tax charge for both programs in 2004 was approximately $1.9 million. In 2003, the Company’s restructuring efforts resulted in headcount reductions of approximately 170 employees, primarily within the U.S. and European operations of the Nonwovens Division and resulted in a pre-tax charge of approximately $6.8 million.

Cash outlays associated with the Company’s business restructuring approximated $0.4 million, $5.9 million and $4.3 million in 2005, 2004 and 2003, respectively.

Recapitalization and Refinancing

On November 22, 2005, the Company refinanced its then outstanding bank debt (the “Bank Facility”) with a new Credit Facility (the “Credit Facility”). In addition, in 2005 the Company converted or redeemed the PIK Preferred Shares for shares of the Company’s Class A Common Stock, further simplifying the Company’s capital structure.

The Company’s Credit Facility, which was entered into on November 22, 2005, consists of a $45.0 million secured revolving credit facility that matures on November 22, 2010 and a $410.0 million first-lien term loan that matures on November 22, 2012. The proceeds therefrom were used to fully repay indebtedness under the Company’s previous Bank Facility and pay related fees and expenses.

All borrowings under the Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company. The Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company, its domestic subsidiaries and certain of its non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain non-domestic subsidiaries of the Company, and (iii) a pledge of certain secured intercompany notes. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At December 31, 2005, the Company is in compliance with all such covenants and expects to remain in compliance through fiscal 2006. The first-lien term loan requires mandatory payments of approximately $1.0 million per quarter and, beginning with fiscal 2006, the first-lien term loan requires the Company to apply a percentage of proceeds from excess cash flows, as defined by the Credit Facility and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility.

Excess cash flows required to be applied to the repayment of the Credit Facility are generally calculated as 50.0% of the net amount of the Company’s available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in working capital and certain other items. Since the amounts of excess cash flows for future periods are based on year-end data and not determinable, only the mandatory payments of approximately $1.0 million per quarter have been classified as a current liability. Additionally, no excess cash flow payment will be made with respect to fiscal 2005 and, due to the magnitude of the major capital expenditure projects, any excess cash flow requirement with respect to fiscal 2006 is not expected to be significant.

The interest rate applicable to borrowings under the Credit Facility is based on three-month London Interbank Offered Rate (“LIBOR”) plus a specified margin. The applicable margin for borrowings under both the first-lien term loan and the revolving credit facility is 225 basis points. The Company may, from time to time, elect to use an alternate base rate for its borrowings under the

12

revolving credit facility based on the bank’s base rate plus a margin of 75 to 125 basis points, based on the Company’s total leverage ratio. The Company had no outstanding borrowings at December 31, 2005 under the revolving credit facility. As of December 31, 2005, capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $11.4 million as described below. Average borrowings under the revolving credit facility for the period from November 22, 2005 to December 31, 2005 were $10.4 million at an average rate of 8.37%.

In accordance with the terms of the Credit Facility, the Company maintained its position in a cash flow hedge agreement originally entered into in May 2004. This cash flow hedge agreement effectively converts $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%. The cash flow hedge agreement terminates on May 8, 2007 and is described more fully in Note 16 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.

Subject to certain terms and conditions, a maximum of $25.0 million of the Credit Facility may be used for letters of credit. As of December 31, 2005, the Company had $11.4 million of standby and documentary letters of credit outstanding under the Credit Facility. Approximately $3.0 million was related to the requirements of the short-term borrowing arrangements of the Company’s China-based majority owned subsidiary (“Nanhai”). Other letters of credit are in place to provide added assurance for certain raw material vendors and administrative service providers. None of these letters of credit have been drawn on at December 31, 2005.

On July 28, 2005, the Company’s Board of Directors authorized the redemption of all of the Company’s then outstanding PIK Preferred Shares on or before September 30, 2005. On August 16, 2005, the Board of Directors set September 15, 2005 as the redemption date (the “Redemption Date”). In accordance with the terms of the PIK Preferred Shares, the Company would redeem all PIK Preferred Shares outstanding at the Redemption Date at a redemption rate of 37.26397 shares of Class A Common Stock per PIK Preferred Share. At any time prior to the Redemption Date, holders of PIK Preferred Shares could exercise their right to convert their PIK Preferred Shares into shares of Class A Common Stock at a conversion rate of 137.14286 shares of Class A Common Stock per PIK Preferred Share.

As of the close of business on the Redemption Date, five PIK Preferred Shares had been redeemed by the Company with the redemption price being paid by the issuance of 187 shares of the Company’s Class A Common Stock. Additionally, 62,916 PIK Preferred Shares had been converted by holders into 8,628,473 shares of the Company’s Class A Common Stock. Also, during the first quarter of fiscal 2005, five PIK Preferred Shares were converted into 686 shares of the Company’s Class A Common Stock. As a result of these transactions, 8,629,346 additional shares of the Company’s Class A Common Stock are now issued and outstanding and no PIK Preferred Shares are currently issued or outstanding.

ITEM 1A.  RISK FACTORS

Set forth below are some of the risks and uncertainties that, if they were to occur, could materially adversely affect the Company’s business or that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements made by the Company.

Shareholders and prospective investors should carefully consider and evaluate all of the risk factors described below. These risk factors may change from time to time and may be amended, supplemented, or superceded by updates to the risk factors contained in periodic reports on Form 10-Q and Form 10-K that the Company files with the Securities and Exchange Commission in the future.

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Risks Related to the Company’s Business

The Company’s substantial indebtedness could harm its ability to react to changes in business or market developments and prevent the Company from fulfilling its obligations under its indebtedness.

As of December 31, 2005, the Company’s consolidated indebtedness outstanding was approximately $415.2 million and for fiscal 2005, its interest expense, net was $32.6 million. The Company’s substantial level of current indebtedness, as well as any additional indebtedness the Company may draw under the unused portions of the Credit Facility, combined with a potential downturn in business due to economic or other factors beyond its control, increases the possibility that the Company may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of its indebtedness. The Company’s substantial debt could increase its vulnerability to general economic downturns and adverse competitive and industry conditions by limiting its flexibility to plan for, or to react to, changes in its business and in the industry in which the Company operates. This limitation could place the Company at a competitive disadvantage compared to competitors that have less debt and more cash to insulate their operations from market downturns and to finance new business opportunities.

The Company’s variable rate indebtedness subjects the Company to interest rate risk, which could cause its debt service obligations to increase significantly.

In accordance with the terms of the Credit Facility, the Company has maintained its position in a cash flow hedge agreement to lessen its exposure to interest rate fluctuations. However, approximately 48% of the Company’s exposure to variable interest rates under the Credit Facility is not hedged and will bear interest at floating rates. As a result, a modest interest rate increase could result in a substantial increase in interest expense.

To service its indebtedness, the Company will require a significant amount of cash. The Company’s ability to generate cash depends on many factors beyond its control.

The Company’s ability to make payments on its indebtedness and to fund its operations and capital expenditures will depend on its ability to generate cash in the future. However, its business may not generate sufficient cash flow from operations for a variety of reasons, including general downturns in the economy, delays in the start-up of expansion projects, changes in the currency exchange rates in countries in which the Company operates, local laws restricting the movement of cash between the Company’s subsidiaries and the parent and many other potential reasons. If the Company cannot generate sufficient cash to service its debt, the Company will have to take such actions as reducing or delaying capital investments, selling assets, restructuring or refinancing its debt or seeking additional equity capital. Any of these actions may not be affected on commercially reasonable terms, or at all. In addition, the credit agreement with respect to the Credit Facility may restrict the Company from adopting any of these alternatives.

Because a significant number of its employees are represented by labor unions or trade councils and work under collective bargaining agreements, any employee slowdown or strikes or the failure to renew its collective bargaining agreements could disrupt the Company’s business.

As of December 31, 2005, approximately 42% of the Company’s employees are represented by labor unions or trade councils and work under collective bargaining agreements.  Approximately 29% of the Company’s labor force is covered by collective bargaining agreements that expire within one year. The Company may not be able to maintain constructive relationships with these labor unions or trade councils. The Company may not be able to successfully negotiate new collective bargaining

14

agreements on satisfactory terms in the future. The loss of a substantial number of these employees or a prolonged labor dispute could disrupt the Company’s business. Any such disruption could in turn reduce its revenue from sales, increase its costs to bring products to market and result in significant losses.

The Company generates most of its revenue from the sale of manufactured products that are used in a wide variety of consumer and industrial applications and the potential for product liability exposure could be significant.

The Company manufactures a wide variety of products that are used in consumer and industrial applications, such as disposable diapers, baby wipes, surgical gowns, wound dressings, carpet backing and industrial packaging. As a result, the Company may face exposure to product liability claims in the event that the failure of its products results, or is alleged to result, in bodily injury and/or death. In addition, if any of its products are, or are alleged to be, defective, the Company may be required to make warranty payments or to participate in a recall involving those products.

The future costs associated with defending product liability claims or responding to product warranties could be material and the Company may experience significant losses in the future as a result. A successful product liability claim brought against the Company in excess of available insurance coverage or a requirement to participate in any product recall could substantially reduce the Company’s profitability and cash generated from operations.

The Company’s international operations pose risks to its business that are not present with its domestic operations.

The Company’s manufacturing facilities in the United States accounted for 47% of net sales for fiscal 2005, with facilities in Europe, Latin America, Canada and Asia accounting for 53%. As part of its growth strategy, the Company may expand operations in existing or other foreign countries. The Company’s foreign operations are, and any future foreign operations will be, subject to certain risks that are unique to doing business in foreign countries. These risks include fluctuations in foreign currency exchange rates, inflation, economic or political instability, shipping delays, changes in applicable laws, reduced protection of intellectual property in some countries outside of the United States and regulatory policies and various trade restrictions. All of these risks could have a negative impact on the Company’s ability to deliver products to customers on a competitive and timely basis. This could reduce or impair the Company’s net sales, profits, cash flows and financial position. The Company has not historically hedged its exposure to foreign currency risk.

The Company could incur substantial costs to comply with environmental laws, and violations of such laws may increase costs or require the Company to change certain business practices.

The Company uses and generates a variety of chemicals in its manufacturing operations. As a result, the Company is subject to a broad range of federal, state, local and foreign environmental laws and regulations. These environmental laws govern, among other things, air emissions, wastewater discharges and the handling, storage and release of wastes and hazardous substances. The Company regularly incurs costs to comply with environmental requirements, and such costs could increase significantly with changes in legal requirements or their interpretation or enforcement. For example, certain local governments have adopted ordinances prohibiting or restricting the use or disposal of certain plastic products, such as certain of the plastic wrapping materials, which are produced by the Company. Widespread adoption of such prohibitions or restrictions could adversely affect demand for the Company’s products and thereby have a material effect upon the Company. In addition, a decline in consumer preference for plastic products due to environmental considerations could have a material adverse effect upon the Company. The Company could incur substantial costs,

15

including clean-up costs, fines and sanctions and third-party property damage or personal injury claims, as a result of violations of environmental laws. Failure to comply with environmental requirements could also result in enforcement actions that materially limit or otherwise affect the operations of the Company’s manufacturing facilities involved. The Company is also subject to laws, such as CERCLA, that may impose liability retroactively and without fault for releases or threatened releases of hazardous substances at on-site or off-site locations.

If the Company is unable to adequately protect its intellectual property, the Company could lose a significant competitive advantage.

The Company’s success depends, in part, on its ability to protect its unique technologies and products against competitive pressure and to defend its intellectual property rights. If the Company fails to adequately protect its intellectual property rights, competitors may manufacture and market similar products, which could adversely affect the Company’s market share and results of operations. The Company maintains over 185 registered trademarks worldwide and 170 patents in the United States and has approximately 417 patents under application worldwide as well as certain trade secrets, for which patents have not been sought. The Company may not receive patents for all its patent applications and existing or future patents that the Company receives or licenses may not provide competitive advantages for its products. Its competitors may challenge, invalidate or avoid the application of any existing or future patents, trademarks, or other intellectual property rights that the Company receives or licenses. In addition, patent rights may not prevent the Company’s competitors from developing, using or selling products that are similar or functionally equivalent to its products. The loss of protection for the Company’s intellectual property could reduce the market value of its products, reduce product sales, lower its profits, and impair its financial condition.

Due to the unique products that the Company produces and the particular industry in which the Company operates, the loss of its senior management could disrupt its business.

The Company’s senior management is important to the success of its business because there is significant competition for executive personnel with unique experience in the nonwoven and oriented polyolefin industries. As a result of this unique need and the competition for a limited pool of industry-based executive experience, the Company may not be able to retain its existing senior management. In addition, the Company may not be able to fill new positions or vacancies created by expansion or turnover or attract additional senior management personnel. The loss of any member of its senior management team without retaining a suitable replacement (either from inside or outside its existing management team) could restrict our ability to enhance existing products in a timely manner, sell products to our customers or manage the business effectively.

Risks Related to the Company’s Industries

Because the specialized markets in which the Company sell its products are highly competitive, the Company may have difficulty growing its business year after year.

The markets for the Company’s products are highly competitive. The primary competitive factors include technical support, product innovation and performance, quality, service, distribution and cost. In addition, the Company competes against a small number of competitors in each of its markets. However, some of these competitors are much larger companies that have greater financial, technological, manufacturing and marketing resources than the Company. As a result, a reduction in overall demand or increased costs to design and produce its products would likely further increase competition and that increased competition could cause the Company to reduce its prices, which could lower its profit margins and impair its ability to grow from year to year.

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The Company must continue to invest significant resources in developing innovative products in order to maintain a competitive edge in the highly specialized markets in which the Company operates.

The Company’s continued success depends, in part, upon its ability to maintain its technological capabilities and to continue to identify, develop and commercialize innovative products for the nonwoven and oriented polyolefin industries. The Company must also protect the intellectual property rights underlying its new products to realize the full benefits of its efforts. If the Company fails to continue to develop products for its markets or to keep pace with technological developments by its competitors, the Company may lose market share, which could reduce product sales, lower its profits and impair its financial condition.

The loss of only a few of the Company’s large volume customers could reduce its revenues and profits.

A significant amount of the Company’s products are sold to a relatively small number of large volume customers. Sales to Procter & Gamble Company represented approximately 14% of its net sales in fiscal 2005. Sales to its top 20 customers represented approximately 51% of the Company’s net sales in fiscal 2005. As a result, a decrease in business from, or the loss of, any large volume customer such as Procter & Gamble could materially reduce the Company’s product sales, lower its profits and impair its financial condition.

Increases in prices for raw materials or the unavailability of raw materials could reduce the Company’s profit margins.

The primary raw materials used to manufacture most of the Company’s products are polypropylene resins, polyester fiber, polyethylene resin and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas liquids. To the extent that the Company is able to pass at least a portion of raw material price increases to some of its customers, there is often a delay between the time the Company is required to pay the increased raw material price and the time the Company is able to pass the increase on to its customers. To the extent the Company is not able to pass along all or a portion of such increased prices of raw materials, the Company’s cost of goods sold would increase and its operating income would correspondingly decrease. By way of example, if the price of polypropylene were to rise $.01 per pound and the Company was not able to pass along any of such increase to its customers, the Company would realize a decrease of approximately $3.0 million on an annualized basis in its reported pre-tax operating income. There can be no assurance that the prices of polypropylene, polyethylene and polyester will not increase in the future or that the Company will be able to pass on any increases to its customers not covered by contracts with price escalation clauses. Material increases in raw material prices that cannot be passed on to customers could have a material adverse effect on the Company’s profit margins, results of operations and financial condition. In addition, the loss of any of its key suppliers in the short-term could disrupt its business until the Company secures alternative supply arrangements or alternative suppliers were qualified with customers.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None

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ITEM 2.PROPERTIES

The Company and its subsidiaries operate the following principal manufacturing plants and other facilities, all of which are owned, except as noted. All of the Company’s owned properties are subject to liens in favor of the lenders under the Company’s Credit Facility. The Company believes that its facilities are generally well-maintained, in good condition and adequate for its current needs.

Location	Principal Function
Nonwovens U.S.
North Little Rock, Arkansas	Manufacturing and Warehousing
Rogers, Arkansas	Manufacturing and Warehousing
Gainesville, Georgia(1)	Manufacturing and Warehousing
Landisville, New Jersey	Manufacturing and Warehousing
Benson, North Carolina	Manufacturing, Sales, Marketing, Warehousing and Research and Development
Raleigh, North Carolina(1)	Administration
Mooresville, North Carolina	Manufacturing and Research and Development
Mooresville, North Carolina(1)	Administration, Sales and Marketing
Mooresville, North Carolina	Warehousing
Waynesboro, Virginia	Manufacturing, Warehousing and Research and Development
Waynesboro, Virginia(1)	Warehousing
Nonwovens Europe
Bailleul, France	Manufacturing, Marketing, Warehousing, Research and Development and Administration
Neunkirchen, Germany	Manufacturing and Warehousing
Cuijk, The Netherlands	Manufacturing, Sales, Marketing, Warehousing and Research and Development
Mölnlycke, Sweden(1)	Manufacturing
Nonwovens Latin America
Buenos Aires, Argentina(2)	Manufacturing, Sales, Marketing, Warehousing and Administration
Guadalajara, Mexico(1)	Sales, Marketing and Warehousing
Cali, Colombia	Manufacturing, Sales, Marketing, Warehousing and Administration
Monterrey, Mexico(1)	Sales, Marketing and Warehousing
Mexico City, Mexico(1)	Sales, Marketing and Warehousing
San Luis Potosi, Mexico	Manufacturing, Sales, Warehousing, Marketing and Administration
Nonwovens Asia
Nanhai, China(3)	Manufacturing, Sales, Marketing, Warehousing and Administration
Suzhou, China	Manufacturing, Sales, Marketing, Warehousing and Administration
Oriented Polymers Division
Kingman, Kansas	Manufacturing, Marketing, Warehousing and Administration
Guntown, Mississippi(1)	Converting and Warehousing
Portland (Clackamas), Oregon	Manufacturing
Clearfield, Utah(1)	Manufacturing, Marketing and Warehousing
North Bay, Ontario	Manufacturing, Marketing, Warehousing and Administration
Magog, Quebec	Manufacturing, Marketing, Warehousing and Administration
Montreal, Quebec(1)	Sales, Marketing and Administration
Corporate Offices
Dayton, New Jersey(1)	Administration
North Charleston, South Carolina(1)	Corporate

(1)Leased.

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(2)60% interest in a joint venture/partnership-type arrangement (Dominion Nonwovens Sudamerica S.A.) with Guillermo Enrique Kraves and Ives Company Limited.

(3)80% interest in a joint venture/partnership-type arrangement (Nanhai Nanxin Non-Woven Co. Ltd.) with Nanhai Chemical Fiber Enterprises Co.

The Company recently announced its intent to relocate its corporate office and several of its administrative functions to Charlotte, North Carolina. This property is expected to be leased and to be occupied in the third quarter of 2006.

Capacity utilization during 2005 varied by geographic locations and manufacturing capabilities. However, it can be generally stated that the facilities operated moderately below capacity.

ITEM 3.LEGAL PROCEEDINGS

During 2005, the Company received approximately $1.9 million as its portion of class-action settlement agreements with various suppliers of raw materials. These recoveries were included in Selling, general and administrative expenses in the Consolidated Statement of Operations for fiscal 2005.

The Company is not currently a party to any material pending legal proceedings other than routine litigation incidental to the business of the Company. During 2005, the Company was served with a lawsuit by a former customer alleging breach of contract and other charges. The discovery phase has recently begun and there is not currently enough information to formulate an assessment of the ultimate outcome of the claim. Therefore, management is not able to estimate the amount of such loss, if any, at this time. The Company intends to vigorously defend this action and believes that it has reasonable arguments available in its defense. However, there is a possibility that resolution of this matter, or others that may arise in the normal course of business, could result in a loss in excess of established reserves, if any.

The Company is subject to a broad range of federal, foreign, state and local laws and regulations relating to the pollution and protection of the environment. The Company believes that it is currently in substantial compliance with applicable environmental requirements and does not currently anticipate any material adverse effect on its operations, financial or competitive position as a result of its efforts to comply with environmental requirements. Some risk of environmental liability is inherent, however, in the nature of the Company’s business and, accordingly, there can be no assurance that material environmental liabilities will not arise.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2005.

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PART II

ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Since March 5, 2003, the Company’s Class A and Class B Common Stock have been trading on the over-the-counter electronic bulletin board (the “OTCBB”) under the symbols “POLGA” and “POLGB,” respectively. Prior to March 5, 2003, all of the Company’s common stock was in one class. Pursuant to the Modified Plan, on March 5, 2003, the Company’s common stock was divided into five classes: Class A, Class B, Class C, Class D and Class E. The Class A and Class B Common Stock trade on the OTCBB. No shares of Class D or Class E Common Stock are outstanding. There is no established trading market for the Class C Common Stock and, as such, no ticker symbol has been assigned to the Class C Common Stock. The Class B Common Stock is convertible to Class A Common Stock and, accordingly, the Class B Common Stock trades on a comparable basis to the Class A Common Stock. The following table sets forth for fiscal 2005 and 2004 the high and low bids for the Company’s Class A Common Stock:

	2005				2004
	High		Low		High		Low
First Quarter	$	24.00	$	17.20	$	14.00	$	7.00
Second Quarter	25.65		21.00		14.50		12.00
Third Quarter	29.40		22.35		13.50		11.10
Fourth Quarter	25.50		23.25		19.30		11.10

The Company paid no dividends on its common stock during fiscal years 2005 or 2004. The Credit Facility limits restricted payments, which includes dividends payable in cash, to $5.0 million in the aggregate since the effective date of the Credit Facility.

As of March 3, 2006, there were 59, 337 and one holders of record of the Company’s Class A, Class B and Class C Common Stock, respectively.

ITEM 6.SELECTED FINANCIAL DATA

The following table sets forth certain selected historical consolidated financial information of the Company for periods both before and after emerging from the Chapter 11 process on March 5, 2003. For accounting purposes, the financial statements reflect the reorganization as if it was consummated on March 1, 2003. Therefore, the Consolidated Balance Sheets and related information as of December 31, 2005, January 1, 2005 and January 3, 2004 and the Consolidated Statement of Operations and related information for the fiscal years ended December 31, 2005, January 1, 2005 and the ten months ended January 3, 2004 are referred to as “Successor” and reflect the effects of the reorganization and the principles of fresh start accounting. Periods presented prior to March 1, 2003 have been referred to as “Predecessor”. See Note 4 to the Company’s Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K for a discussion of fresh start accounting adjustments. The statement of operations data for each of the periods presented in the five years ended December 31, 2005 and the balance sheet data as of December 31, 2005, January 1, 2005, January 3, 2004, December 28, 2002 and December 29, 2001 have been derived from audited consolidated financial statements, except for the balance sheet data as of March 1, 2003, which is unaudited. The table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 to this Annual Report on Form 10-K and the Consolidated Financial Statements of the Company and related notes thereto included in Item 8 to this Annual Report on Form 10-K.

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	Successor												Predecessor
	Fiscal Year Ended								Ten Months Ended				Two Months Ended				Fiscal Year Ended
	December 31, 2005				January 1, 2005				January 3, 2004				March 1, 2003				December 28, 2002				December 29, 2001
	(In Thousands, Except Per Share Data)
Statement of Operations:
Net sales		$	948,848			$	844,734			$	644,893			$	132,895			$	754,437			$	815,765
Cost of goods sold		787,369				691,272				531,390				111,110				635,639				676,763
Gross profit		161,479				153,462				113,503				21,785				118,798				139,002
Selling, general and administrative expenses		104,545				99,163				78,682				15,955				100,215				111,781
Asset impairment charges		—				2,253				1,207				—				317,898				181,190
Plant realignment costs		9				1,867				6,802				4				1,054				7,441
Foreign currency loss, net		671				2,027				2,773				1,343				(1,059		)		2,318
Arbitration settlement, net		—				(13,112		)		—				—				—				—
Financial restructuring expenses		—				—				—				—				3,634				1,850
Other retirement costs		—				—				—				—				2,608				—
Operating income (loss)		56,254				61,264				24,039				4,483				(305,552		)		(165,578		)
Other expense (income):
Interest expense, net		32,617				40,252				49,036				10,665				71,478				99,406
Investment (gain) loss, net		—				—				(3		)		(291		)		1,806				5,290
Minority interests		3,784				2,597				2,028				441				1,366				(2,694		)
Write-off of loan acquisition costs		4,008				5,022				—				—				—				—
Foreign currency and other (gain) loss, net		(948		)		667				3,035				91				15,078				5,784
Reorganization items, (gain) loss		—				—				—				(540,479		)		14,873				—
Income (loss) before income tax expense (benefit)		16,793				12,726				(30,057		)		534,056				(410,153		)		(273,364		)
Income tax expense (benefit)		9,796				7,994				2,928				1,692				(3,290		)		(25,803		)
Income (loss) before cumulative effect of change in accounting principle		6,997				4,732				(32,985		)		532,364				(406,863		)		(247,561		)
Cumulative effect of change in accounting principle, net of tax		—				—				—				—				12,774				—
Net income (loss)		6,997				4,732				(32,985		)		532,364				(419,637		)		(247,561		)
Accrued and paid-in-kind dividends on PIK Preferred Shares		27,998				5,566				—				—				—				—
Income (loss) applicable to common shareholders		$	(21,001	)		$	(834	)		$	(32,985	)		$	532,364			$	(419,637	)		$	(247,561	)
Per Share Data:
Income (loss) before cumulative effect of change in accounting principle per common share—basic		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(12.71	)		$	(7.74	)
Income (loss) per share applicable to common shareholders—basic		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(13.11	)		$	(7.74	)
Income (loss) before cumulative effect of change in accounting principle per common share—diluted		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(12.71	)		$	(7.74	)
Income (loss) per share applicable to common shareholders—diluted		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(13.11	)		$	(7.74	)
Cash dividends		$	—			$	—			$	—			$	—			$	—			$	0.02
Operating and other data:
Cash provided by (used in) operating activities		$	70,932			$	69,896			$	33,213			$	(12,901	)		$	35,343			$	10,496
Cash provided by (used in) investing activities		(77,604		)		(23,144		)		(33,909		)		8,820				(10,554		)		(21,377		)
Cash provided by (used in) financing activities		(2,488		)		(28,133		)		(10,887		)		(14,669		)		(15,367		)		34,417
Gross margin (a)		17.0		%		18.2		%		17.6		%		16.4		%		15.7		%		17.0		%
Depreciation and amortization		$	57,550			$	53,230			$	42,620			$	8,812			$	71,556			$	83,164
Capital expenditures		78,902				24,791				36,675				3,062				15,379				21,440
Balance sheet data (at end of period):
Cash and cash equivalents and short-term investments		$	30,963			$	41,296			$	21,336			$	31,783			$	58,147			$	46,453
Working capital (deficit)		173,447				187,338				119,106				172,501				219,905				(872,336		)
Total assets		765,001				754,558				719,062				745,221				811,319				1,232,214
Long-term debt, less current portion		405,955				403,560				440,992				480,050				478,224				9,802
Minority interests		16,611				14,912				14,151				12,123				11,682				9,896
16% Series A convertible pay-in-kind preferred shares		—				58,286				—				—				—				—
Total shareholders’ equity (deficit)		131,482				73,849				59,200				73,390				(465,914		)		(48,862		)

Note to Selected Consolidated Financial Data

(a)   Gross margin represents gross profit as a percentage of net sales.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in Item 8 to this Annual Report on Form 10-K. In particular, this discussion should be read in conjunction with Note 3 “Chapter 11 Proceedings and Recapitalization,” Note 4 “Fresh Start Accounting” and Note 5 “Business Restructuring and Asset Impairment,” to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K, which describe the filing by the Company and its domestic subsidiaries of voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on May 11, 2002 and the financial restructuring and fresh start accounting associated with the Company’s emergence from the Chapter 11 process effective March 5, 2003.

For accounting purposes, the Company recognized the emergence on March 1, 2003, which was the end of the February 2003 accounting period. Fresh start accounting has been implemented as of March 1, 2003 and, accordingly, at that date, all assets and liabilities were restated to reflect their respective fair value. See Note 4 of the Company’s Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K for a discussion of the fresh start accounting adjustments. For financial reporting purposes, references to “Predecessor” refer to the Company on and prior to March 1, 2003 and references to “Successor” refer to the Company on and after March 2, 2003, after giving effect to the implementation of fresh start accounting. Successor consolidated financial statements are not comparable to Predecessor consolidated financial statements. However, for purposes of this discussion of results of operations, certain of the data for the ten months ended January 3, 2004 (Successor) have been combined with the two months ended March 1, 2003 (Predecessor) for comparisons with the fiscal years ended December 31, 2005 (Successor) and January 1, 2005 (Successor).

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Results of Operations

The following table sets forth the percentage relationships to net sales of certain income statement items for the 2005 periods in comparison to the corresponding 2004 and 2003 (combined) periods.

	Successor			Successor			Combined			Successor			Predecessor
	2005			2004			2003			Ten Months Ended January 3, 2004			Two Months Ended March 1, 2003
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold:
Material		51.2			48.6			46.9			47.0			46.6
Labor		8.5			9.6			10.1			10.1			10.3
Overhead		23.3			23.6			25.6			25.3			26.7
		83.0			81.8			82.6			82.4			83.6
Gross profit		17.0			18.2			17.4			17.6			16.4
Selling, general and administrative expenses		11.0			11.7			12.2			12.2			12.0
Asset impairment charges		—			0.3			0.1			0.2			—
Plant realignment costs		—			0.2			0.9			1.1			—
Foreign currency loss, net		0.1			0.2			0.5			0.4			1.0
Arbitration settlement, net		—			(1.5	)		—			—			—
Operating income		5.9			7.3			3.7			3.7			3.4
Other expense (income):
Interest expense, net		3.4			4.8			7.7			7.6			8.0
Investment gain, net		—			—			—			—			(0.2	)
Minority interests		0.4			0.3			0.3			0.3			0.3
Write-off of loan acquisition costs		0.4			0.6			—			—			—
Foreign currency and other (gain) loss, net		(0.1	)		0.1			0.4			0.5			0.1
Reorganization items, gain (loss)		—			—			69.4			—			406.6
Income (loss) before income tax expense		1.8			1.5			64.7			(4.7	)		401.8
Income tax expense		1.1			0.9			0.6			0.4			1.3
Net income (loss)		0.7			0.6			64.1			(5.1	)		400.5
Accrued and paid-in-kind dividends on PIK preferred shares		2.9			0.7			—			—			—
Income (loss) applicable to common shareholders		(2.2	)%		(0.1	)%		64.1	%		(5.1	)%		400.5	%

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Comparison of Years Ended December 31, 2005 and January 1, 2005

The Company’s reportable segments consist of its two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding segment data, see Note 18 “Segment Information” to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K. The following table sets forth components of the Company’s net sales and operating income (loss) by operating division for the year ended December 31, 2005, the year ended January 1, 2005 and the corresponding change from 2004 to 2005 (in millions):

	2005			2004			Change
Net sales
Nonwovens	$	763.7		$	672.6		$	91.1
Oriented Polymers	185.1			172.5			12.6
Eliminations	—			(0.4		)	0.4
	$	948.8		$	844.7		$	104.1
Operating income (loss)
Nonwovens	$	66.7		$	60.4		$	6.3
Oriented Polymers	10.7			12.7			(2.0		)
Unallocated Corporate, net of eliminations	(20.5		)	(18.8		)	(1.7		)
	56.9			54.3			2.6
Plant realignment costs	—			(1.9		)	1.9
Asset impairment charges	—			(2.2		)	2.2
Foreign currency loss, net	(0.6		)	(2.0		)	1.4
Arbitration settlement, net	—			13.1			(13.1		)
	$	56.3		$	61.3		$	(5.0	)

The amounts for plant realignment costs, asset impairment charges, foreign currency loss, net and arbitration settlement, net have not been allocated to the Company’s reportable business divisions because the Company’s management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before such items.

Net Sales

Consolidated net sales were $948.8 million in 2005, an increase of $104.1 million or 12.3% over 2004 consolidated net sales of $844.7 million. Net sales for 2005 in the Nonwovens and Oriented Polymers divisions improved over comparable 2004 fiscal year results by 13.5% and 7.3%, respectively. Fiscal 2005 and 2004 each consisted of 52 weeks. A reconciliation of the change in net sales between 2004 and 2005 is presented in the following table (in millions):

Net sales—2004	$	844.7
Change in sales due to:
Price/mix	72.4
Volume	24.2
Foreign currency translation	7.5
Net sales—2005	$	948.8

The increase in net sales during 2005 was due primarily to price/mix improvements and volume gains. The price/mix increase reflects continued success in the Company’s ability to improve pricing and profit composition of its sales. The improvement in the price/mix of sales in 2005 over the prior year period was driven primarily by higher prices implemented to mitigate raw material costs in all divisions, increased value-added business in Latin America and product shifts in Asia from commodity to specialty applications.

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The primary contributors to the $24.2 million increase in sales due to volume growth in 2005 were the U.S. and Latin American regions. In the Company’s U.S. nonwovens business, the consumer and hygiene markets contributed double-digit increases over 2004 as new products were introduced into the markets and new customer relationships generated substantial sales increases. Although the San Luis Potosi, Mexico capacity expansion was completed in late 2003, it didn’t reach full productive capacity until the second quarter of 2004. Accordingly, fiscal 2005 reflected the first full-year’s benefit of the additional capacity. The Latin America region’s sales improvement was driven by significant year-over-year increases in hygiene and industrial sales. Nonwoven sales volumes decreased slightly in Europe. Oriented Polymers’ increase in sales was due primarily to price/mix improvement, partially offset by lower sales volumes of certain commodity-based products.

Foreign currencies, predominantly the Euro and the Canadian dollar, were stronger against the U.S. dollar during 2005 compared to 2004, resulting in an increase in net sales of $7.5 million due to the favorable foreign currency translation. Further discussion of foreign currency exchange rate risk is contained in “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A to this Annual Report on Form 10-K.

Gross Margin

Gross margin in 2005 declined to 17.0% from 18.2% in 2004, despite improved sales volumes and product mix, due to the impact of the raw material increases during 2005. The raw material component of the cost of goods sold as a percentage of net sales increased from 48.6% in 2004 to 51.2% in 2005.

Operating Income

A reconciliation of the change in operating income between 2004 and 2005 is presented in the following table (in millions):

Operating income—2004	$	61.3
Change in operating income due to:
Arbitration settlement, net	(13.1		)
Price/mix	72.4
Higher raw material costs	(60.5		)
Volume	6.9
Higher depreciation and amortization expense	(4.3		)
Lower postretirement plan curtailment gains	(3.6		)
Lower asset impairment charges	2.2
Lower plant realignment costs, net	1.9
Higher manufacturing costs	(2.6		)
Foreign currency translation	0.5
All other, primarily higher SG&A costs	(4.8		)
Operating income—2005	$	56.3

Consolidated operating income was $56.3 million in 2005 as compared to $61.3 million in 2004. Operating income in 2004 benefited from the $13.1 million arbitration settlement, net of expenses. The financial effect of price/mix improvements more than offset the higher raw material costs, reflecting the benefits of the Company’s new product introductions and ongoing efforts to manage the impact of higher raw material costs. Operating income was positively impacted by the volume gains noted in the net sales discussion above and the absence of asset impairment charges and lower plant realignment costs in 2005. Offsetting these favorable impacts were higher depreciation and amortization charges, lower postretirement plan curtailment gains, higher manufacturing costs and higher selling, general

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and administrative expenses. The increase in depreciation and amortization charges was primarily related to the reduction in the estimated useful lives of certain machinery and equipment utilized in the Company’s operations to reflect the technological status and market conditions of certain aspects of the Company’s business. Selling, general and administrative expenses were higher primarily due to increased sales volume, increased non-cash compensation costs related to the Company’s stock option plan and costs related to the new Sarbanes-Oxley compliance requirements, partially offset by $1.9 million received as its portion of class-action settlement agreements with various suppliers of raw materials.

Hurricanes Katrina and Rita hit the Gulf Coast in the third quarter of 2005, temporarily shutting down a number of refineries and chemical processing sites of certain raw material suppliers for the Company’s North and South American operations. As a result, raw materials continued to be available to the Company, but at significantly higher prices. The Company, where allowable based on contract terms, attempted to raise its selling prices to mitigate the sharp increases in raw materials. The prices of raw materials in the North American markets decreased slightly since late December 2005 as the refineries returned to normalized production levels, although there are no assurances that the prices will return to pre-hurricane levels due to other global economic factors.

Interest and Other Expense

Net interest expense decreased $7.7 million, from $40.3 million in 2004 to $32.6 million in 2005. The decrease in net interest expense was primarily due to the lower interest rates obtained by refinancing the Company’s long-term bank debt in April 2004 and November 2005 and the elimination of interest expense in mid-2004 on the Junior Notes, as approximately $52.7 million in aggregate principal amount of the Junior Notes was converted into 52,716 shares of PIK Preferred Shares and 6,719 shares of Class A Common Stock. The 2004 interest expense includes $1.8 million of payment-in-kind in lieu of cash interest on the Junior Notes. Additionally, during 2005 the Company capitalized, with respect to its major capital expenditure projects, interest in the amount of $2.2 million, compared to $0.4 million in 2004.

The Consolidated Statements of Operations for 2004 and 2005 included a charge of $5.0 million and $4.0 million, respectively, with respect to loan acquisition cost write-offs related to the refinanced debt. Foreign currency and other, net improved by $1.6 million, from an expense of $0.7 million in 2004 to income of $0.9 million in 2005. The improvement in foreign currency and other, net was primarily due to the foreign currency gains recognized by foreign subsidiaries on intercompany loan balances denominated in currencies other than their functional currency, generally the U.S. dollar, as well as gains of $1.3 million recognized on the sale of certain assets.

Income Tax Expense

The Company recognized income tax expense of $9.8 million in 2005 on consolidated income before income taxes of $16.8 million. This income tax expense is significantly higher than the U.S. federal statutory rate primarily due to losses in the U.S. and certain foreign jurisdictions for which no tax benefits were recognized. Additionally, the income tax expense is impacted by foreign withholding taxes, for which the Company is not anticipating the benefit of the foreign tax credits, U.S. state income taxes and foreign taxes calculated at statutory rates less than the U.S. federal statutory rate. The Company recorded a net income tax expense of $8.0 million in 2004 on consolidated income before income taxes of $12.7 million for such period. The effective income tax rate was in excess of the statutory rate primarily due to withholding taxes, for which tax credits are not anticipated, U.S. state income taxes, and no significant income tax benefit recognized for the losses incurred in the U.S. and certain foreign jurisdictions.

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Net Income

As a result of the above, the Company recognized net income of $7.0 million in fiscal 2005 compared to net income of $4.7 million in 2004.

Accrued and Paid-in-kind Dividends on PIK Preferred Shares

Dividends on the PIK Preferred Shares accrued at an annual rate of 16.0% and were payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004. Such dividends were payable at the option of the Company; (i) through the issuance of additional shares of PIK Preferred Stock; (ii) in cash; or (iii) in a combination thereof. Accordingly, the Company accrued dividends at the stated rate of 16.0% until such time as the form of the dividend was declared by the Company’s Board of Directors. If the dividend was paid-in-kind through the issuance of additional shares of PIK Preferred Stock, the Company recognized the dividend at the estimated fair value of the shares issued in excess of the amounts previously accrued.

On January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock. Accordingly, total accrued and paid-in-kind dividends amounted to $28.0 million and $5.6 million in fiscal years 2005 and 2004, respectively.

Loss Applicable to Common Shareholders

As a result of the above, the Company recognized a loss applicable to common shareholders of $21.0 million, or $(1.60) per share on a basic and diluted basis, in fiscal 2005 compared to a loss applicable to common shareholders of $0.8 million, or $(0.09) per share on a basic and diluted basis, in fiscal 2004.

Comparison of Successor Year Ended January 1, 2005 and Combined Successor and Predecessor Year Ended January 3, 2004

The Company’s reportable segments consist of its two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding segment data, see Note 18 “Segment

27

Information” to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K. The following table sets forth components of the Company’s net sales and operating income (loss) by operating division for fiscal 2004, the ten months ended January 3, 2004, the two months ended March 1, 2003 and the combined 2003 period and the change from 2003 to 2004 (in millions):

	2004			Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003				Combined 2003				Change
Net sales
Nonwovens	$	672.6			$	515.7			$	108.4			$	624.1			$	48.5
Oriented Polymers	172.5				129.7				24.5				154.2				18.3
Eliminations	(0.4		)		(0.5		)		—				(0.5		)		0.1
	$	844.7			$	644.9			$	132.9			$	777.8			$	66.9
Operating income
Nonwovens	$	60.4			$	38.9			$	7.8			$	46.7			$	13.7
Oriented Polymers	12.7				8.5				1.5				10.0				2.7
Unallocated Corporate, net of eliminations	(18.8		)		(12.6		)		(3.5		)		(16.1		)		(2.7		)
	54.3				34.8				5.8				40.6				13.7
Plant realignment costs	(1.9		)		(6.8		)		—				(6.8		)		4.9
Asset impairment charges	(2.2		)		(1.2		)		—				(1.2		)		(1.0		)
Foreign currency loss, net	(2.0		)		(2.8		)		(1.3		)		(4.1		)		2.1
Arbitration settlement, net	13.1				—				—				—				13.1
	$	61.3			$	24.0			$	4.5			$	28.5			$	32.8

Net Sales

Consolidated net sales were $844.7 million in 2004, an increase of $66.9 million or 8.6% over 2003 consolidated net sales of $777.8 million. Net sales for 2004 in the Nonwovens and Oriented Polymers divisions improved over comparable 2003 fiscal year results by 7.8% and 11.9%, respectively. Fiscal 2004 consisted of 52 weeks, whereas the combined 2003 fiscal year consisted of 53 weeks. A reconciliation of the change in net sales between 2003 and 2004 is presented in the following table (in millions):

Net sales—2003	$	777.8
Change in sales due to:
Volume	36.3
Foreign currency	23.0
Price/mix	17.8
Businesses sold/exited	(10.2		)
Net sales—2004	$	844.7

The increase in net sales during 2004 was due primarily to volume gains, especially in the United States and Latin American markets, and the strengthening of foreign currencies versus the U.S. dollar. Sales dollars were positively impacted in 2004 by the price/mix of sales largely due to increases in sales price in an effort to pass along raw material cost increases to customers. As raw material costs rose during the current year, the Company followed the consistent policy of passing raw material prices along to its customers, where allowable by contract terms and where acceptable based on market conditions. The aforementioned increases in sales were partially offset by decreases

28

associated with businesses sold or exited. Overall, the Company continued to build momentum in the marketplace following its emergence from the Chapter 11 process on March 5, 2003.

A significant component of the $36.3 million increase in sales due to volume growth was generated in the Latin American region as the San Luis Potosi, Mexico capacity expansion completed in late 2003 reached full productive capacity in the second quarter of 2004. The Latin America region’s sales improvement was paced by significant year-over-year increases in hygiene sales. In the Company’s U.S. nonwovens sales business, the hygiene and consumer markets recorded double-digit increases from 2003 as new products were accepted by the markets and the economy improved during 2004. Nonwoven sales volumes improved slightly in Asia and decreased in Europe.

Foreign currencies, predominantly the Euro and the Canadian dollar, were stronger against the U.S. dollar during 2004 compared to 2003 resulting in an increase in net sales of $23.0 million due to the favorable foreign currency translation. Further discussion of foreign currency exchange rate risk is contained in “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A to this Annual Report on Form 10-K.

Gross Margin

Gross margin in 2004 increased to 18.2% from 17.6% in 2003, driven by volume increases and lower manufacturing costs, offset by the effect of raw material increases during 2004. The raw material component of the cost of goods sold as a percentage of net sales increased from 46.9% in 2003 to 48.6% in 2004.

Operating Income

A reconciliation of the change in operating income between 2003 and 2004 is presented in the following table (in millions):

Operating income—2003	$	28.5
Change in operating income due to:
Price/mix	17.8
Higher raw material costs	(24.1		)
Volume	13.2
Arbitration settlement, net	13.1
Lower manufacturing costs	5.3
Lower asset impairment charges and plant realignment costs, net	3.9
Postretirement benefit plan curtailments and other, net	3.6
Foreign currency translation	1.9
Businesses sold/exited	0.5
Higher depreciation and amortization expense	(2.8		)
All other, primarily higher SG&A costs	0.4
Operating income—2004	$	61.3

Consolidated operating income was $61.3 million in 2004 as compared to $28.5 million in 2003. The improvement in operating income was positively impacted by the price/mix and volume improvements noted above. The $17.0 million arbitration settlement, which was received during the second quarter and reported net of $3.9 million of legal and other associated arbitration costs, also favorably impacted operating income. Other items contributing to the improvement of operating income were cost savings as a result of previous business restructuring efforts and lower asset

29

impairment charges, net of a $1.0 million increase in plant realignment costs. Offsetting these favorable impacts were higher raw material costs which could not be passed along to customers in the form of price increases, higher depreciation and amortization charges and higher selling, general and administrative expenses. The increase in raw material costs was driven by increases in the prices charged by vendors. The expectation for fiscal 2005 is that raw material costs will continue to escalate and the Company will continue its efforts to pass along such increases to its customers. The increase in selling, general and administrative expenses was primarily related to higher sales levels and is net of $2.6 million of accounts receivable reserve adjustments. The increase in depreciation and amortization charges is primarily related to the installation of the new production line in Latin America.

Interest and Other Expense

Net interest expense decreased $19.4 million, from $59.7 million in 2003 to $40.3 million in 2004. Those totals include $1.8 million and $3.7 million, respectively, of payments in kind in lieu of cash interest on the Junior Notes. The decrease in net interest expense was primarily due to the lower interest rates obtained by refinancing the Company’s Restructured Credit Facility with the Bank Facility, effective April 27, 2004. Additionally, in conjunction with the refinancing, the Company’s majority shareholder exchanged on April 27, 2004 approximately $42.6 million in aggregate principal amount of the Junior Notes for 42,633 shares of PIK Preferred Shares, which also contributed to lower interest costs during the period. Also subsequent to the refinancing, the remaining $10.1 million of Junior Notes were exchanged for 10,083 shares of the Company’s PIK Preferred Shares and 6,719 shares of the Company’s Class A Common Stock.

The Consolidated Statement of Operations for 2004 included a charge of $5.0 million for the write-off of unamortized loan acquisition costs related to the refinanced debt. Foreign currency and other (gain) loss, net decreased $2.4 million, from a loss of $3.1 million in fiscal 2003 to a loss of $0.7 million in fiscal 2004, as fiscal 2003 included $1.1 million of costs related to an aborted refinancing effort.

Reorganization Items

As further described in Note 3 “Chapter 11 Proceedings and Recapitalization” and Note 4 “Fresh Start Accounting” to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K, the Company recognized a net gain of $540.5 million in reorganization items upon its emergence from Chapter 11 in 2003. These reorganization items primarily included gains on cancellation of prepetition indebtedness of $619.9 million offset by fresh start adjustments of $47.5 million and other costs associated with the reorganization of $31.9 million.

Income Tax Expense

The Company recorded a net income tax expense of $8.0 million in 2004 on consolidated income before income taxes of $12.7 million for such period. The effective rate in 2004 was in excess of the statutory rate primarily due to withholding taxes on intercompany royalties, interest and dividends, for which the Company is not anticipating the benefit of foreign tax credits, state income taxes in the United States, and no significant income tax benefit recognized for the losses incurred in the United States and certain foreign jurisdictions. During 2003, the Company recorded an income tax expense of $4.6 million, primarily related to taxable income generated by foreign operations. The effective rate in 2003 differed from the statutory rate primarily as a result of the exclusion from taxable income of the gain from the cancellation of indebtedness. Additionally, no income tax benefits were attributed to the 2003 operating losses sustained in the United States and, as a result of its reorganization, all United States tax loss carryforwards expired as of January 4, 2004.

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Net Income

As a result of the above, the Company recognized net income of $4.7 million in fiscal 2004 compared to net income of $499.4 million in 2003.

Accrued Dividends on PIK Preferred Shares

The Company accrued dividends at 16% on its PIK Preferred Shares from the date of their issuance through January 1, 2005 in the amount of $5.6 million. In January 2005, the Company declared a dividend of approximately $5.6 million payable in the form of additional PIK Preferred Shares. As a result of the PIK Preferred Shares being initially issued in April 2004, no such dividends were accrued in fiscal 2003.

Income (Loss) Applicable to Common Shareholders

As a result of the above, the Company recognized a loss applicable to common shareholders of $0.8 million, or $(0.09) per share on a basic and diluted basis, in fiscal 2004 compared to income applicable to common shareholders of $499.4 million in 2003.

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LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of liquidity for operations and expansions are funds generated from operations and borrowing availabilities under the Credit Facility, consisting of a revolving credit facility with aggregate commitments of $45.0 million and a first-lien term loan of $410.0 million. The revolving credit portion of the Bank Facility terminates on November 22, 2010 and the remaining balance (after mandatory annual payments of $4.1 million and additional payments, if any, under the excess cash flow provision of the Credit Facility) of the first-lien term loan is due November 22, 2012. The Credit Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At December 31, 2005, the Company was in compliance with all such covenants. Additionally, as of December 31, 2005, the Company had no outstanding borrowings under the revolving credit facility. As of December 31, 2005, capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $11.4 million.

	December 31, 2005			January 1, 2005
	(In Millions)
Balance sheet data:
Cash and cash equivalents		$	31.0		$	41.3
Working capital		173.4			187.3
Total assets		765.0			754.6
Total debt		415.2			414.0
PIK Preferred Shares		—			58.3
Total shareholders’ equity		131.5			73.8

	Fiscal Year Ended
	December 31, 2005				January 1,  2005
	(In Millions)
Cash flow data:
Net cash provided by operating activities		$	70.9			$	69.9
Net cash used in investing activities		(77.6		)		(23.1		)
Net cash used in financing activities		(2.5		)		(28.1		)

Operating Activities

Net cash provided by operating activities was $70.9 million during 2005, a $1.0 million increase from the $69.9 million provided by operating activities during 2004, which included a $13.1 million net cash inflow from an arbitration settlement. The Company was able to generate substantially the same cash flows from operations in 2005 versus 2004, despite the arbitration settlement benefit in 2004, primarily due to improved cash flows from product sales in 2005.

The Company had working capital of approximately $173.4 million at December 31, 2005 compared with $187.3 million at January 1, 2005. Accounts receivable at December 31, 2005 was $120.7 million as compared to $113.5 million on January 1, 2005, an increase of $7.2 million. Accounts receivable represented approximately 46 days of sales outstanding at both December 31, 2005 and January 1, 2005. Inventories at December 31, 2005 were $119.7 million, an increase of $13.4 million from inventories at January 1, 2005 of $106.3 million. The Company had inventory representing approximately 54 days of cost of sales on hand at both December 31, 2005 and January 1, 2005. Accounts payable at December 31, 2005 was $82.4 million as compared to $63.8 million at January 1, 2005, an increase of $18.6 million. Accounts payable represented approximately 37 days of cost of sales outstanding at December 31, 2005 as compared to 32 days of cost of sales outstanding at January 1, 2005. The dollar increases in accounts receivable, inventories

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and accounts payable in 2005 versus 2004 were primarily related to the increases in raw material prices.

The Company’s restructuring activities are discussed in Note 5 “Business Restructuring and Asset Impairment” to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.

Investing and Financing Activities

Cash used for investing activities amounted to $77.6 million and $23.1 million in 2005 and 2004, respectively. Capital expenditures during 2005 totaled $78.9 million, an increase of $54.1 million from capital spending of $24.8 million in 2004. A significant portion of the capital expenditures in 2005 related to the construction of new spunmelt manufacturing facilities in Suzhou, China; Cali, Colombia and Mooresville, North Carolina, as well as the installation of additional capacity in Nanhai, China. Investing activities during 2005 and 2004 included proceeds from the sale of assets of $1.3 million and $1.7 million, respectively.

Cash used in financing activities amounted to $2.5 million and $28.1 million in 2005 and 2004, respectively. In 2005, the Company borrowed, on a net basis, $1.2 million of its debt whereas the Company repaid, on a net basis, $15.8 million of its debt during 2004. In addition, the Company paid loan acquisition and other financing costs of $3.7 million and $12.4 million during 2005 and 2004, respectively.

Dividends

The Board of Directors has not declared a dividend on the Company’s common stock since the first quarter of 2001. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Company does not currently anticipate paying dividends on its common stock in future periods.

On January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock. Accordingly, total accrued and

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paid-in-kind dividends amounted to $28.0 million and $5.6 million in fiscal years 2005 and 2004, respectively.

Contractual Obligations

A schedule of the required payments under existing debt agreements and the amounts due under operating leases that have initial or non-cancellable lease terms in excess of one year as of December 31, 2005 and purchase commitments as of December 31, 2005, are presented in tabular form below (in millions):

	Payments Due by Period
Contractual Obligations	Total			2006			2007		2008		2009		2010		Thereafter
Debt, including short-term borrowings	$	415.2		$	9.2		$	4.1	$	4.1	$	4.1	$	4.1		$	389.6
Operating leases:
Third party/nonaffiliate lease expense	$	7.3		$	2.5		$	1.8	$	1.4	$	1.1	$	0.5		—
Less: sub-lease income	(0.1		)	(0.1		)	—		—		—		—			—
	$	7.2		$	2.4		$	1.8	$	1.4	$	1.1	$	0.5		$	—
Purchase commitments (see below)	$	82.2		$	82.2		—		—		—		—			—

Additionally, the Company expects to contribute approximately $7.1 million to its pension plans in 2006. Contributions in subsequent years will be dependent upon various factors, including actual return on plan assets, regulatory requirements and changes in actuarial assumptions such as health care cost trend rate and discount rate.

As noted in the table above, the Company has approximately $415.2 million of debt outstanding as of December 31, 2005. The Company has fixed the interest rate on $212.5 million of the Credit Facility debt through May 2007 through the use of a cash flow hedge agreement. Assuming the rate of interest remains unchanged from December 31, 2005, cash interest payments would be approximately $28.0 million, $27.5 million, $27.2 million, $26.9 million and $26.6 million for 2006, 2007, 2008, 2009 and 2010, respectively.

The first-lien term loan requires the Company to apply a percentage of proceeds from excess cash flows, as defined by the Credit Facility and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility. Excess cash flows required to be applied to the repayment of the Credit Facility are generally calculated as 50.0% of the net amount of the Company’s available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in working capital and certain other items. Since the amounts of excess cash flows for future periods are based on year-end data and not determinable, only the mandatory payments of approximately $4.1 million (“mandatory payments”) per year have been classified, in the table above, as annual debt payments under the Credit Facility. Additionally, no excess cash flow payment was required to be made with respect to fiscal 2005 due to the magnitude of the major capital expenditures and any cash flow requirement with respect to fiscal 2006 is not expected to be significant.

The Company leases certain manufacturing, warehousing and other facilities and equipment under operating leases. The leases on most of the properties contain renewal provisions. Rent expense (net of sub-lease income), including incidental leases, approximated $3.3 million, $4.0 million and $3.2 million in 2005, 2004 and 2003, respectively. For the Successor ten month period and the Predecessor two month period of 2003, the rental expense was $2.6 million and $0.6 million, respectively. Rental income approximated $0.2 million, $0.6 million and $0.5 million in 2005, 2004 and 2003, respectively. The expenses are recognized on a straight-line basis over the life of the lease.

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At December 31, 2005, the Company had commitments of approximately $82.2 million related to the purchase of raw materials, maintenance, converting services and capital projects which are expected to result in cash payments during 2006. In addition, the Company had outstanding letters of credit, including the Nanhai letter of credit, at December 31, 2005  of approximately $11.4 million.

Liquidity Summary

As discussed more fully in Note 11 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K, on November 22, 2005, the Company refinanced its existing Bank Facility with  a new Credit Facility consisting of a $45.0 million secured revolving credit facility maturing in 2010 and a $410.0 million first-lien term loan that matures in 2012. The proceeds therefrom were used to fully repay indebtedness outstanding under the Company’s previous Bank Facility and pay related fees and expenses.

All borrowings under the Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company. The Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company, its domestic subsidiaries and certain of its non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain non-domestic subsidiaries of the Company, and (iii) a pledge of certain secured intercompany notes. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At December 31, 2005, the Company is in compliance with all such covenants and expects to remain in compliance through fiscal 2006. The first-lien term loan requires mandatory payments of approximately $1.0 million per quarter and, beginning with fiscal 2006, the first-lien term loan requires the Company to use a percentage of proceeds from excess cash flows, as defined by the Credit Facility, and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility.

Excess cash flows required to be applied to the repayment of the Credit Facility are generally calculated as 50.0% of the net amount of the Company’s available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in working capital and certain other items. Since the amounts of excess cash flows for future periods are based on year-end results and not determinable, only the mandatory payments of approximately $1.0 million per quarter have been classified as a current liability in the Consolidated Balance Sheet included in Item 8 to this Annual Report on Form 10-K. Additionally, no excess cash flow payment was required to be made with respect to fiscal 2005 due to the magnitude of the major capital expenditure projects and any excess cash flow requirement with respect to fiscal 2006 is not expected to be significant.

The interest rate applicable to borrowings under the Credit Facility is based on three-month London Interbank Offered Rate (“LIBOR”) plus a specified margin. The applicable margin for borrowings under both the first-lien term loan and the revolving credit facility is 225 basis points. The Company may, from time to time, elect to use an alternate base rate for its borrowings under the revolving credit facility based on the bank’s base rate plus a margin of 75 to 125 basis points based on the Company’s total leverage ratio. The Company had no outstanding borrowings at December 31, 2005 under the revolving credit facility. As of December 31, 2005, capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $11.4 million. None of these letters of credit have been drawn on at December 31, 2005. Average borrowings under the revolving credit facility, which were largely alternate base rate borrowings, for the period of November 22, 2005 to December 31, 2005 were $10.4 million at an average rate of 8.37%.

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Additionally, in accordance with the terms of the Credit Facility, the Company maintained its position in a cash flow hedge agreement, effectively converting $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%. The cash flow hedge agreement has been maintained in accordance with the terms of the Credit Facility and it terminates on May 8, 2007.

In conjunction with the Company’s refinancing in fiscal 2004, the Company’s majority shareholder exchanged approximately $42.6 million in aggregate principal amount of the Junior Notes it controlled for 42,633 shares of the Company’s PIK Preferred Shares. Additionally, in the third quarter of 2004, $10.1 million of aggregate principal amount of the Company’s Junior Notes were exchanged for 10,083 shares of the Company’s PIK Preferred Shares and 6,719 shares of the Company’s Class A Common Stock. The dividends on the PIK Preferred Shares accrued at an annual rate of 16% and were payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004, at the option of the Company, (i) through the issuance of additional PIK Preferred Shares; (ii) in cash; or (iii) in a combination thereof. Dividends were cumulative and accrued from the most recent dividend payment date to which dividends had been paid or, if no dividends had been paid, from the date of original issuance. As the aforementioned exchanges were a component of the recapitalization of the Company, involving the majority shareholder and other common shareholders of the Company and the exchange by the majority shareholder was a requirement of the then new Bank Facility, the exchanges have been accounted for as a capital transaction and, accordingly, no gain or loss was recognized.

Dividends on the PIK Preferred Shares accrued at an annual rate of 16.0% and were payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004. Such dividends were payable at the option of the Company; (i) through the issuance of additional shares of PIK Preferred Stock; (ii) in cash; or (iii) in a combination thereof. Accordingly, the Company accrued dividends at the stated rate of 16.0% until such time as the form of the dividend was declared by the Company’s Board of Directors. If the dividend was paid-in-kind through the issuance of additional shares of PIK Preferred Stock, the Company recognized the dividend at the estimated fair value of the shares issued in excess of the amounts previously accrued. At any time prior to June 30, 2012, the holders of the PIK Preferred Shares could have elected to convert any or all of their PIK Preferred Shares into shares of the Company’s Class A Common Stock at an initial conversion rate of 137.14286 shares of Class A Common Stock per share of PIK Preferred Shares which approximates an initial conversion price equal to $7.29 per share.

On January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional

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PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock, as described below. Accordingly, total accrued and paid-in-kind dividends amounted to $28.0 million and $5.6 million in fiscal years 2005 and 2004, respectively.

Also, on July 28, 2005, the Company’s Board of Directors authorized the redemption of all of the Company’s PIK Preferred Shares on or before September 30, 2005. On August 16, 2005, the Board of Directors set September 15, 2005 as the redemption date (the “Redemption Date”). In accordance with the terms of the PIK Preferred Shares, the Company would redeem all PIK Preferred Shares outstanding at the Redemption Date at a redemption rate of 37.26397 shares of Class A Common Stock per PIK Preferred Share. At any time prior to the Redemption Date, holders of PIK Preferred Shares could exercise their right to convert their PIK Preferred Shares into shares of Class A Common Stock at a conversion rate of 137.14286 shares of Class A Common Stock per PIK Preferred Share.

As of the close of business on the Redemption Date, five PIK Preferred Shares had been redeemed by the Company with the redemption price being paid by the issuance of 187 shares of Class A Common Stock. Additionally, 62,916 PIK Preferred Shares had been converted by holders into 8,628,473 shares of Class A Common Stock. Also, during the first quarter of fiscal 2005, five PIK Preferred Shares were converted into 686 shares of Class A Common Stock. As a result of these transactions, 8,629,346 additional shares of Class A Common Stock are now issued and outstanding and no PIK Preferred Shares are currently issued or outstanding.

The Company has entered into factoring agreements to sell without recourse, certain U.S. and non-U.S. company-based receivables to unrelated third party financial institutions. Under the terms of the factoring agreement related to the sale of U.S. company-based receivables, the maximum amount of outstanding advances at any one time is $15.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. Under the terms of the factoring agreement related to the sale of non-U.S. company-based receivables, the maximum amount of outstanding advances at any one time is $10.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. The sale of these receivables accelerated the collection of the Company’s cash, reduced credit exposure and lowered the Company’s net borrowing costs. The Credit Facility entered into during November 2005 provides the Company the availability to increase the sale of U.S. based receivables and non-U.S. based receivables, under factoring agreements, to $20.0 million and $20.0 million, respectively.

As discussed in Note 20 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K, the Company has committed to several major projects to expand its worldwide capacity, including the construction of new spunmelt manufacturing facilities in Suzhou, China; Cali, Colombia and Mooresville, North Carolina, as well as the installation of additional capacity in Nanhai, China. Remaining payments due related to these planned expansions as of December 31, 2005 totaled approximately $45.6 million and are expected to be expended during fiscal 2006.

Based on the ability to generate positive cash flows from its operations and the additional financial flexibility and reduced cash interest costs provided by the Credit Facility, the Company believes that it has the financial resources necessary to meet its operating needs, fund its capital expenditures and make all necessary contributions to its retirement plans. Additionally, based on the Credit Facility and the redemption and conversion of its PIK Preferred Shares for shares of Class A

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Common Stock, the Company believes that it has significantly reduced its cash interest costs, improved its financial flexibility, simplified its capital structure and strengthened its financial position.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Effect of Inflation

Inflation generally affects the Company by increasing the costs of labor, overhead, and equipment. The impact of inflation on the Company’s financial position and results of operations has been minimal during 2005, 2004 and 2003. However, the Company continues to be impacted by rising raw material costs. See “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A of this Annual Report on Form 10-K.

New Accounting Standards

In May 2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”). FSP 106-2 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which was signed into law on December 8, 2003. The Act introduced a prescription drug benefit under Medicare and federal subsidies to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to that of Medicare. As permitted under FSP 106-2, the Company made a one-time election to defer accounting for the effect of the Act and as more fully explained in Note 9 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K, in December 2004 the Company approved plan amendments curtailing or eliminating various postretirement benefits in the U.S. As a result, the amounts included in the Consolidated Financial Statements related to the Company’s postretirement benefit plans appropriately do not reflect the effects of the Act.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (“SFAS No. 151”). This statement amends earlier guidance to require that abnormal freight, handling and spoilage costs be recognized as current-period charges rather than capitalized as an inventory cost. In addition, SFAS No. 151 requires that the allocation of fixed production overhead costs be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal year 2006. The Company has completed its evaluation of the impact that the adoption of SFAS No. 151 could have and has concluded that such impact will not be significant to its financial position or results of operations.

In December 2004, the FASB issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” The revision, entitled SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), is effective for all awards granted, modified, repurchased or canceled after June 15, 2005 and requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The grant date fair value is to be estimated using option-pricing models adjusted for the unique characteristics of those instruments. In April 2005, the Securities and Exchange Commission issued a final rule that registrants must adopt

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SFAS No. 123R’s fair value method of accounting no later than the beginning of the fiscal year beginning after June 15, 2005. Accordingly, the Company will adopt SFAS No. 123R in the first quarter of fiscal 2006, using the modified prospective transition method. Under the modified prospective transition method, all new grants and any unvested portion of prior awards will be measured based on the fair-value-based method of accounting. The impact of adopting SFAS No. 123R is expected to be consistent with the impact in the pro forma disclosure presented in Note 2 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K, resulting in lower compensation costs than previously recognized under the Company’s historically used accounting principles.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). This statement amends earlier guidance and requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable to determine either the period-specific effects or the cumulative effects of the change. In addition, SFAS No. 154 requires that a change in the method of depreciation or amortization for a long-lived, non-financial asset be accounted for as a change in accounting estimate that is affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the new guidance to have a significant impact on its financial position or results of operations.

No other new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the Consolidated Financial Statements. Certain reclassifications of prior years’ amounts have been made in the Consolidated Financial Statements to conform to the current year presentation.

Critical Accounting Policies And Other Matters

The Company’s analysis and discussion of its financial position and results of operations are based upon its consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires the appropriate application of certain accounting policies, many of which require management to make estimates and assumptions about future events that may affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from the estimates. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to fresh start accounting, revenue recognition, including the effects of sales returns and allowances and credit risks, convertible securities, inventories, income taxes, and impairment of long-lived assets. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The impact and any associated risks related to estimates, assumptions, and accounting policies are discussed within “Management’s Discussion and Analysis of Operations and Financial Condition,” as well as in the Notes to the Consolidated Financial Statements, if applicable, where such estimates, assumptions, and accounting policies affect the Company’s reported and expected results.

The Company believes the following accounting policies are critical to its business operations and the understanding of results of operations and affect the more significant judgments and estimates used in the preparation of its Consolidated Financial Statements:

Fresh Start Accounting:   In connection with the Company’s Chapter 11 reorganization, the Company has applied fresh start accounting to its Consolidated Balance Sheet as of March 1, 2003 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” as promulgated by the AICPA. Under fresh start accounting, a new

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reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start accounting is applied. On March 5, 2003, the Company emerged from bankruptcy. For financial reporting purposes, March 1, 2003 is considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date.

Fresh-start accounting requires that the reorganization value of the Company be allocated to its assets and liabilities in conformity with SFAS No. 141, “Business Combinations”. Such allocations have been reflected in the amounts included in Note 4 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K. Based on the consideration of many factors and various valuation methods, the Company and its financial advisors determined the reorganization value of the Company to be approximately $73.4 million, as described in the Modified Plan. The factors and valuation methodologies included the review of comparable company market valuations and the recent acquisition values of comparable company transactions as well as discounted cash flow models. The discounted cash flow models utilized projected free cash flows for four future years, with such projected free cash flows discounted at rates approximating the expected weighted average cost of capital (11.0% to 13.0%) plus the present value of the Company’s terminal value computed using comparable company exit multiples. Projected free cash flows were estimated based on projected cash flows from operations, adjusted for the effects of income taxes at an effective rate of 39.0%, estimated capital expenditures and estimated changes in working capital. The calculation of reorganization value of the Company was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic uncertainties. While the Company believes its judgments, estimates and valuation methodologies were reasonable, different assumptions could have materially changed the estimated reorganization value of the Company as of March 1, 2003.

Revenue Recognition:   Revenue from product sales is recognized when title and risks of ownership pass to the customer. This is generally on the date of shipment to the customer, or upon delivery to a place named by the customer, dependent upon contract terms and when collectibility is reasonably assured and pricing is fixed or determinable. Revenue includes amounts billed to customers for shipping and handling. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the same period that the revenue is recognized. Management bases its estimate of the expense to be recorded each period on historical returns and allowance levels. Management does not believe the likelihood is significant that materially higher deduction levels will result based on prior experience.

Accounts Receivable and Concentration of Credit Risks:   Accounts receivable potentially expose the Company to a concentration of credit risk, as defined by Statement of Financial Accounting Standards No. 105, “Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk.” The Company provides credit in the normal course of business and performs ongoing credit evaluations on its customers’ financial condition as deemed necessary, but generally does not require collateral to support such receivables. The Company also establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Also, in an effort to reduce its credit exposure to certain customers, as well as accelerate its cash flows, the Company, beginning in 2004, sold, on a non-recourse basis, certain of its receivables pursuant to factoring agreements. At December 31, 2005, a reserve of $9.6 million has been recorded as an allowance against trade accounts receivable. Management believes that the allowance is adequate to cover potential losses resulting from uncollectible accounts receivable and deductions resulting from sales returns and allowances. While the Company’s credit losses have historically been within its calculated estimates, it is possible that future losses could differ significantly from these estimates.

40

Convertible Securities:   The Company recorded the accretion of dividends on the PIK Preferred Shares based on the stated rate of 16.0%. If the Company’s Board of Directors, at the date of any dividend declaration, elected to satisfy the dividend obligation by payment-in-kind, the Company recognized an additional dividend charge for the excess, if any, of the fair value of the additional PIK Preferred Shares issued, at the dividend declaration date, over the amounts previously accrued at the stated rate. As the Company’s PIK Preferred Shares were not traded on an active market, determination of the fair value of the securities, at the date of dividend declaration, required estimates and judgments, which may have impacted the valuation of the dividend paid-in-kind. Based on the fact that the PIK Preferred Shares were deep-in-the money, the Company estimated the fair value of the PIK Preferred Shares using the number of shares of the Company’s Class A Common Stock into which the PIK Preferred Shares were convertible at the then-current share price of the Company’s Class A Common Stock. While the Company believes its estimates of the fair value of the PIK Preferred Shares are reasonable, the utilization of different assumptions could produce materially different fair value estimates.

Inventory Reserves:   The Company maintains reserves for inventories valued using the first in, first out (FIFO) method. Such reserves for inventories can be specific to certain inventory or general based on judgments about the overall condition of the inventory. General reserves are established based on percentage write-downs applied to inventories aged for certain time periods, or for inventories that are slow-moving. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value exceeds amounts to be recovered through the expected sales price of such inventories, less selling costs. Estimating sales prices, establishing markdown percentages and evaluating the condition of the inventories require judgments and estimates, which may impact the inventory valuation and gross profits. The actual amount of obsolete or unmarketable inventory has been materially consistent with previously established reserves. Management believes, based on its prior experience of managing and evaluating the recoverability of its slow moving or obsolete inventory, that such established reserves are materially adequate. If actual market conditions and product sales were less favorable than we have projected, additional inventory writedowns may be necessary.

Income Taxes:   The Company records an income tax valuation allowance when, based on the weight of the evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The ultimate realization of the deferred tax asset depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. In assessing the realization of the deferred tax assets, consideration is given to, among other factors, the trend of historical and projected future taxable income, the scheduled reversal of deferred tax liabilities, the carryforward period for net operating losses and tax credits, as well as tax planning strategies available to the Company. Additionally, the Company has not provided U.S. income taxes for undistributed earnings of certain foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgments, assumptions and estimates are required in assessing such factors and significant changes in such judgments and estimates may materially affect the carrying value of the valuation allowance and deferred income tax expense or benefit recognized in the Company’s Consolidated Financial Statements.

Impairment of Long-Lived Assets:   Long-lived assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Goodwill is reviewed annually. For assets held and used, an impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value measured by future discounted cash flows. The analysis, when conducted, requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with,

41

among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. In addition, future events impacting cash flows for existing assets could render a writedown necessary that previously required no writedown.

For assets held for disposal, an impairment charge is recognized if the carrying value of the assets exceeds the fair value less costs to sell. Estimates are required of fair value, disposal costs and the time period to dispose of the assets. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. Actual cash flows received or paid could differ from those used in estimating the impairment loss, which would impact the impairment charge ultimately recognized. As of December 31, 2005, based on the Company’s current operating performance, as well as future expectations for the business, the Company does not anticipate any material writedowns for long-lived asset impairments, including goodwill, in the foreseeable future. However, should current conditions deteriorate, this may impact our future cash flow estimates, resulting in an impairment charge that could have a material effect on the Company’s Consolidated Financial Statements.

Environmental

The Company is subject to a broad range of federal, foreign, state and local laws and regulations relating to the pollution and protection of the environment. The Company believes that it is currently in substantial compliance with applicable environmental requirements and does not currently anticipate any material adverse effect on its operations, financial or competitive position as a result of its efforts to comply with environmental requirements. Some risk of environmental liability is inherent, however, in the nature of the Company’s business and, accordingly, there can be no assurance that material environmental liabilities will not arise.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to market risks for changes in foreign currency rates and interest rates and has exposure to commodity price risks, including prices of its primary raw materials. The overall objective of the Company’s financial risk management program is to seek a reduction in the potential negative earnings impact of changes in interest rates, foreign exchange and raw material pricing arising in our business activities. The Company manages these financial exposures, where possible, through operational means and by using various financial instruments. These practices may change as economic conditions change.

Long-Term Debt and Interest Rate Market Risk

The Company’s long-term borrowings under the Credit Facility are variable interest rate debt. As such, the Company’s interest expense will increase as interest rates rise and decrease as interest rates fall. It is the Company’s policy to enter into interest rate derivative transactions only to meet its stated overall objective. The Company does not enter into these transactions for speculative purposes. To that end, as further described in Notes 11 and 16 to the Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K, the Company entered into an interest rate swap contract to effectively convert $212.5 million of its variable-rate debt to fixed-rate debt. The interest rate swap contract matures on May 8, 2007. Hypothetically, a 1% change in the interest rate affecting all of the Company’s financial instruments not protected by the interest rate swap contract would change interest expense by approximately $2.0 million.

The estimated fair value of the Company’s debt at December 31, 2005 was approximately $415.2 million, which approximated its carrying value.

42

Foreign Currency Exchange Rate Risk

The Company manufactures, markets and distributes certain of its products in Europe, Canada, Latin America and Asia. As a result, the Company’s financial statements could be significantly affected by factors such as changes in foreign currency rates in the foreign markets in which the Company maintains a manufacturing or distribution presence. However, such currency fluctuations have much less effect on local operating results because the Company, to a significant extent, sells its products within the countries in which they are manufactured. During 2005 and 2004, certain currencies of countries in which the Company conducts foreign currency denominated business moved significantly against the U.S. dollar and had a significant impact on sales and operating income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 to this Annual Report on Form 10-K.

The Company has not historically hedged its exposure to foreign currency risk, although it has mitigated its risk of currency losses on foreign monetary assets. Also, in most foreign operations, there is a natural currency hedge due to similar amounts of costs of materials and production as revenues in such local currencies. In addition, the Company, in May 2005, entered into foreign currency forward contracts to manage (effectively fixing) its U.S. dollar exposure on certain Euro-based obligations for firm commitments related to certain capital expenditure projects. The Company is also subject to political risk in certain of its foreign operations and has utilized insurance programs in certain circumstances to mitigate its political risk.

Raw Material and Commodity Risks

The primary raw materials used in the manufacture of most of the Company’s products are polypropylene resin, polyester fiber, polyethylene resin, and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas liquids. The Company has not historically hedged its exposure to raw material increases, but has attempted to move more customer programs to contracts with price escalation provisions which would allow the Company to pass-through any cost increases in raw materials, although there is often a delay between the time the Company is required to pay the increased raw material price and the time that the Company is able to pass the increase on to its customers. Raw material prices as a percentage of sales have increased from 48.6% in 2004 to 51.2% for 2005.

In August and September of 2005, Hurricanes Katrina and Rita hit the Gulf Coast area, temporarily shutting down a number of refineries and chemical processing sites of certain raw material suppliers for the Company’s North and South American operations. As a result, while supplies were tight in the fourth quarter of 2005, raw materials continued to be available to the Company, but at significantly higher prices. The Company, where allowable based on contract terms, has attempted to raise its selling prices to mitigate the sharp increase in raw materials. Raw material prices decreased slightly since late December 2005 as the refineries and chemical processing sites returned to more normal production levels, but there can be no assurance that the raw material prices will return to pre-hurricane levels due to other global economic factors.

To the extent the Company is not able to pass along price increases of raw materials, or to the extent any such price increases are delayed, the Company’s cost of goods sold would increase and its operating profit would correspondingly decrease. By way of example, if the price of polypropylene were to rise $.01 per pound, and the Company was not able to pass along any of such increase to its customers, the Company would realize a decrease of approximately $3.0 million, on an annualized basis, in its reported pre-tax operating income. Material increases in raw material prices that cannot be passed on to customers could have a material adverse effect on the Company’s results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 to this Annual Report on Form 10-K.

43

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Grant Thornton LLP, Independent Registered Public Accounting Firm	45
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm	46
Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005	47
Consolidated Statements of Operations for the fiscal years ended December 31, 2005 and January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003	48
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) for the fiscal years ended December 31, 2005 and January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003	49
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2005 and January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003	50
Notes to Consolidated Financial Statements for the fiscal years ended December 31, 2005 and January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003	51

44

Report of Grant Thornton LLP, Independent Registered Public Accounting Firm

Board of Directors and Shareholders of
Polymer Group, Inc.

We have audited the accompanying consolidated balance sheet of Polymer Group, Inc. (a Delaware corporation) as of December 31, 2005, and the related consolidated statements of operations, changes in shareholders’ equity and comprehensive income (loss) and cash flows for the fiscal year ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Polymer Group, Inc. as of December 31, 2005, and the results of its operations and its cash flows for the fiscal year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule titled “Schedule II—Valuation and Qualifying Accounts” is presented for purposes of additional analysis and is not a required part of the basic financial statements. The amounts on this schedule for the fiscal year ended December 31, 2005, have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Polymer Group, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ GRANT THORNTON LLP

Columbia, South Carolina
March 15, 2006

45

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Polymer Group, Inc.

We have audited the accompanying consolidated balance sheet of Polymer Group, Inc. as of January 1, 2005, and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income (loss), and cash flows for the year ended January 1, 2005, the ten months ended January 3, 2004, and the two months ended March 1, 2003 (Predecessor Company and date of reorganization for accounting purposes). Our audits also included the data related to the periods referenced in the preceding sentence included in the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Polymer Group, Inc. at January 1, 2005 and the consolidated results of their operations and their cash flows for the year ended January 1, 2005, the ten months ended January 3, 2004, and the two months ended March 1, 2003 (the Predecessor Company) in conformity with  accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As more fully described in Note 3 to the consolidated financial statements, effective March 5, 2003, the Company emerged from protection under Chapter 11 of the U.S. Bankruptcy Court pursuant to a Modified Reorganization Plan that was confirmed by the Bankruptcy Court on January 16, 2003. In accordance with AICPA Statement of Position 90-7, the Company adopted “fresh start” accounting whereby its assets, liabilities and new capital structure were adjusted to reflect estimated fair value at March 1, 2003 (the date of reorganization for accounting purposes). As a result, the consolidated financial statements for periods subsequent to March 1, 2003 reflect the Successor Company’s new basis of accounting and are not comparable to the Predecessor Company’s pre-reorganization consolidated financial statements.

/s/ Ernst & Young, LLP

Greenville, South Carolina
March 23, 2005

46

POLYMER GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

	December 31, 2005				January 1, 2005
A S S E T S
Current assets:
Cash and cash equivalents		$	30,963		$	41,296
Accounts receivable, net		120,668			113,491
Inventories		119,663			106,349
Deferred income taxes		4,364			226
Other current assets		23,094			37,140
Total current assets		298,752			298,502
Property, plant and equipment, net		421,997			402,603
Intangibles and loan acquisition costs, net		37,329			48,819
Deferred income taxes		433			1,489
Other assets		6,490			3,145
Total assets		$	765,001		$	754,558
L I A B I L I T I E S   A N D   S H A R E H O L D E R S’   E Q U I T Y
Current liabilities:
Short-term borrowings		$	5,101		$	6,981
Accounts payable		82,371			63,773
Accrued liabilities		32,235			34,570
Income taxes payable		1,456			2,427
Current portion of long-term debt		4,142			3,413
Total current liabilities		125,305			111,164
Long-term debt		405,955			403,560
Deferred income taxes		64,692			65,468
Other noncurrent liabilities		20,956			27,319
Total liabilities		616,908			607,511
Minority interests		16,611			14,912
16% Series A convertible pay-in-kind preferred shares—0 and 52,716 shares issued and outstanding at December 31, 2005 and January 1, 2005, respectively		—			58,286
Shareholders’ equity:
Class A common stock—18,868,607 and 10,130,477 shares issued and outstanding at December 31, 2005 and January 1, 2005, respectively		188			101
Class B convertible common stock—153,549 and 193,390 shares issued and outstanding at December 31, 2005 and January 1, 2005, respectively		2			2
Class C convertible common stock—31,131 and 54,194 shares issued and outstanding at December 31, 2005 and January 1, 2005, respectively		—			1
Class D convertible common stock—0 shares issued and outstanding		—			—
Class E convertible common stock—0 shares issued and outstanding		—			—
Additional paid-in capital		165,652			77,219
Retained earnings (deficit)		(54,820		)	(33,819		)
Accumulated other comprehensive income		20,460			30,345
Total shareholders’ equity		131,482			73,849
Total liabilities and shareholders’ equity		$	765,001		$	754,558

See accompanying notes, including Note 2 describing the Successor and Predecessor companies.

47

POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

	Successor												Predecessor
	Fiscal Year Ended December 31, 2005				Fiscal Year Ended January 1, 2005				Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Net sales		$	948,848			$	844,734			$	644,893			$	132,895
Cost of goods sold		787,369				691,272				531,390				111,110
Gross profit		161,479				153,462				113,503				21,785
Selling, general and administrative expenses		104,545				99,163				78,682				15,955
Asset impairment charges		—				2,253				1,207				—
Plant realignment costs		9				1,867				6,802				4
Foreign currency loss, net		671				2,027				2,773				1,343
Arbitration settlement, net		—				(13,112		)		—				—
Operating income		56,254				61,264				24,039				4,483
Other expense (income):
Interest expense, net (contractual interest of $20,306 for the two months ended March 1, 2003)		32,617				40,252				49,036				10,665
Investment gain, net		—				—				(3		)		(291		)
Minority interests		3,784				2,597				2,028				441
Write-off of loan acquisition costs		4,008				5,022				—				—
Foreign currency and other (gain) loss, net		(948		)		667				3,035				91
Reorganization items, (gain) loss:
Gain on cancellation of prepetition indebtedness		—				—				—				(619,913		)
Fresh start adjustments		—				—				—				47,460
Chapter 11 reorganization expenses		—				—				—				12,579
Other		—				—				—				19,395
Income (loss) before income tax expense		16,793				12,726				(30,057		)		534,056
Income tax expense		9,796				7,994				2,928				1,692
Net income (loss)		6,997				4,732				(32,985		)		532,364
Accrued and paid-in-kind dividends on PIK preferred shares		27,998				5,566				—				—
Income (loss) applicable to common shareholders		$	(21,001	)		$	(834	)		$	(32,985	)		$	532,364
Income (loss) per common share—Basic:
Average common shares outstanding		13,098				9,840				8,650				32,004
Income (loss) per common share		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63
Income (loss) per common share—Diluted:
Average common shares outstanding		13,098				9,840				8,650				32,004
Income (loss) per common share		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63

See accompanying notes, including Note 2 describing the Successor and Predecessor companies.

48

POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
For the Fiscal Years Ended December 31, 2005 and January 1, 2005,
the Ten Months Ended January 3, 2004 and the Two Months Ended March 1, 2003
(In Thousands)

														Accumulated
														Other
							Additional				Retained			Comprehensive
	Common Stock						Paid-in				Earnings			Income							Comprehensive
	Shares		Amount				Capital				(Deficit)			(Loss)				Total			Income (Loss)
Predecessor:
Balance—December 28, 2002	32,004			$	320			$	243,722		$	(661,572	)		$	(48,384	)	$	(465,914	)
Net loss, excluding effects of reorganization items				—				—			(8,115		)		—			(8,115		)		$	(8,115	)
Currency translation adjustments				—				—			—				6,784			6,784				6,784
Unrealized holding loss on marketable securities				—				—			—				(655		)	(655		)		(655		)
Minimum pension liability, net of tax				—				—			—				(460		)	(460		)		(460		)
Effect of reorganization items:
Cancellation of Predecessor stock	(32,004	)		(320		)		(243,722		)	—				—			(244,042		)		(244,042		)
Issuance of Successor stock	8,644			86				73,304										73,390				73,390
Other fresh start adjustments				—				—			669,687				42,715			712,402				712,402
Successor:
Balance—March 1, 2003	8,644			86				73,304			—				—			73,390				$	539,304
Net loss				—				—			(32,985		)		—			(32,985		)		$	(32,985	)
Issuance of Successor stock	9			—				—			—				—			—				—
Currency translation adjustments				—				—			—				18,795			18,795				18,795
Balance—January 3, 2004	8,653			86				73,304			(32,985		)		18,795			59,200				$	(14,190	)
Net income				—				—			4,732				—			4,732				$	4,732
Accrued dividends on PIK preferred shares				—				—			(5,566		)		—			(5,566		)		—
Cash flow hedge adjustment, net of reclassification adjustment				—				—			—				320			320				320
Compensation recognized on stock options and restricted stock grants				—				1,177			—				—			1,177				—
Class A and Class C common stock issued under order of United States Bankruptcy Court	1,347			14				(14		)	—				—			—				—
Conversion of junior notes to Class A common stock	378			4				2,752			—				—			2,756				—
Currency translation adjustments, net of tax				—				—			—				11,230			11,230				11,230
Balance—January 1, 2005	10,378			104				77,219			(33,819		)		30,345			73,849				$	16,282
Net income				—				—			6,997				—			6,997				$	6,997
Accrued and paid-in-kind dividends on PIK preferred shares				—				23,349			(27,998		)		—			(4,649		)		—
Cash flow hedge adjustment, net of reclassification adjustment				—				—			—				3,545			3,545				3,545
Compensation recognized on stock options and restricted stock grants				—				2,243			—				—			2,243				—
Conversion and redemption of PIK preferred shares to Class A common stock	8,629			86				62,841			—				—			62,927				—
Shares issued/sold	46			—				—			—				—			—				—
Minimum pension liability, net of tax				—				—			—				(1,592		)	(1,592		)		(1,592		)
Currency translation adjustments, net of tax				—				—			—				(11,838		)	(11,838		)		(11,838		)
Balance—December 31, 2005	19,053			$	190			$	165,652		$	(54,820	)		$	20,460		$	131,482			$	(2,888	)

See accompanying notes, including Note 2 describing the Successor and Predecessor companies.

49

POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

	Successor												Predecessor
	Fiscal Year Ended December 31, 2005				Fiscal Year Ended January 1, 2005				Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Operating activities:
Net income (loss)		$	6,997			$	4,732			$	(32,985	)		$	532,364
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Asset impairment charges		—				2,253				1,207				—
Investment and other gains		(1,298		)		(50		)		(3		)		(291		)
Cancellation of prepetition indebtedness		—				—				—				(619,913		)
Postretirement benefit curtailments and other, net		—				(3,558		)		—				—
Deferred income taxes		7,228				2,397				2,928				3,010
Fresh start adjustments		—				—				—				47,460
Write-off of loan acquisition costs		4,008				5,022				—				10,217
Depreciation and amortization		57,550				53,230				42,620				8,812
Noncash interest and compensation		2,243				2,936				3,717				—
Changes in operating assets and liabilities:
Accounts receivable, net		(11,632		)		5,136				2,752				(8,195		)
Inventories		(16,413		)		(6,954		)		17,703				(887		)
Other current assets		15,383				4,155				11,997				6,675
Accounts payable and accrued liabilities		16,767				440				(17,561		)		13,027
Other, net		(9,901		)		157				838				(5,180		)
Net cash provided by (used in) operating activities		70,932				69,896				33,213				(12,901		)
Investing activities:
Purchases of property, plant and equipment		(78,902		)		(24,791		)		(36,675		)		(3,062		)
Proceeds from sale of marketable securities		—				—				—				11,867
Proceeds from sale of assets		1,298				1,660				2,766				—
Other, net		—				(13		)		—				15
Net cash provided by (used in) investing activities		(77,604		)		(23,144		)		(33,909		)		8,820
Financing activities:
Proceeds from issuance of debt		471,824				486,396				16,718				535,310
Repayment of debt		(470,575		)		(502,158		)		(26,773		)		(549,031		)
Loan acquisition costs and other		(3,737		)		(12,371		)		(832		)		(948		)
Net cash used in financing activities		(2,488		)		(28,133		)		(10,887		)		(14,669		)
Effect of exchange rate changes on cash		(1,173		)		1,341				1,136				4,632
Net increase (decrease) in cash and cash equivalents		(10,333		)		19,960				(10,447		)		(14,118		)
Cash and cash equivalents at beginning of period		41,296				21,336				31,783				45,901
Cash and cash equivalents at end of period		$	30,963			$	41,296			$	21,336			$	31,783

See accompanying notes, including Note 2 describing the Successor and Predecessor companies.

50

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Principles of Consolidation

Polymer Group, Inc. (the “Company”) is a publicly-traded, multinational manufacturer, marketer and seller of nonwoven and oriented polyolefin products. The Company’s main sources of revenue are the sales of primary and intermediate products to the medical, hygiene, wipes, industrial and specialty markets.

The accompanying Consolidated Financial Statements include the accounts of Polymer Group, Inc. and all majority-owned subsidiaries after elimination of all significant intercompany accounts and transactions. The accounts of all foreign subsidiaries have been included on the basis of fiscal periods ended three months or less prior to the dates of the Consolidated Balance Sheets. All amounts are presented in U.S. dollars, unless otherwise noted.

Note 2. Accounting Policies and Financial Statement Information

Basis of Presentation

The Company, upon having its Modified Plan, as defined, (the “Modified Plan”) approved by the Bankruptcy Court on January 16, 2003, emerged from Chapter 11 bankruptcy proceedings effective March 5, 2003 (the “Effective Date”). For accounting purposes the Company recognized the emergence on March 1, 2003, which was the end of the February 2003 accounting period. The Company adopted “fresh-start accounting” as of March 1, 2003, and the Company’s emergence from Chapter 11 resulted in a new reporting entity. The reorganization value of the Company has been allocated to the underlying assets and liabilities based on their respective fair values at the date of emergence. References to “Predecessor” refer to the old Polymer Group and its subsidiaries on and prior to March 1, 2003 and references to “Successor” refer to Polymer Group and its subsidiaries as of and subsequent to March 2, 2003 after giving effect to the implementation of fresh-start accounting. Accordingly, in accordance with financial reporting requirements for companies emerging from Chapter 11, financial information for the twelve months ended January 3, 2004 is not presented in the Consolidated Financial Statements since such information would combine the results of the Predecessor and Successor.

In accordance with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” (“SOP 90-7”), prior to the Company’s emergence from Chapter 11 bankruptcy proceedings, revenues, expenses, realized gains and losses, and provisions for costs resulting from the reorganization are reported separately as reorganization items in the Consolidated Statements of Operations.

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal 2005 ended December 31, 2005 and included the results of operations for a fifty-two week period. Fiscal 2004 ended January 1, 2005 and included the results of operations for a fifty-two week period. Fiscal 2003 ended January 3, 2004 and included the results of operations for a fifty-three week period, which is comprised of a two month Predecessor period ended March 1, 2003 (9 weeks) and a ten month Successor period ended January 3, 2004 (44 weeks).

51

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reclassifications

Certain amounts previously presented in the Consolidated Financial Statements for prior periods have been reclassified to conform with the current year classification.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The reorganization value of the Company’s common equity of approximately $73.4 million at March 1, 2003, as further described in Note 4 to the Consolidated Financial Statements, was determined based on an independent valuation by financial specialists after consideration of multiple factors and by using various valuation methodologies and evaluating other relevant industry information. The reorganization value of the Company was allocated to the various assets and liabilities based on their respective fair values pursuant to fresh start accounting principles. The calculated reorganization value of the Company was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic uncertainties.

An allowance for doubtful accounts is established by the Company based upon factors surrounding the credit risk of specific customers, historical trends and other information. Management believes that the allowance is adequate to cover potential losses resulting from uncollectible accounts. Additionally, sales returns and allowances, a component of net sales, are recorded in the period in which the related sales are recorded. Management bases its estimate of the expense to be recorded each period on historical return and allowance levels.

The Company maintains reserves for inventories valued primarily using the first in, first out (“FIFO”) method. Such reserves for inventories can be specific to certain inventory or general based on judgments about the overall condition of the inventory. General reserves are established based on percentage write-downs applied to inventories aged for certain time periods or for inventories which are considered slow-moving. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value exceeds amounts to be recovered through expected sales price, less selling costs. Estimating sales prices, establishing write-down percentages and evaluating the condition of the inventories require judgments and estimates, which may impact the inventory valuation and gross profits.

Long-lived assets, excluding goodwill, which is reviewed annually, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. For assets held and used, an impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value measured by future discounted cash flows. The analysis, when conducted, requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary.

52

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In addition, future events impacting cash flows for existing assets could render a writedown necessary that previously required no writedown.

For assets held for disposal, an impairment charge is recognized if the carrying value of the assets exceeds the fair value less costs to sell. Estimates are required of fair value, disposal costs and the time period to dispose of the assets. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. Actual cash flows received could differ from those used in estimating the impairment loss, which would impact the impairment charge ultimately recognized.

The Company recorded the accretion of dividends on the 16% Series A Convertible Pay-in-kind Preferred Shares (the “PIK Preferred Shares”) based on the stated rate of 16.0% in the PIK Preferred Shares. If the Company’s Board of Directors, at the date of any dividend declaration, elected to satisfy the dividend obligation by payment-in-kind, the Company recognized an additional dividend charge for the excess, if any, of the fair value of the additional PIK Preferred Shares issued, at the dividend declaration date, over the amounts previously accrued at the stated rate. As the Company’s PIK Preferred Shares are not traded on an active market, determination of the fair value of the securities, at the date of dividend declaration, required estimates and judgments, which may have impacted the valuation of the dividends paid-in-kind. Based on the fact that the PIK Preferred Shares were deep-in-the money, the Company estimated the fair value of the PIK Preferred Shares using the number of shares of the Company’s Class A Common Stock into which the PIK Preferred Shares were convertible at the then-current share price of the Company’s Class A Common Stock. While the Company believes its estimates of the fair value of the PIK Preferred Shares are reasonable, the utilization of different assumptions could produce materially different fair value estimates.

The Company has pension and postretirement plans with costs and obligations which are dependent on assumptions used by actuaries in calculating such amounts. These assumptions include discount rates, inflation rates, salary growth percentages, long-term return on plan assets, retirement rates, mortality rates and other factors. While the Company believes that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect its pension and postretirement costs and obligations.

The Company has estimated the fair values of financial instruments as required by Statement of Financial Accounting Standards (“SFAS”) No. 107, “Disclosures about Fair Value of Financial Instruments,” using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value for non-traded financial instruments. Accordingly, such estimates are not necessarily indicative of the amounts that the Company would realize in a current market exchange. The carrying amount of cash and cash equivalents, accounts receivable, inventories, other current assets and accounts payable and accrued liabilities are reasonable estimates of their fair values. Fair value of the Company’s debt was estimated using interest rates at those dates for issuance of such financial instruments with similar terms and credit ratings and remaining maturities and other independent valuation methodologies. The estimated fair value of debt, based on appropriate valuation methodologies, at December 31, 2005 and January 1, 2005 was $415.2 million and $414.0 million, respectively.

During fiscal 2005, the estimated useful lives of certain machinery and equipment utilized in the Company’s operations were reduced to reflect the technological status and market conditions of certain aspects of the Company’s business. These changes in estimates resulted in increased depreciation charges of $3.4 million for the year ended December 31, 2005.

53

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue Recognition

Revenue from product sales is recognized when title and risks of ownership pass to the customer. This is generally on the date of shipment to the customer, or upon delivery to a place named by the customer, dependent upon contract terms and when collectibility is reasonably assured and pricing is fixed or determinable. Revenue includes amounts billed to customers for shipping and handling. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the same period that the revenue is recognized.

Cash Equivalents

Cash equivalents are defined as short-term investments having an original maturity of three months or less. Interest income is presented as a reduction of Interest expense, net in the accompanying Consolidated Statements of Operations and consists primarily of income from highly liquid investment sources. Interest income approximated $1.0 million, $0.2 million and $0.7 million during 2005, 2004 and 2003, respectively.

Accounts Receivable and Concentration of Credit Risks

Accounts receivable potentially expose the Company to a concentration of credit risk, as defined by SFAS No. 105, “Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk.” The Company provides credit in the normal course of business and performs ongoing credit evaluations on its customers’ financial condition, as deemed necessary, but generally does not require collateral to support such receivables. Customer balances are considered past due based on contractual terms and the Company does not accrue interest on the past due balances. Also, in an effort to reduce its credit exposure to certain customers, as well as accelerate its cash flows, the Company has sold on a non-recourse basis, certain of its receivables pursuant to factoring agreements entered into during fiscal years 2004 and 2005. The provision for losses on uncollectible accounts is determined principally on the basis of past collection experience applied to ongoing evaluations of our receivables and evaluations of the risk of repayment. The allowance for doubtful accounts was approximately $9.6 million and $9.7 million at December 31, 2005 and January 1, 2005, respectively, which management believes is adequate to provide for credit losses in the normal course of business, as well as losses for customers who have filed for protection under bankruptcy laws. Once management determines that the receivables are not recoverable, the amounts are removed from the financial records along with the corresponding reserve balance. In 2005, 2004 and 2003, The Procter & Gamble Company (“P&G”) accounted for 14%, 12% and 13%, respectively, of the Company’s net sales.

Inventories

Inventories are stated at the lower of cost or market primarily using the FIFO method of accounting.

Long-Lived Assets

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed for financial reporting purposes on the straight-line method over the estimated useful lives of the related assets. The estimated useful lives established for building and improvements range from 18 to 31 years, and the estimated useful lives established for machinery, equipment and other fixed

54

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

assets range from 2 to 15 years. Costs of repairs and maintenance are charged to expense as incurred. Costs of the construction of certain long-term assets include capitalized interest that is amortized over the estimated useful life of the related asset. The Company capitalized approximately $2.2 million, $0.4 million and $0.8 million of interest costs during 2005, 2004 and 2003, respectively.

SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) provides that amortization of goodwill and indefinite-lived assets is no longer permitted. SFAS No. 142 requires that these assets be reviewed for impairment upon adoption and annually thereafter, unless special circumstances indicate that a more timely review is warranted.

Derivatives

The Company records all derivative instruments as either assets or liabilities on the balance sheet at their fair value in accordance with SFAS No. 133, “Accounting for Derivative Financial Instruments and Hedging Activities”, as amended (“SFAS No. 133”). Changes in the fair value of a derivative are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. Ineffective portions, if any, of all hedges are recognized in current period earnings.

As more fully described in Note 16 to the Consolidated Financial Statements, the Company, in the normal course of business, periodically enters into derivative financial instruments, principally swaps and forward contracts, with high-quality counterparties as part of its risk management strategy. These financial instruments are limited to non-trading purposes and are used principally to manage market risks and reduce the Company’s exposure to fluctuations in foreign currency and interest rates. Most interest rate swaps and foreign exchange forward contracts are designated as cash flow hedges of variable rate debt obligations or fair value hedges of foreign currency-denominated transactions.

The Company documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions and the methodologies that will be used for measuring effectiveness and ineffectiveness. This process includes linking all derivatives that are designated as cash flow or fair value hedges to specific assets and liabilities on the balance sheet or to specific firm commitments. The Company then assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are expected to be highly effective in offsetting changes in fair values or cash flows of hedged items. Such assessments are conducted in accordance with the originally documented risk management strategy and methodology for that particular hedging relationship.

For cash flow hedges, the effective portion of recognized derivative gains and losses reclassified from other comprehensive income is classified consistent with the classification of the hedged item. For example, derivative gains and losses associated with hedges of interest rate payments are recognized in Interest expense, net in the Consolidated Statements of Operations.

For fair value hedges, changes in the value of the derivatives, along with the offsetting changes in the fair value of the underlying hedged exposure are recorded in earnings each period in Foreign currency and other (gain) loss, net in the Consolidated Statements of Operations.

Income Taxes

The provision for income taxes and corresponding balance sheet accounts are determined in accordance with the liability method. Tax provisions and credits are recorded at statutory rates for

55

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

taxable items included in the Consolidated Statements of Operations regardless of the period for which such items are reported for tax purposes. Additionally, federal income taxes are provided on that portion of the income of foreign subsidiaries that is expected to be remitted to the United States (“U.S.”) and be taxable. Deferred tax liabilities and assets are determined based upon temporary differences between the basis of certain assets and liabilities for income tax and financial reporting purposes. A valuation allowance is established when it is more likely than not that some portion of a deferred tax asset will not be realized in the future. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether a change in circumstances has occurred to provide enough evidence to support a change in the judgment about the realization of the related deferred tax asset in future years.

Implementation of the Modified Plan, as further described in Note 3 to the Consolidated Financial Statements, resulted in the Company recognizing cancellation of indebtedness income (“CODI”) in the two month period ended March 1, 2003. All of the CODI was excluded from taxable income. However, at January 4, 2004 the Company has reduced certain of its tax attributes by an amount not exceeding the CODI it realized. In general, tax attributes have been reduced at the close of the 2003 tax year in the following order: (i) net operating loss carryforwards; (ii) general business credits and capital loss carryforwards; and (iii) tax basis in assets.

Stock-Based Compensation

The Company has elected to account for stock-based compensation related to its employee stock option plan in accordance with the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). For options that vest based on the achievement of certain performance criteria, compensation cost is measured as the amount by which the quoted market value of the shares of the Company’s stock covered by the grant exceeds the option price that the employee must pay to acquire the stock and such compensation cost is charged to expense over the period of employee service.

On December 16, 2004, the FASB issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” The revision, entitled SFAS No. 123R, “Share-Based Payment,” (“SFAS No. 123R”) is effective for all awards granted, modified, repurchased or canceled after June 15, 2005 and requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The grant date fair value is to be estimated using option-pricing models adjusted for the unique characteristics of those instruments. In calculating the impact for options granted, the Company has estimated the fair value of each option grant (225,313 options awarded in 2003 and 174,687 awarded in 2005) by using the Black-Scholes option-pricing model. Assumptions are evaluated and revised, as necessary, to reflect market conditions and experience and included the following: expected dividend yield of 0%; expected volatility of 37%; risk-free interest rate of 3.2%-3.9%; and weighted average expected lives of five years. Had compensation cost been determined based on the fair value-based method, the

56

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company’s net income (loss), income (loss) applicable to common shareholders and income (loss) per share would have changed to the pro forma amounts indicated below (in thousands, except per share data):

	Successor										Predecessor
	2005			2004			Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Net income (loss):
As reported	$	6,997		$	4,732			$	(32,985	)		$	532,364
Add: stock-based employee compensation expense included in reported net income (loss)	2,202			614				—				—
Deduct: stock-based employee compensation expense determined under SFAS No. 123	(975		)	(192		)		—				—
Pro forma	$	8,224		$	5,154			$	(32,985	)		$	532,364
Income (loss) applicable to common shareholders:
As reported	$	(21,001	)	$	(834	)		$	(32,985	)		$	532,364
Add: stock-based employee compensation expense included in reported net income (loss)	2,202			614				—				—
Deduct: stock-based employee compensation expense determined under SFAS No. 123	(975		)	(192		)		—				—
Pro forma	$	(19,774	)	$	(412	)		$	(32,985	)		$	532,364
Income (loss) per share applicable to common shareholders—basic:
As reported	$	(1.60	)	$	(0.09	)		$	(3.81	)		$	16.63
Pro forma	(1.51		)	(0.04		)		(3.81		)		16.63
Income (loss) per share applicable to common shareholders—diluted:
As reported	$	(1.60	)	$	(0.09	)		$	(3.81	)		$	16.63
Pro forma	(1.51		)	(0.04		)		(3.81		)		16.63
Weighted average exercise price per option granted.	$	6.00		$	6.00			$	6.00			$	—
Weighted average fair value per option granted	$	17.95		$	3.41			$	6.00			$	—

The U.S. stock-based compensation expense has not been tax-effected due to continuing tax losses in the U.S. and the recognition of a valuation allowance against the entire balance of U.S. net deferred tax assets.

The initial vesting period for stock options issued under the 2003 Stock Option Plan started January 4, 2004; accordingly, no pro forma compensation expense has been reflected with respect to fiscal 2003. All stock options previously awarded under the stock option plans of the Predecessor were canceled as part of the Company’s emergence from Chapter 11.

57

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In April 2005, the Securities and Exchange Commission issued a final rule that registrants must adopt SFAS No. 123R’s fair value method of accounting no later than the beginning of the fiscal year beginning after June 15, 2005. The Company will adopt SFAS No. 123R in the first quarter of fiscal 2006, using the modified prospective transition method. Under the modified prospective transition method, all new grants and any unvested portion of prior awards will be measured based on the fair-value-based method of accounting. The impact of adopting SFAS No. 123R is expected to be consistent with the impact in the pro forma disclosures in the table above, resulting in lower compensation costs than previously recognized under the Company’s historically used accounting principles.

Research and Development Costs

The cost of research and development is charged to expense as incurred and is included in Selling, general and administrative expense in the Consolidated Statements of Operations. The Company incurred approximately $11.5 million, $11.2 million, $9.9 million and $2.5 million of research and development expense during fiscal year 2005, fiscal year 2004, the ten months ended January 3, 2004 and the two months ended March 1, 2003, respectively.

Shipping and Handling Costs

Shipping and handling costs include costs to store goods prior to shipment, prepare goods for shipment and physically move goods from the Company’s sites to the customers’ premises. The cost of shipping and handling is charged to expense as incurred and is included in Selling, general and administrative expense in the Consolidated Statements of Operations. The Company incurred $24.7 million, $23.4 million, $17.3 million and $3.7 million of shipping and handling costs during fiscal year 2005, fiscal year 2004, the ten months ended January 3, 2004 and the two months ended March 1, 2003, respectively.

Foreign Currency Translation

The Company accounts for, and reports, translation of foreign currency transactions and foreign currency financial statements in accordance with SFAS No. 52, “Foreign Currency Translation.” All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at period-end exchange rates, while income, expenses and cash flows are translated at average exchange rates during the period. Translation gains and losses are not included in determining net income, but are presented as a separate component of accumulated other comprehensive income (loss). In addition, foreign currency transaction gains and losses are included in the determination of net income (loss).

Comprehensive Income (Loss)

Comprehensive income (loss) is reported in accordance with the SFAS No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”). SFAS No. 130 requires unrealized gains or losses on the Company’s available for sale securities, foreign currency translation adjustments and minimum pension liabilities which, prior to its adoption, were reported separately in shareholders’ equity, to be included in other comprehensive income. Accumulated other comprehensive income of $20.5 million at December 31, 2005 consisted of $18.2 million of currency translation gains, $1.6 million of minimum pension liability and $3.9 million in cash flow hedge gains, all net of tax. Accumulated other comprehensive income of $30.3 million at January 1, 2005 consisted of $30.0 million of currency

58

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

translation gains and $0.3 million in cash flow hedge gains, all net of tax. With respect to the aforementioned changes in the components of accumulated other comprehensive income during fiscal 2005, the Company reduced its net deferred tax liability by approximately $6.2 million.

Income (Loss) Per Common Share

Basic earnings per share exclude any dilutive effects of options and convertible securities and are computed by dividing income (loss) applicable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution from common shares potentially issuable through stock options, convertible notes and PIK Preferred Shares and is computed by dividing income (loss) applicable to common shareholders, as adjusted for the effects of the conversion to common stock, by the weighted-average number of common and common equivalent shares outstanding for the period. Shares under option represent common equivalent shares if the average market price for the reporting period exceeds the strike price of the option. A reconciliation of the amounts included in the computation of income (loss) per share for fiscal 2005, 2004 and 2003 is presented in the following table (in thousands):

	Successor										Predecessor
	2005			2004			Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Income (loss):
Net income (loss)	$	6,997		$	4,732			$	(32,985	)		$	532,364
Less: dividends on PIK Preferred Shares	27,998			5,566				—				—
Income (loss) applicable to common shareholders	(21,001		)	(834		)		(32,985		)		532,364
Effect of dilutive securities—convertible notes, PIK Preferred Shares and stock options	—			—				—				—
Income (loss) applicable to common shareholders with assumed conversions	$	(21,001	)	$	(834	)		$	(32,985	)		$	532,364
Outstanding shares:
Weighted average common shares outstanding	13,098			9,840				8,650				32,004
Effect of dilutive securities—convertible notes, PIK Preferred Shares and stock options	—			—				—				—
Weighted average common shares outstanding—assuming dilution	13,098			9,840				8,650				32,004

For fiscal year 2005, fiscal year 2004 and the ten months ended January 3, 2004, the effect of potentially dilutive securities such as convertible notes, PIK Preferred Shares and stock options are not considered in the above table as the effects are anti-dilutive. As of December 31, 2005, the potential dilutive effect related to the exchange of stock options to Class A Common Stock of the Company would amount to 117,369 shares.

Recent Accounting Standards

In May 2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”). FSP 106-2 permits a sponsor of a postretirement health care plan that provides a

59

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which was signed into law on December 8, 2003. The Act introduced a prescription drug benefit under Medicare and federal subsidies to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to that of Medicare. As permitted under FSP 106-2, the Company made a one-time election to defer accounting for the effect of the Act and as more fully explained in Note 13 to the Consolidated Financial Statements, in December 2004 the Company approved plan amendments curtailing or eliminating various postretirement benefits in the U.S. As a result, the amounts included in the Consolidated Financial Statements related to the Company’s postretirement benefit plans appropriately do not reflect the effects of the Act.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (“SFAS No. 151”). This statement amends earlier guidance to require that abnormal freight, handling and spoilage costs be recognized as current-period charges rather than capitalized as an inventory cost. In addition, SFAS No. 151 requires that the allocation of fixed production overhead costs be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal year 2006. The Company has completed its evaluation of the impact that the adoption of SFAS No. 151 could have and has concluded that such impact will not be significant to its financial position or results of operations.

In December 2004, the FASB issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” The revision, entitled SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), is effective for all awards granted, modified, repurchased or canceled after June 15, 2005 and requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The grant date fair value is to be estimated using option-pricing models adjusted for the unique characteristics of those instruments. In April 2005, the Securities and Exchange Commission issued a final rule that registrants must adopt SFAS No. 123R’s fair value method of accounting no later than the beginning of the fiscal year beginning after June 15, 2005. Accordingly, the Company will adopt SFAS No. 123R in the first quarter of fiscal year 2006, using the modified prospective transition method. Under the modified prospective transition method, all new grants and any unvested portion of prior awards will be measured based on the fair-value-based method of accounting. The impact of adopting SFAS No. 123R will be consistent with the impact in the pro forma disclosure presented earlier in this note, resulting in lower compensation costs than previously recognized under the Company’s historically used accounting principles.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS No. 154”). This statement amends earlier guidance and requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable to determine either the period-specific effects or the cumulative effects of the change. In addition, SFAS No. 154 requires that a change in the method of depreciation or amortization for a long-lived, non-financial asset be accounted for as a change in accounting estimate that is affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the new guidance to have a significant impact on its financial position or results of operations.

60

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 3. Chapter 11 Proceedings and Recapitalization

Description of Chapter 11 Proceedings and Financial Restructuring

Due to the financial impact of economic and business factors upon the Company’s business, the inability to complete asset dispositions on acceptable terms and the expiration of the waiver with respect to the failure to meet the leverage covenant, the Company was in default under the Prepetition Credit Facility (as defined herein) as of December 29, 2001. Because of this default, the lenders under the Prepetition Credit Facility (the “Senior Secured Lenders”) exercised their right to block the payment of interest due on January 2, 2002 to the holders of the 9% Senior Subordinated Notes due 2007. These Lenders subsequently blocked the interest payment due on March 1, 2002 to the holders of 8 3¤4% Senior Subordinated Notes due 2008. On December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement with the Senior Secured Lenders (the “Forbearance Agreement”). The Senior Secured Lenders agreed not to exercise certain remedies available to them under the Prepetition Credit Facility as a result of the existing covenant defaults during the forbearance period. If certain events were to occur, the Senior Secured Lenders would have been able to exercise their remedies available to them, which included the right to declare all amounts outstanding under the Prepetition Credit Facility immediately due and payable. The Forbearance Agreement, as extended on March 15, 2002, was scheduled to end on May 15, 2002 and prevented the Company from making any additional borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of December 30, 2001. With the Company unable to reduce amounts outstanding under the prepetition credit facility through asset dispositions on acceptable terms, the Company ultimately entered into a recapitalization transaction with MatlinPatterson Global Opportunities Partners L.P. (f/k/a CSFB Global Opportunities Investment Partners, L.P.) (“GOF”), the holder of approximately 67% of the outstanding Senior Subordinated Notes (as defined herein) and executed a term sheet with GOF on March 15, 2002, setting forth the proposed terms of a recapitalization plan, including a financial restructuring.

The material elements of the financial restructuring included: (i) GOF contributing $50 million in cash and $394.4 million of the Senior Subordinated Notes then owned by GOF (including accrued, but unpaid interest) and agreeing to provide a $25 million letter of credit in favor of the Senior Secured Lenders under an amended credit facility, all in exchange for approximately 22.4 million newly issued shares of common stock of the Company (after taking into account a 1-for-10 reverse common stock split), representing 87.5% ownership of the Company; (ii) the holders of at least 95% of the aggregate principal amount of the Senior Subordinated Notes not owned by GOF exchanging their notes for either new senior subordinated notes or new senior subordinated discount notes; and (iii) the Company entering into an amended credit facility with its Senior Secured Lenders (collectively, the “Exchange Offer”).

On March 25, 2002, during the pendency of the Exchange Offer, without any prior notice, a group of creditors (the “Petitioning Creditors”) holding approximately $41.3 million of the Company’s outstanding Senior Subordinated Notes filed an involuntary bankruptcy petition (the “Involuntary Petition”) against the Company in the United States Bankruptcy Court for the District of South Carolina (the “South Carolina Bankruptcy Court”). On April 2, 2002, the Company reached an agreement (the “Dismissal Agreement”) with the Petitioning Creditors, which provided for the South Carolina Bankruptcy Court to dismiss the involuntary petition (the “Dismissal Order”) subject to a twenty-day period during which parties-in-interest could object to that dismissal. The twenty-day period commenced on April 5, 2002, the day on which notice of the dismissal was published in the national

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

edition of the Wall Street Journal. On April 26, 2002, the South Carolina Bankruptcy Court entered the Dismissal Order.

The Dismissal Agreement also provided that the Company would seek an amendment of the Prepetition Credit Facility to permit it to file a voluntary petition for one of its wholly owned, South Carolina-registered subsidiaries in the South Carolina Bankruptcy Court. Pursuant to Amendment No. 7, dated as of April 4, 2002, the Senior Secured Lenders agreed to amend the Prepetition Credit Facility to permit this filing. On April 23, 2002, the Debtors filed a voluntary petition for Bonlam (S.C.), Inc. (“Bonlam (S.C.)”), in the South Carolina Bankruptcy Court. The Dismissal Agreement further provided that the Company would extend the expiration of the Exchange Offer through May 15, 2002. The Company and GOF also agreed to forbear through, and including, May 15, 2002, from implementing any modifications to the Senior Subordinated Notes and the indentures governing them. The Petitioning Creditors agreed to forbear through and including, May 12, 2002 (the “Forbearance Period”), from exercising any and all remedies under the applicable indentures, the Senior Subordinated Notes or any applicable law, including any filing of an involuntary petition against any of the Debtors. During the Forbearance Period, the Company agreed (i) not to file a voluntary petition for relief under the Bankruptcy Code in a jurisdiction other than Columbia, South Carolina, and (ii) to contest any involuntary petition under the Bankruptcy Code filed in any such other jurisdiction, in each case, without the prior written consent of the Petitioning Creditors. GOF and the Petitioning Creditors agreed not to file an involuntary petition against the Company in any venue other than the South Carolina Bankruptcy Court.

The Company, GOF and the Petitioning Creditors intended that the Dismissal Agreement would provide a framework for the Company and other parties, including the Petitioning Creditors, to continue to negotiate the terms of a potential restructuring of the Company through May 12, 2002. Given that negotiations were not reaching an agreement and given the fact that the uncertainty created by the Involuntary Petition was causing further deterioration in the Company’s businesses, the Company determined that it was in the best interest of its creditors and other constituencies to seek the protections afforded by filing voluntary petitions for protection under Chapter 11 of the United States Code (the “Bankruptcy Code”). Accordingly, on May 11, 2002 (the “Filing Date” or “Petition Date”), the Company and each of its domestic subsidiaries (together with the Company, the “Debtors”) filed voluntary petitions for “pre-negotiated” reorganization (the “Chapter 11 Filings” or the “Filings”) under the Bankruptcy Code in the South Carolina Bankruptcy Court. The Chapter 11 Filings were being jointly administered for procedural purposes only. The Company’s direct and indirect foreign subsidiaries and foreign joint venture entities did not file petitions under Chapter 11 and were not the subject of any bankruptcy proceedings. To facilitate stabilizing operations during the Chapter 11 Filings, the Debtors secured a $125 million commitment (the “Commitment”) for debtor-in-possession financing (the “DIP Facility”) from a group of financial institutions, some of which were Senior Secured Lenders (the “DIP Lenders”) that provided the Debtors sufficient liquidity to operate during the Chapter 11 Filings. With the requisite approval from a substantial majority of the Senior Lenders (the “Supporting Senior Lenders”) to restructure the Prepetition Credit Facility and the execution of the Support Agreement, dated as of May 10, 2002, with GOF, pursuant to which GOF agreed to support a joint plan of reorganization, the Debtors agreed to file by May 24, 2002, a Chapter 11 plan of reorganization (the “Plan”) and disclosure statement that were consistent with the term sheets agreed upon with each of the Supporting Senior Secured Lenders and GOF. Beginning on May 23, 2002 and on other subsequent dates, GOF agreed to extend the deadline for filing such Plan and disclosure statement until June 14, 2002.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On June 14, 2002, the Company filed the Plan with the South Carolina Bankruptcy Court. The Plan generally proposed (i) the restructuring of the Prepetition Credit Facility, including a $50 million principal reduction, (ii) the retirement of in excess of $591.5 million of the Debtors’ obligations under the Senior Subordinated Notes, in exchange for the right of the holders of such Notes to receive either (x) their pro rata share of 100% of the newly issued Class A Common Stock of the reorganized Company prior to the conversion of the preferred stock or new senior notes, each referred to below (which would be diluted by any conversion of the New Preferred Stock), (y) for each $1,000 in principal of Senior Subordinated Notes held, $120 in principal of new Junior Subordinated Notes bearing interest at 11% payable in cash or (z) for each $1,000 in principal amount of existing Senior Subordinated Notes held, $150 in principal amount of New Junior Subordinated PIK Notes, with interest at 7.5% payable in kind (“PIK”) and 3.5% payable in cash, (iii) no impairment of the Debtors’ other unsecured creditors, (iv) a $50 million investment by GOF and eligible electing holders of Senior Subordinated Notes in exchange for convertible preferred stock convertible into 44% of the newly issued common stock of the reorganized Company (after giving effect to the conversion thereof and excluding PIK dividends thereon) (the “New Preferred Stock”), (v) the issuance by GOF and eligible electing holders of Senior Subordinated Notes of a $25 million letter of credit to secure the Debtors’ proposed amortization payments to the Senior Lenders (which if drawn, would be evidenced by New Senior Subordinated Notes) and (vi) the retention by existing shareholders of 100% of the newly issued Class B Common Stock (which would not be diluted by any conversion of the New Preferred Stock) and certain warrants for up to an additional 9.5% of the reorganized Company’s common stock, as of the effective date of reorganization (which would be subject to dilution by conversion of the New Preferred Stock), exercisable at specified value targets for the Company. In connection with the new investment, GOF had agreed to act as a standby purchaser to ensure that all of the shares of New Preferred Stock offered by the Company were purchased and that the new investment generated gross proceeds of $50.0 million in cash and resulted in $25.0 million of exit letters of credit in place. The Company was to pay GOF a fee of $0.5 million for acting as standby purchaser in connection with the new investment.

At a hearing, which took place on August 15, 2002, and concluded on August 20, 2002, the South Carolina Bankruptcy Court approved the Company’s Disclosure Statement relating to a Plan of Reorganization, as amended, and filed on August 21, 2002. Because the committee of unsecured creditors objected to the Plan, the Plan was not confirmed and thus the Company filed the Modified Plan as more fully disclosed in “Description of Modified Plan,” below.

Description of Modified Plan

On November 27, 2002, the Company filed the Joint Amended Modified Plan of Reorganization with the South Carolina Bankruptcy Court, with respect to its Chapter 11 plan of reorganization. The Modified Plan consisted of: (i) the restructuring of the Prepetition Credit Facility, including a payment (the “Secured Lender Payment”) of $50.0 million on the Effective Date to the agent for the benefit of the Senior Secured Lenders under the Prepetition Credit Facility, which Secured Lender Payment was exclusive of the proceeds (the “Chicopee Sale Proceeds”) of the sale of the South Brunswick facility owned by Chicopee, Inc., (ii) payment of 100% of the Chicopee Sale Proceeds to the agent for the benefit of the Senior Secured Lenders, (iii) a minimum $5.0 million additional prepayment out of existing cash-on-hand, (iv) the retirement of $587.4 million of the Debtors’ obligations under the Senior Subordinated Notes, wherein each Holder of the Senior Subordinated Notes and other general unsecured creditors (other than claims of certain vendors who supplied goods and services to the

63

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Debtors during the bankruptcy and with whom the Debtors intended to do business after emerging from bankruptcy (“Critical Vendor Claims”) and claims held by non-debtor subsidiaries of the Company (“Intercompany Claims”) (together constituting the “Class 4 Claims”) had the right to receive on, or as soon as practicable after the Effective Date, (x) its pro rata share of Class A Common Stock in exchange for each $1,000 of its allowed claim or (y) at the election of each holder who was a Qualified Institutional Buyer (as defined in the Modified Plan and the 1933 Securities Act), its pro rata share of Class C Common Stock, (v) the Critical Vendor Claims and Intercompany Claims were not impaired, (vi) each holder of an allowed Class 4 Claim that elected to receive Class A Common Stock was given the option to take part in the new investment in the Convertible Notes (the “New Investment”) by choosing to exercise its subscription rights (the “Subscription Rights”) thereto, which New Investment of $50 million was made in exchange for 10% subordinated convertible notes due 2006 (the “Convertible Notes”), (vii) GOF issued, or caused to be issued, letters of credit in the aggregated amount of $25 million (the “Exit Letters of Credit”) in favor of the agent under the Restructured Credit Facilities pursuant to a bank term sheet, for which GOF was entitled to 10% senior subordinated notes due 2007 (the “New Senior Subordinated Notes”) equal to the amount (if any) drawn against the Exit Letters of Credit (plus any advances made by GOF solely in lieu of drawings under the Exit Letters of Credit), (viii) holders of the Company’s existing common stock (“Old Polymer Common Stock”) received 100% of the Class B Common Stock (which would not be diluted by any conversions of the Convertible Notes) in exchange for their Old Polymer Common Stock interests; such Holders also received pro rata shares of the new Series A and Series B Warrants (as discussed below).

Under the Modified Plan, all common stock of the reorganized Company (the “New Polymer Common Stock”) was the same class (the “Class A Common Stock”), with the exception of (i) separate classes (the “Class D Common Stock” and “Class E Common Stock”) to be issued upon exercise of the Series A and Series B Warrants (as defined below), (ii) the 4% of New Polymer Common Stock designated as “Class B Common Stock” issued to the holders of Old Polymer Common Stock, and (iii) a small percentage (the “Class C Common Stock”) issued to holders of Class 4 Claims, who contributed such stock to the SPE. The Class C Common Stock shall pay a dividend payable equal to the lesser of (i) 1% per annum of the principal amount of the promissory notes issued by the SPE or (ii) $1.0 million per annum. Shares of New Polymer Common Stock (other than Class A Common Stock) are convertible into shares of Class A Common Stock on a one-for-one basis.

The holders of Old Polymer Common Stock received two series of warrants, the Series A Warrants and Series B Warrants, which have (i) customary adjustments for stock splits, stock dividends, and consolidations, (ii) specified anti-dilution protection for sales of securities by the reorganized Company (“New Polymer”) at a price below the fair market value of such securities if offered to all New Polymer common stock holders and (iii) specified anti-dilution protection for sales of securities by New Polymer at a discount that exceeds 25% of the fair market value of such securities and which will not terminate upon a transaction with GOF or an affiliate of GOF. Except as set forth in the preceding sentence, the Series A and Series B Warrants do not have anti-dilution provisions. In addition, the cash dividend payment by New Polymer described above in connection with the Class C Common Stock is excluded from the calculation of cumulative distributions for all purposes relating to the Series A Warrants, the Series B Warrants, the Class D Common Stock and the Class E Common Stock. The New Polymer Common Stock received by the holders of Class 4 Claims and the Holders of Old Polymer Common Stock and which will be issued upon conversion of the Convertible Notes is subject to dilution upon the exercise of the Series A Warrants and Series B Warrants.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Modified Plan also provided that, on the Effective Date, in consideration of GOF acting as the standby purchaser for the New Investment, and in consideration of GOF’s role in facilitating a consensual resolution of the disputes among the parties involved in the negotiation of the Modified Plan, New Polymer paid GOF a Standby Purchaser fee of $2.0 million, an arrangement and plan facilitation fee of $2.0 million and a posting fee of $0.5 million.

In order to facilitate the issuance of a new senior subordinated note (“New Senior Subordinated Note”) in the amount of any drawing under the Exit Letter of Credit, MatlinPatterson Global Partners LLC, (“Matlin Global Partners”) a limited liability company organized under the laws of Delaware, the Company and its domestic subsidiaries, as guarantors, entered into a Senior Subordinated Note Purchase Agreement (the “Senior Subordinated Note Purchase Agreement”), dated as of March 5, 2003, and pursuant thereto, the Company issued to Matlin Global Partners a New Senior Subordinated Note.

The Senior Subordinated Note Purchase Agreement and Senior Subordinated Note provided that upon any drawing under the Exit Letter of Credit, the principal amount due under the New Senior Subordinated Note would automatically increase by the amount of such drawing. The Company was required to pay interest on any amount outstanding under the New Senior Subordinated Note semi-annually in arrears on January 1 and June 1 of each year, commencing on June 1, 2003, at a rate of 10% per annum. The Company’s obligations under the Senior Subordinated Note Purchase Agreement and Senior Subordinated Note were guaranteed by the Company’s domestic subsidiaries. Both the Company’s obligations under the Senior Subordinated Note and the guarantees thereof were subordinate to the indebtedness outstanding under the Company’s Restructured Credit Facility. The Senior Subordinated Note Purchase Agreement and the Senior Subordinated Note Purchase contained customary representations and warranties, standard default terms and affirmative and negative covenants of the Company similar to those found in most such agreements.

Note 4. Fresh Start Accounting

The Company officially emerged from the Chapter 11 bankruptcy process on March 5, 2003, but for accounting purposes the Company recognized the emergence on March 1, 2003, which was the end of the February 2003 accounting period. In accordance with SOP 90-7, the Company adopted fresh-start accounting as of March 1, 2003, and the Company’s emergence from Chapter 11 resulted in a new reporting entity.

Fresh-start accounting requires that the reorganization value of the Company be allocated to its assets and liabilities in conformity with SFAS No. 141, “Business Combinations.’’ Such allocations have been reflected in the amounts included herein. Based on the consideration of many factors and various valuation methods, the Company and its financial advisors determined the reorganization value of the Company as described in the Modified Plan. The factors and valuation methodologies included the review of comparable company market valuations and the recent acquisition values of comparable company transactions as well as discounted cash flow models. The discounted cash flow models utilized projected free cash flows for four future years, with such projected free cash flows discounted at rates approximating the expected weighted average cost of capital (11.0% to 13.0%) plus the present value of the Company’s terminal value computed using comparable company exit multiples. Projected free cash flows were estimated based on projected cash flows from operations, adjusted for the effects of income taxes at an effective rate of 39.0%, estimated capital expenditures and estimated changes in working capital. The calculation of reorganization value of the Company

65

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic uncertainties.

As part of the Modified Plan, the Company’s common stock was divided into five classes: Class A, Class B, Class C, Class D and Class E. As of the Effective Date, 8,125,869 shares of Class A, 399,978 shares of Class B and 118,449 shares of Class C Common Stock were outstanding. An additional 1,327,177 shares of Class A Common Stock and 19,359 shares of Class C Common Stock were reserved at the emergence date and were subsequently issued on May 11, 2004 in accordance with a ruling by the United States Bankruptcy Court for the District of South Carolina in satisfaction of certain claims against the Company in connection with the Modified Plan. No shares of Class D or Class E Common Stock were outstanding as of the Effective Date. The following table reflects the reorganization adjustments to old Polymer Group’s Consolidated Balance Sheet as of March 1, 2003 (in thousands):

	Predecessor				Modified Plan of Reorganization				Fresh Start Adjustments				Successor
Assets
Current assets		$	306,438			$	—			$	(9,722	)(g)		$	296,716
Property, plant and equipment		431,384				(36,372		)(f)		4,231		(g)		399,243
Intangibles and loan acquisition costs, net		38,261				(26,341		)(e)(f)		27,352		(h)		39,272
Other assets		13,295				—				(3,305		)(g)		9,990
Total assets		$	789,378			$	(62,713	)		$	18,556			$	745,221
Liabilities and Shareholders’ Equity Deficit)
Liabilities not subject to compromise
Accounts payable, accrued liabilities and other current liabilities		$	94,355			$	7,069	(a)		$	13,019	(g)		$	114,443
Short-term borrowings		223				—				—				223
Long-term debt—Prepetition Credit Facility		484,877				(484,877		)(b)		—				—
Long-term debt—Restructured Credit Facility and Other		18,165				421,434		(c)		—				439,599
Long term debt—Junior Notes		—				50,000		(d)		—				50,000
Noncurrent liabilities		48,133				—				19,433		(g)		67,566
Total liabilities not subject to compromise		645,753				(6,374		)		32,452				671,831
Liabilities Subject to Compromise		637,122				(637,122		)(e)		—				—
Total liabilities		1,282,875				(643,496		)		32,452				671,831
Shareholders’ equity (deficit)		(493,497		)		580,783		(f)		(13,896		)(i)		73,390
Total liabilities and shareholders’ equity (deficit)		$	789,378			$	(62,713	)		$	18,556			$	745,221

(a)To record certain prepetition liabilities to be settled in cash.

(b)To record the elimination of the Prepetition Credit Facility.

(c)To record the Restructured Credit Facility.

(d)To record the Junior Notes.

(e)To record the elimination of pre-petition liabilites that were cancelled, which include the old senior subordinated notes, accrued interest, and loan acquisition costs.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(f)To record the issuance of securities, the cancellation of prepetition liabilities and reorganization value.

(g)To reflect assets and liabilities at fair value.

(h)To write-off goodwill and adjust certain intangibles to fair value.

(i)To write-off Predecessor’s securities, accumulated deficit and accumulated other comprehensive loss.

Additionally, in January 2005 the Company completed a tax basis study, as of the Effective Date, related to its investment in subsidiaries and the effects of the cancellation of indebtedness on the tax basis of such investments. Based on the tax basis study and further reviews of the carrying values of certain foreign investments as of the Effective Date, the Company adjusted, in its 2004 Consolidated Financial Statements, net deferred tax liabilities and goodwill from the amounts previously recorded at March 1, 2003 by $19.1 million. Also, as further discussed in Note 12 to the Consolidated Financial Statements, the Company decreased goodwill by $5.4 million in fiscal 2005 through the realization of deferred tax assets, for which a valuation allowance was established as of the Effective Date.

Note 5. Business Restructuring and Asset Impairment

The Company continued its restructuring initiatives in 2004 by curtailing production of certain of its European assets and eliminating several production lines in the Canadian operations of its Oriented Polymers Division. The European and Canadian restructuring efforts in 2004 included the reduction of approximately 160 positions, resulting in a charge of approximately $1.9 million for severance and other plant realignment costs.

In 2003, the Company implemented a business restructuring initiative intended to yield a reduction in working capital levels and operating cost reductions through: (i) reducing headcount at both the plant and corporate levels; (ii) improving manufacturing productivity and reducing component costs; (iii) implementing global purchasing initiatives; and (iv) rationalizing certain assets and/or businesses. Approximately 170 positions were eliminated in fiscal 2003.

Accrued costs for restructuring efforts are included in accrued liabilities in the accompanying Consolidated Balance Sheets. A summary of the business restructuring activity during fiscal 2005, 2004 and 2003 is presented in the following table (in thousands):

	2005			2004			2003
Balance accrued at beginning of year	$	561		$	4,564		$	893
Plant realignment costs:
First Quarter	4			584			12
Second Quarter	5			657			2,408
Third Quarter	—			222			1,235
Fourth Quarter	—			404			3,151
Total(1)	9			1,867			6,806
Cash payments	(375		)	(5,909		)	(4,293		)
Adjustments	(32		)	39			1,158
Balance accrued at end of year	$	163		$	561		$	4,564

(1)Includes $4 during the two months ended March 1, 2003.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In fiscal 2004, the Company recorded a non-cash asset impairment charge of $2.3 million, primarily related to the write-down of machinery and equipment to net realizable value, for production assets in Canada removed from service and held for sale and the write-off of certain foreign investments.

The Company made the business decision in December 2003 to discontinue production on certain of its European assets and, accordingly, recognized an asset impairment charge of approximately $1.2 million.

A summary of asset impairment charges during fiscal 2005, 2004 and 2003 is presented in the following table (in thousands):

	2005			2004		2003
Asset impairment charges:
Property, plant and equipment		$	—	$	1,719	$	1,207
Other		—		534		—
Total impairment charges		$	—	$	2,253	$	1,207

Note 6. Accounts Receivable Factoring Agreements

On November 15, 2004, the Company entered into a factoring agreement to sell without recourse, certain U.S. company-based receivables to an unrelated third party financial institution. Under the terms of the factoring agreement, the maximum amount of outstanding advances at any one time is $15.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. During fiscal 2005, approximately $124.6 million of receivables had been sold under the terms of the factoring agreement, compared to approximately $31.0 million during fiscal 2004. The sale of these receivables accelerated the collection of the Company’s cash, reduced credit exposure and lowered the Company’s net borrowing costs. Sales of accounts receivable are reflected as a reduction of Accounts receivable, net in the Consolidated Balance Sheets and a loss is reflected in the Consolidated Statements of Operations on such sale, as they meet the applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS No.140”). The amount due from the factoring company, net of advances received from the factoring company, was $4.8 million and $7.4 million at December 31, 2005 and January 1, 2005, respectively, and is shown in Other current assets in the Consolidated Balance Sheets. The Company pays factoring fees associated with the sale of receivables based on the dollar value of the receivables sold. Costs related to this program for fiscal 2005 and 2004 were $0.4 million and $0.1 million, respectively, and are included in Other expense (income) in the Consolidated Statement of Operations.

On November 7, 2005, the Company’s Latin American operations entered into a factoring agreement to sell without recourse, certain non-U.S. company-based receivables to an unrelated third party financial institution. Under the terms of the factoring agreement, the maximum amount of outstanding advances at any one time is $10.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. Through December 31, 2005, approximately $5.4 million of receivables had been sold under the terms of the factoring agreement. Such sale of receivables meets the applicable criteria of SFAS No. 140 and has been accounted for on a basis consistent with the

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

methodology described in the preceding paragraph. The amount due from the factoring company, net of advances received from the factoring company, was $1.4 million at December 31, 2005 and is shown in Other current assets in the Consolidated Balance Sheets. The Company pays factoring fees associated with the sale of receivables based on the dollar value of the receivables sold.

In fiscal 2004, the Company’s European operations sold $4.5 million of its trade receivables to a factoring company. Such sale of receivables has been accounted for on a basis consistent with the methodology described in the preceding paragraphs.

Note 7. Inventories

Inventories consist of the following (in thousands):

	December 31, 2005			January 1, 2005
Finished goods		$	60,545	$	50,482
Work in process		17,724		15,612
Raw materials and supplies		41,394		40,255
		$	119,663	$	106,349

Inventories are net of reserves, primarily for obsolete and slow-moving inventories, of approximately $9.7 million and $10.6 million at December 31, 2005 and January 1, 2005, respectively. Management believes that the reserves are adequate to provide for losses in the normal course of business.

Note 8. Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

	December 31, 2005				January 1, 2005
Land		$	13,409		$	13,548
Buildings and land improvements		95,817			98,356
Machinery, equipment and other		393,000			356,510
Construction in progress		52,219			18,856
		554,445			487,270
Less accumulated depreciation		(132,448		)	(84,667		)
		$	421,997		$	402,603

Depreciation charged to expense was $51.3 million for fiscal year 2005, $45.5 million for fiscal year 2004, $36.1 million for the ten months ended January 3, 2004 and $7.2 million for the two months ended March 1, 2003. As discussed more fully in Note 5 to the Consolidated Financial Statements, the Company recorded impairment charges during fiscal years 2004 and 2003.

During fiscal 2005, the estimated useful lives of certain machinery and equipment utilized in the Company’s operations were reduced to reflect the technological status and market conditions of certain aspects of the Company’s business. These changes in estimates resulted in increased depreciation charges of $3.4 million for fiscal year ended December 31, 2005.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The significant increase in construction in progress during fiscal 2005 compared to fiscal 2004 was due to ongoing capital expansion projects under construction at December 31, 2005, including the construction of new spunmelt manufacturing facilities in Suzhou, China and Mooresville, North Carolina as well as the installation of additional capacity in Nanhai, China.

Note 9. Intangibles and Loan Acquisition Costs

Intangibles and loan acquisition costs consist of the following (in thousands):

	December 31, 2005				January 1, 2005
Cost:
Proprietary technology		$	30,251			$	29,852
Goodwill		10,243				15,632
Loan acquisition costs and other		12,045				15,511
		52,539				60,995
Less accumulated amortization		(15,210		)		(12,176		)
		$	37,329			$	48,819

As further described in Notes 4 and 12 to the Consolidated Financial Statements, during fiscal 2004 the Company recorded goodwill of $15.6 million related to the allocation of the reorganization value to the underlying assets and liabilities as of the Effective Date. Also, as further discussed in Notes 4 and 12 to the Consolidated Financial Statements, the Company decreased goodwill by $5.4 million during 2005 as a result of the realization of deferred tax assets during fiscal 2005, for which a valuation allowance was established as of the Effective Date. Such goodwill is not amortizable, but is subject to the tests of impairment which must be performed at least annually.

In connection with the refinancing of the Company’s then outstanding Bank Facility in November 2005, a portion of the unamortized loan acquisition costs associated with the April 2004 refinancing were written-off, in the amount of $3.0 million, and expensed in the Consolidated Statement of Operations. Additionally, $1.0 million of third-party costs incurred in connection with the 2005 refinancing were also charged to expense. The Company also incurred $2.7 million of new loan acquisition costs related to the issuance of the Credit Facility, consisting primarily of bank fees, which have been capitalized, and which, together with $5.9 million of remaining unamortized fees incurred as part of the April 2004 refinancing, will be amortized over the term of the remaining debt.

In conjunction with the refinancing in April 2004 of the then-outstanding Restructured Credit Facility, the Company charged the unamortized balance of the loan acquisition costs of $5.0 million related to that debt to the Consolidated Statement of Operations. Concurrently, with the issuance of the Senior Secured Bank Facility (the “Bank Facility”), the Company capitalized approximately $12.1 million of related loan acquisition costs, which were primarily bank arrangement and legal fees. Such costs were amortized over the term of the related debt.

70

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Components of amortization expense are shown in the table below (in thousands):

	Successor							Predecessor
	2005		2004		Ten Months Ended January 3, 2004			Two Months Ended March 1, 2003
Amortization of:
Intangibles with finite lives, included in selling, general and administrative expense	$	4,252	$	5,759		$	4,935		$	220
Loan acquisition costs, included in interest expense, net	1,977		1,970			1,572			1,425
Total amortization expense	$	6,229	$	7,729		$	6,507		$	1,645

Aggregate amortization expense for each of the next five years is expected to be as follows: 2006, $5.6 million; 2007, $5.6 million; 2008, $5.6 million; 2009, $5.5 million; 2010, $2.4 million; and thereafter, $2.4 million. Intangibles are amortized over periods ranging from 5 to 17 years. Loan acquisition costs are amortized over the life of the related debt.

Note 10. Accrued Liabilities

Accrued liabilities in the Consolidated Balance Sheets include salaries, wages and other fringe benefits of $17.0 million and $20.4 million as of December 31, 2005 and January 1, 2005, respectively.

Note 11. Debt

Long-term debt consists of the following:

	December 31, 2005				January 1, 2005
	(in thousands)
Credit Facility, as defined below, interest rates for U.S. borrowings are based on a specified base plus a specified margin and are subject to certain terms and conditions:
First Lien Term Loan—interest at 6.77% and 5.78% as of December 31, 2005 and January 1, 2005, respectively; due in mandatory quarterly payments of approximately $1.0 million and subject to additional payments from annual excess cash flows, as defined, with the balance due November 22, 2012		$	410,000		$	281,500
Second Lien Term Loan—interest at 8.78% as of January 1, 2005		—			125,000
Other		97			473
		410,097			406,973
Less: Current maturities		(4,142		)	(3,413		)
		$	405,955		$	403,560

71

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Scheduled Maturities

The scheduled maturities of long-term debt at December 31, 2005 are as follows (in thousands):

2006	$	4,142
2007	4,146
2008	4,109
2009	4,100
2010	4,100
Thereafter	389,500
Total	$	410,097

Credit Facility

The Company’s Credit Facility (the “Credit Facility”), which was entered into on November 22, 2005, consists of a $45.0 million secured revolving credit facility and a $410.0 million first-lien term loan. The proceeds therefrom were used to fully repay indebtedness under the Company’s previous Bank Facility and pay related fees and expenses.

All borrowings under the Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company. The Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company, its domestic subsidiaries and certain of its non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain non-domestic subsidiaries of the Company, and (iii) a pledge of certain secured intercompany notes. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At December 31, 2005, the Company is in compliance with all such covenants and expects to remain in compliance through fiscal 2006. The first-lien term loan requires mandatory payments of approximately $1.0 million per quarter and, beginning with fiscal 2006, the first-lien term loan requires the Company to apply a percentage of proceeds from excess cash flows, as defined by the Credit Facility and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility. Since the amounts of excess cash flows for future periods are not determinable, only the mandatory payments of approximately $1.0 million per quarter were considered in the fiscal years 2006 through 2010 in the scheduled maturities table.

Excess cash flows required to be applied to the repayment of the Credit Facility are generally calculated as 50.0% of the net amount of the Company’s available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in working capital and certain other items. Since the amounts of excess cash flows for future periods are based on year-end results and not determinable, only the mandatory payments of approximately $1.0 million per quarter have been classified as a current liability. Additionally, no excess cash flow payment was required to be made with respect to fiscal 2005 due to the magnitude of the major capital expenditure projects and any excess cash flow requirement with respect to fiscal 2006 is not expected to be significant.

72

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The interest rate applicable to borrowings under the Credit Facility is based on three-month London Interbank Offered Rate (“LIBOR”) plus a specified margin. The applicable margin for borrowings under both the first-lien term loan and the revolving credit facility is 225 basis points. The Company may, from time to time, elect to use an alternate base rate for its borrowings under the revolving credit facility based on the bank’s base rate plus a margin of 75 to 125 basis points based on the Company’s total leverage ratio. The Company had no outstanding borrowings at December 31, 2005 under the revolving credit facility. As of December 31, 2005, capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $11.4 million, as described below. Average borrowings under the revolving credit facility, which were largely alternate base rate borrowings, for the period from November 22, 2005 to December 31, 2005 were $10.4 million at an average rate of 8.37%. The revolving credit portion of the Credit Facility matures on November 22, 2010.

In accordance with the terms of the Credit Facility, the Company maintained its position in a cash flow hedge agreement originally entered into in May, 2004. This cash flow hedge agreement effectively converts $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%. The cash flow hedge agreement terminates on May 8, 2007 and is described more fully in Note 16 to the Consolidated Financial Statements.

Subject to certain terms and conditions, a maximum of $25.0 million of the Credit Facility may be used for revolving letters of credit. As of December 31, 2005, the Company had $11.4 million of standby and documentary letters of credit outstanding under the Credit Facility. Approximately $3.0 million was related to the requirements of the short-term borrowing arrangements of the Company’s China-based majority owned subsidiary (“Nanhai”). Other letters of credit are in place to provide added assurance for certain raw material vendors and administrative service providers. None of these letters of credit have been drawn on at December 31, 2005.

Bank Facility

Until it was refinanced on November 22, 2005, the Company’s Bank Facility, which was entered into on April 27, 2004, consisted of a $50.0 million secured revolving credit facility, a $300.0 million senior secured first lien term loan and a $125.0 million senior secured second lien term loan. All borrowings under the Bank Facility were U.S. dollar denominated and were guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company and supported by the pledge of stock of certain non-domestic subsidiaries of the Company. The Bank Facility contained covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. The interest rate applicable to borrowings under the Bank Facility was based on three-month LIBOR plus a specified margin. The applicable margin for borrowings under the revolving credit facility was 300 basis points, the margin for the first lien term loan was 325 basis points and the margin for the second lien term loan was 625 basis points. For the period from January 2, 2005 to November 21, 2005, the Company’s average borrowings under the revolving credit agreement, which had an effective interest rate of 8.23%, were $8.7 million. For the period from April 28, 2004 to January 1, 2005, the Company’s average borrowings under the revolving credit facility, which had an effective interest rate of 5.80%, were $4.0 million. In addition, the Company had average borrowings under a revolving credit facility related to previous debt arrangements of $4.8 million for the period from January 4, 2004 to April 27, 2004, at an average interest rate of 6.75%.

73

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Subsidiary Indebtedness

Nanhai has a short-term credit facility (denominated in U.S. dollars and Chinese renminbi) with a financial institution in China which is scheduled to mature in June 2006. The amount of outstanding indebtedness under the facility was $5.0 million and $5.8 million at December 31, 2005 and January 1, 2005, respectively. The annual average rate on the facility was approximately 4.44% and 4.49% at December 31, 2005 and January 1, 2005, respectively. The Nanhai indebtedness is supported by a letter of credit issued by the Company’s agent bank and additional collateral was granted through the pledge of the Nanhai assets. In addition, Nanhai had outstanding bankers’ acceptances totaling $0.1 million and $1.2 million at December 31, 2005 and January 1, 2005, respectively. These notes, which are denominated in Chinese renminbi, mature on January 5, 2006 and are subject to a 0.5% transaction fee. These borrowings are shown as Short-term borrowings in the Consolidated Balance Sheets.

At January 1, 2005, the Company’s Argentina-based majority owned subsidiary had a credit facility denominated in U.S. dollars totaling approximately $0.4 million (all with current maturities). These borrowings were fully repaid in the first quarter of 2005.

Note 12. Income Taxes

The components of income before income taxes are as follows (in thousands):

	Successor										Predecessor
	2005			2004			Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Domestic	$	(9,002	)	$	(2,701	)		$	(30,576	)		$	546,740
Foreign	25,795			15,427				519				(12,684		)
	$	16,793		$	12,726			$	(30,057	)		$	534,056

The components of income tax expense (benefit) are as follows (in thousands):

	Successor								Predecessor
	2005			2004		Ten Months Ended January 3, 2004			Two Months Ended March 1, 2003
Current:
Federal and state	$	(783	)	$	1,319		$	—		$	—
Foreign	3,351			4,278			—			(1,318		)
Deferred:
Federal and state	359			520			—			—
Foreign	6,869			1,877			2,928			3,010
Income tax expense	$	9,796		$	7,994		$	2,928		$	1,692

Provision has been made for U.S. and additional foreign taxes for the anticipated repatriation of earnings of certain foreign subsidiaries of the Company, primarily Argentina. The Company considers the undistributed earnings of its foreign subsidiaries above the amount already provided to be indefinitely reinvested. These additional foreign earnings could become subject to additional tax if remitted, or deemed remitted, as a dividend. However the determination of the additional amount of tax that would be incurred is not practicable because of the complexities associated with its

74

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

hypothetical calculation. At December 31, 2005, the unremitted earnings of its foreign subsidiaries for which U.S. taxes have not been provided amounted to approximately $26.0 million. Also, in the event of additional tax, unrecognized tax credits may be available to reduce some portion of any U.S. income tax liability.

Management judgment is required in determining tax provisions and evaluating tax positions. Although management believes its tax positions and related provisions reflected in the Consolidated Financial Statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax authorities. These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and information becomes available, including progress on tax audits, changes in interpretations of tax laws, developments in case law and closing of statute of limitations. The Company’s tax provision includes the impact of recording reserves and any changes thereto. As of December 31, 2005, the Company has a number of tax audits in process and have open tax years with various taxing jurisdictions that range from 2001 to 2005. Although the results of current tax audits and reviews related to open tax years have not been finalized, management believes that the ultimate outcomes will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Income taxes computed at the Company’s U.S. federal statutory rate differed from the provision for income taxes as follows (in thousands):

	Successor										Predecessor
	2005			2004			Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Computed income tax expense (benefit) at statutory rate	$	5,878		$	4,454			$	(10,520	)		$	186,920
State income taxes, net of federal tax benefit	535			858				—				—
Gain on cancellation of indebtedness	—			—				—				(216,970		)
Other reorganization expenses	—			—				—				6,788
Utilization of post-emergence NOL’s	(354		)	—				—				—
Valuation allowance	282			3,103				10,651				5,699
Withholding taxes and tax credits	1,290			927				—				—
Effect of foreign operations, net	(381		)	(1,489		)		—				—
Chapter 11 reorganization costs	—			—				—				4,277
Fresh start adjustments	—			—				95				11,336
Effect of foreign earnings on U.S. taxes and other, net	2,546			141				2,702				3,642
Income tax expense	$	9,796		$	7,994			$	2,928			$	1,692

The Company’s financial reorganization, through the Chapter 11 process, caused an ownership change for federal income tax purposes. As a result, future tax deductions related to certain “built-in deductions and losses” will be limited by Section 382 of the Internal Revenue Code, as amended (“Section 382”) during the five-year period following the ownership change (the recognition period). The Company had substantial amounts of such built-in deductions and losses (primarily depreciation deductions) scheduled to be realized during the recognition period. Under Section 382, such built-in losses will be subject to an annual usage limitation of approximately $3.4 million during the

75

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

recognition period. Additionally, the $137.0 million of U.S. federal net operating loss carryforwards that existed at January 3, 2004 were reduced to zero at January 4, 2004.

At December 31, 2005, the Company had the following significant net operating loss carryforwards for income tax purposes (in thousands):

Country	Amount		Year of Expiration
Mexico	$	3,610		2006–2013
Canada	5,267			2006–2013
Netherlands	18,865			Indefinite
Germany	39,408			Indefinite
France	5,655			Indefinite
China	217			2010
United States (State)	37,617			Various
United States (Federal)	31,979			2023–2025

In addition, the Company had the following credits for income tax purposes as of December 31, 2005 (in thousands):

Country	Type of Credit	Amount		Year of Expiration
Mexico	Asset Tax	$	7,244		2006–2015
Canada	Investment Tax	506			2006–2016
United States	Foreign Tax Credit	15,169			2009
United States	Alternative Minimum Tax	666			Indefinite

The Company conducts business in foreign jurisdictions which grant a holiday from income taxes for a specified period. During 2005, the Company recognized a tax benefit of $0.8 million as a result of a tax holiday in China on profits attributable to its ongoing operations. That holiday expired at the end of December 2005. In addition, the Company will receive a holiday with respect to profits, if any, from operations currently being constructed in China. That holiday will begin with the commencement of commercial operations and last two years. The Company also recognized approximately $1.0 million of tax benefits during 2005 related to the export activities and capital investments in Cali, Colombia. Such export activities will become subject to a 15% tax beginning in 2007.

76

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating loss and other tax credit carryforwards. Significant components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):

	December 31, 2005				January 1, 2005
Deferred tax assets:
Provision for bad debts		$	2,684		$	2,660
Inventory capitalization and allowances		2,734			3,358
Net operating loss and capital loss carryforwards		50,375			51,500
Tax credits		8,416			9,066
Foreign tax credits		15,169			15,169
Property, plant and equipment and intangibles, net		32,475			37,415
Other		18,314			11,868
Total deferred tax assets		130,167			131,036
Valuation allowance		(98,536		)	(103,854		)
Net deferred tax assets		31,631			27,182
Deferred tax liabilities:
Property, plant and equipment and intangibles, net		(31,630		)	(31,442		)
Stock basis of subsidiaries		(33,780		)	(33,780		)
Other, net		(26,116		)	(25,713		)
Total deferred tax liabilities		(91,526		)	(90,935		)
Net deferred tax liabilities		$	(59,895	)	$	(63,753	)

A valuation allowance is recorded when, based on the weight of the evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. In assessing the realizability of the deferred tax assets, management considers, among other factors, the trend of historical and projected future taxable income with appropriate consideration given to the fact that the Company is less than three years removed from the Chapter 11 process, the scheduled reversal of deferred tax liabilities, the carryforward period for net operating losses and tax credits as well as tax planning strategies available to the Company. After consideration of all the evidence, both positive and negative, the Company has determined that valuation allowances of $98.5 million and $103.9 million are appropriate as of December 31, 2005 and January 1, 2005, respectively. If the Company recognizes future tax benefits through the use of any of the deferred tax assets, for which a valuation allowance is provided, that existed at the Effective Date, the benefit of such utilization, unless such utilization results from a change in tax laws or regulations, will be recorded as a reduction of goodwill or other intangible assets and, thereafter, as a reduction of income tax expense. The Company has at December 31, 2005, deferred tax assets with valuation allowances as of the Effective Date, which to the extent realized, are sufficient to eliminate the Company’s carrying value of goodwill and other intangibles.

In 2005, the Company reduced goodwill in the amount of $5.4 million as a result of the realization of deferred tax assets, for which, valuation allowances had been established as of the Effective Date and other adjustments as of the Effective Date.

Income tax refunds receivable were $1.6 million and $15.4 million at December 31, 2005 and January 1, 2005, respectively with the receivable at January 1, 2005 largely comprised of amounts due from European tax jurisdictions. These amounts are included in Other current assets on the Consolidated Balance Sheets.

77

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 13. Pension and Postretirement Benefit Plans

The Company and its subsidiaries sponsor multiple defined benefit plans and other postretirement benefit plans that cover certain employees. Benefits are primarily based on years of service and the employee’s compensation. It is the Company’s policy to fund such plans in accordance with applicable laws and regulations. The following disclosures regarding defined benefit plans and other postretirement benefit plans for the fiscal 2003 period reflect the combined data of the Successor for the ten months ended January 3, 2004 with that of the Predecessor for the two months ended March 1, 2003. The benefit obligations and related assets under these plans with respect to the 2005 and 2004 disclosures have been measured as of December 31, 2005 and January 1, 2005, respectively.

	U.S. Plans Pension Benefits						Non-U.S. Plans Pension Benefits
	2005			2004			2005			2004
	(In Thousands)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year	$	(12,504	)	$	(12,482	)	$	(94,768	)	$	(76,932	)
Additional benefit obligations	—			—			(2,852		)	—
Service costs	—			—			(2,633		)	(2,361		)
Interest costs	(724		)	(784		)	(5,117		)	(4,231		)
Participant contributions	—			—			(498		)	(496		)
Plan amendments	—			—			(1,232		)	—
Actuarial (loss)/gain	(714		)	(1,098		)	(17,923		)	(7,080		)
Currency translation adjustment and other	—			—			7,211			(6,211		)
Benefit payments	996			1,925			5,233			2,543
Curtailment	—			(65		)	—			—
Projected benefit obligation at end of year	$	(12,946	)	$	(12,504	)	$	(112,579	)	$	(94,768	)
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	9,324		$	9,121		$	84,225		$	71,141
Actual return on and additional plan assets	961			881			13,450			3,705
Employer and plan participant contributions	970			1,247			6,284			6,447
Plan amendments	—			—			—			—
Actuarial (loss)/gain	—			—			—			—
Benefit payments	(996		)	(1,925		)	(5,233		)	(2,543		)
Currency translation adjustment and other	—			—			(6,378		)	5,475
Fair value of plan assets at end of year	$	10,259		$	9,324		$	92,348		$	84,225
Funded Status:
Funded status at year-end	$	(2,687	)	$	(3,180	)	$	(20,231	)	$	(10,543	)
Unrecognized actuarial net (gain) loss	(28		)	(493		)	15,827			4,573
Unrecognized transition net (liability)	—			—			—			—
Unrecognized net (gain) loss	—			—			—			—
Unrecognized prior service cost	—			—			1,232			—
Currency translation adjustment and other	—			—			(10		)	106
Accrued benefit cost recognized	$	(2,715	)	$	(3,673	)	$	(3,182	)	$	(5,864	)
Accumulated benefit obligation	$	12,946		$	12,504		$	97,118		$	85,357

78

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has plans whose fair value of plan assets exceeds the benefit obligation. In 2005 and 2004, the total amount netted in the funded status above for such plans approximates $2.2 million and $0.5 million, respectively. The total amount of prepaid benefit cost included in the net prepaid (accrued) benefit cost recognized related to these plans approximates $2.2 million in 2005 and $0.5 million in 2004.

	U.S. Postretirement Benefit Plans						Non-U.S. Postretirement Benefit Plans
	2005			2004			2005			2004
	(In Thousands)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year	$	(3,472	)	$	(7,754	)	$	(5,282	)	$	(6,389	)
Additional benefit obligations	—			—			(1,192		)	—
Service costs	(132		)	(372		)	(80		)	(45		)
Interest costs	(190		)	(496		)	(376		)	(287		)
Participant contributions	(71		)	(52		)	—			—
Plan amendments	—			164			—			—
Actuarial (loss)/gain	358			101			(498		)	1,431
Currency translation adjustment and other	—			—			(226		)	(386		)
Curtailments	—			4,623			—			—
Benefit payments	486			314			453			394
Projected benefit obligation at end of year	$	(3,021	)	$	(3,472	)	$	(7,201	)	$	(5,282	)
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	—		$	—		$	—		$	—
Actual return on plan assets	—			—			—			—
Acquisition	—			—			—			—
Employer and plan participant contributions	415			262			453			393
Plan amendments	71			52			—			—
Benefit payments	(486		)	(314		)	(453		)	(393		)
Currency translation adjustment and other	—			—			—			—
Fair value of plan assets at end of year	$	—		$	—		$	—		$	—
Funded Status:
Funded status at year-end	$	(3,021	)	$	(3,472	)	$	(7,201	)	$	(5,282	)
Unrecognized actuarial net (gain) loss	—			—			—			—
Unrecognized transition net (liability)	—			—			11			—
Unrecognized net (gain) loss	(400		)	(550		)	(569		)	(1,210		)
Unrecognized prior service cost	(149		)	(164		)	—			—
Currency translation adjustment and other	(173		)	—			(145		)	(100		)
Accrued benefit cost recognized	$	(3,743	)	$	(4,186	)	$	(7,904	)	$	(6,592	)

79

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	U.S. Plans Pension Benefits									Non-U.S. Plans Pension Benefits
	2005			2004			2003			2005			2004			2003
	(In Thousands, Except Percent Data)
Components of net periodic benefit cost:
Current service costs	$	—		$	—		$	280		$	2,633		$	2,362		$	1,904
Interest costs on projected benefit obligation and other	724			783			841			5,117			4,231			3,492
Return on plan assets	(961		)	(881		)	(1,222		)	(11,917		)	(3,705		)	(1,972		)
Net amortization of transition obligation and other	250			299			(103		)	6,668			(939		)	(1,470		)
Periodic benefit cost, net	$	13		$	201		$	(204	)	$	2,501		$	1,949		$	1,954
Weighted average assumption rates:
Return on plan assets	8.0		%	8.0		%	8.0		%	6.5-7.5%			6.5-7.5%			6.5-8.0		%
Discount rate on projected benefit obligations	5.75			6.0			6.5			4.25-5.25			5.25-6.1			5.7-6.5
Salary and wage escalation rate	N/A			N/A			4.0			2.0-3.0			2.0-3.0			2.5-3.0

	U.S. Postretirement Benefit Plans									Non-U.S. Postretirement Benefit Plans
	2005			2004			2003			2005			2004			2003
	(In Thousands, Except Percent Data)
Components of net periodic benefit cost:
Current service costs	$	132		$	372		$	301		$	81		$	45		$	27
Interest costs on projected benefit obligation and other	190			496			428			376			287			362
Plan amendment	—			—			—			—			—			—
Net amortization of transition obligation, curtailment and other	(37		)	(4,445		)	(72		)	1,020			(188		)	—
Periodic benefit cost, net	$	285		$	(3,577	)	$	657		$	1,477		$	144		$	389
Weighted average assumption rates:
Discount rate on projected benefit obligations	5.75		%	6.0		%	6.5		%	5.25%-5.75		%	6.0		%	6.0		%

The assumed annual composite rate of increase in the per capita cost of Company provided health care benefits are reflected in the following table:

Year	Composite Rate of Increase
2006		10	%
2007		10	%
2008		8	%
2009		8	%
2010 and thereafter		6	%

80

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A one-percentage point increase in the assumed health care cost trend rate would have increased aggregate service and interest cost in 2005 by $0.6 million and the accumulated postretirement benefit obligation as of December 31, 2005 by $0.1 million. A one-percentage point decrease in the assumed health care cost trend rate would have decreased aggregate service and interest cost in 2005 by $0.5 million and the accumulated postretirement benefit obligation as of December 31, 2005 by $0.1 million.

The plan sponsor selects the expected long-term rate-of-return on assets assumption in consultation with their investment advisors and actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of inflation), for the major asset classes held or anticipated to be held by the trust, and for the trust itself. Undue weight is not given to recent experience, that may not continue over the measurement period, with higher significance placed on current forecasts of future long-term economic conditions.

Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this purpose, the plans are assumed to continue in force and not terminate during the period during which assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated within periodic cost).

The plans’ weighted-average asset allocations by asset category are as follows:

	2005			2004
Equity Securities		46	%		44	%
Debt Securities		52			53
Other		2			3
Total		100	%		100	%

The trust funds are sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with an overall targeted asset allocation of 40%-55% fixed income debt securities, 40%-55% equity securities and the remainder in cash or cash equivalents. The Investment Manager selects investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the implementation of the Plans’ investment strategy. The Investment Manager will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure.

It is the responsibility of the Trustee to administer the investments of the Trust within reasonable costs, being careful to avoid sacrificing quality. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the Trust.

The Company’s practice is to fund amounts for its qualified pension plans at least sufficient to meet the minimum requirements set forth in applicable employee benefit laws and local tax laws. Liabilities for amounts in excess of these funding levels are included in the Consolidated Balance Sheet. Employer contributions to its pension plans in 2006 are expected to approximate $7.1 million.

81

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Expected Benefit Payments

The following table reflects the total benefits projected to be paid from the plans, or from the Company’s general assets, under the current actuarial assumptions used for the calculation of the projected benefit obligations and, therefore, may differ from projected benefit payments.

The expected level of payments to, or on the behalf of, participants is as follows (in thousands):

	Pension		Postretirement
2006	$	4,165		$	1,855
2007	4,185			1,854
2008	4,557			1,376
2009	4,531			1,286
2010	4,505			1,232
2011-2015	24,199			6,011

In December 2004, the Company approved amendments to various postretirement benefit plans which curtailed or eliminated defined benefits previously available under the plans. The amendments as adopted will eliminate, by January 1, 2008, the postretirement benefit plans for all U.S. current retirees of the Company and substantially all U.S. active employees. The three-year phase-out period was granted to provide current retirees and other eligible employees an acceptable period to transition to other alternative medical plans. In accordance with SFAS No. 106 “Employers Accounting for Postretirement Benefits Other Than Pensions” (as amended), the gain on the plan curtailments was recognized upon the adoption of the plan amendments. The gain of $3.6 million was reported as a component of Cost of goods sold and Selling, general and administrative expenses in the Consolidated Statement of Operations for fiscal year 2004 in the amounts of $3.3 million and $0.3 million, respectively.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted and introduced a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health care benefit plans. As permitted under FSP 106-1, the Company made a one-time election to defer accounting for the effect of the Act until the authoritative guidance on the accounting for the federal subsidy under the Act is issued. Given that the Company curtailed most of its U.S. postretirement plans in 2004, it will likely not be eligible to receive the federal subsidy under the Act. Accordingly, any measures of the periodic benefit cost, benefit obligation and related disclosures for the U.S. and other postretirement benefit plans appropriately do not reflect the effect of the Act.

The Company sponsors several defined contribution plans through its domestic subsidiaries covering employees who meet certain service requirements. The Company makes contributions to the plans based upon a percentage of the employees’ contribution in the case of its 401(k) plans or upon a percentage of the employees’ salary or hourly wages in the case of its noncontributory money purchase plans. The cost of the plans was $2.3 million, $1.9 million and $3.0 million for fiscal 2005, 2004 and 2003, respectively.

82

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 14. Stock Option and Restricted Stock Plans

Stock Option Plans

The 2003 Stock Option Plan (the “2003 Plan”) was approved by the Company’s Board of Directors and shareholders and is administered by the Compensation Committee of the Board of Directors. The stock options have a five-year life and vest, based on the achievement of various service and financial performance criteria, over a four-year period, with the initial awards beginning their vesting terms as of January 4, 2004. As of December 31, 2005, the Company had awarded grants of non-qualified stock options to purchase 400,000 shares of the Company’s Class A Common Stock. The awards represented the entire amount reserved for issuance under the 2003 Plan and no additional stock options are available for future grants under the 2003 Plan.

The Company has elected to account for the 2003 Plan in accordance with the intrinsic value method as prescribed by APB No. 25, which measures compensation cost as the excess, if any, of the quoted market price of the stock at the date of grant over the amount an employee must pay to acquire the stock. Additionally, as a percentage of the options vest based on achievement of financial performance criteria, compensation costs are recognized over the performance period when it becomes probable that such performance criteria will be achieved. Vesting of the stock options is accelerated on the occurrence of a change in control.

The compensation costs related to the 2003 Plan were $2.2 million and $0.6 million for the years ended December 31, 2005 and January 1, 2005, respectively, and were included in Selling, general and administrative expenses in the Consolidated Statements of Operations. Had the compensation expense methodology defined in SFAS No. 123R been applied, the Company’s net earnings and earnings per common share would have been impacted as summarized in the discussion of the Company’s stock-based compensation accounting policy in Note 2 to the Consolidated Financial Statements, resulting in lower compensation costs than recognized under the Company’s historically used accounting principles.

The 2005 Stock Option Plan (the “2005 Plan”) was approved by the Company’s Board of Directors and shareholders and is administered by the Compensation Committee of the Board of Directors. The stock options will only vest and become exercisable on the occurrence of a change in control, and only after certain target thresholds tied to the cash received by MatlinPatterson Global Opportunities Fund, L.P. and its affiliates are reached in the change in control transaction, or from the conversion of securities received in the change in control transaction into cash within one year following the change in control. The term of each stock option shall end on June 30, 2008, unless the stock option has been exercised, with a provision to extend the date of exercise by up to one year following a change in control in which securities are issued as part of the consideration of the transaction. The Company may award grants of non-qualified stock options to purchase up to 200,000 shares of the Company’s Class A Common Stock. As of December 31, 2005, no awards have been granted under the 2005 Plan and it is expected that the 2005 Plan will be eliminated, subject to formal approval by the shareholders of the Company’s 2005 Employee Restricted Stock Plan, which will be presented at the 2006 Annual Shareholders’ Meeting scheduled for May 2006.

83

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the option activity related to the 2003 Plan for the years ended December 31, 2005 and January 1, 2005 and the ten months ended January 3, 2004:

	2005		2004		Ten months Ended January 3, 2004
Unexercised options outstanding—beginning of period	225,313		240,000			—
Granted	174,687		—			240,000
Exercised	—		—			—
Forfeited	—		14,687			—
Expired/canceled	—		—			—
Unexercised options outstanding—end of period	400,000		225,313			240,000
Exercisable options:
Vested options as of year-end	156,328		48,000			—
Exercisable options as of year-end	—		—			—
Shares available for future grant as of year-end	—		174,687			160,000
Weighted average exercise price per share	$	6.00	$	6.00		$	6.00

Restricted Stock Plans

In May 2004, the Company’s shareholders approved the 2004 Restricted Stock Plan for Directors (the “Restricted Plan”), which expires in 2014, for the issuance of restricted shares to Directors of the Company, as defined in the Restricted Plan. The Restricted Plan approved for issuance 200,000 restricted shares and is administered by a committee of the Company’s Board of Directors not eligible to receive restricted shares under the Restricted Plan. In 2005, the Company awarded approximately 1,728 restricted shares to members of the Company’s Board of Directors for their Board service to the Company. In fiscal 2005, the Company charged compensation costs of $0.1 million to Selling, general and administrative expenses in the Consolidated Statement of Operations for the restricted shares awarded under the Restricted Plan.

In 2004, the Company awarded approximately 18,720 restricted shares to members of the Company’s Board of Directors for their Board service to the Company and, as further described in Note 21 to the Consolidated Financial Statements, an additional 25,000 restricted shares were awarded to the Company’s Chairman of the Board of Directors for consulting services. In fiscal 2004, the Company charged compensation costs of $0.6 million to Selling, general and administrative expenses in the Consolidated Statement of Operations for the restricted shares awarded under the Restricted Plan.

As of December 31, 2005, 154,552 shares of the Company’s Class A common stock are available for future grants under the Restricted Plan.

In December 2005, the Company’s 2005 Employee Restricted Stock Plan (the “2005 Stock Plan”) was approved by the Company’s Board of Directors and is administered by the Compensation Committee of the Company’s Board of Directors. The 2005 Stock Plan, which expires in 2015, approved for issuance 482,000 restricted shares, of which, 272,000 restricted shares were awarded to certain employees of the Company as of January 20, 2006. The Compensation Committee may, from time to time, grant shares of restricted stock under the 2005 Stock Plan to such employees and in such amounts and with specified restrictions as it determines appropriate in the circumstances. Vesting of the restricted shares is accelerated on the occurrence of a change in control. No shares

84

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

were awarded as of December 31, 2005. The awards of restricted shares granted on January 20, 2006 pursuant to the 2005 Stock Plan are subject to formal approval by the shareholders, which will be presented at the Annual Shareholders’ Meeting scheduled for May 2006.

Note 15. Series A Convertible Pay-in-kind Preferred Shares

In conjunction with the Company’s refinancing in April 2004 of the Restructured Credit Facility, the Company’s majority shareholder exchanged approximately $42.6 million in aggregate principal amount of 10.0% Convertible Subordinated Notes due 2007 (the “Junior Notes”) it controlled for 42,633 shares of the Company’s PIK Preferred Shares. Also, during the third quarter of fiscal 2004, $10.1 million in aggregate principal amount of the Company’s Junior Notes were exchanged for 10,083 shares of the Company’s PIK Preferred Shares and 6,719 shares of the Company’s Class A Common Stock. Such Junior Notes were subordinated indebtedness of the Company and provided for interest at an annual rate of 10.0%, which interest, at the option of the holder, could be received in additional principal amounts of the Junior Notes or in cash. The Junior Notes could be converted, at the option of the holder, into shares of Class A Common Stock on the same terms as included in the PIK Preferred Shares (a conversion rate of 137.14286 shares of Class A Common Stock per share of the convertible security, which approximates an initial conversion price of approximately $7.29 per share). As the aforementioned exchanges were a component of the recapitalization of the Company, involving the majority shareholder and other common shareholders of the Company and the exchange by the majority shareholder was a requirement of the then new Bank Facility, the exchanges have been accounted for as a capital transaction and, accordingly, no gain or loss was recognized.

Dividends on the PIK Preferred Shares accrued at an annual rate of 16.0% and were payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004. Such dividends were payable at the option of the Company; (i) through the issuance of additional shares of PIK Preferred Stock; (ii) in cash; or (iii) in a combination thereof. Accordingly, the Company accrued dividends at the stated rate of 16.0% until such time as the form of the dividend was declared by the Company’s Board of Directors. If the dividend was paid-in-kind through the issuance of additional shares of PIK Preferred Stock, the Company recognized the dividend at the estimated fair value of the shares issued in excess of the amounts previously accrued. At any time prior to June 30, 2012, the holders of the PIK Preferred Shares could have elected to convert any or all of their PIK Preferred Shares into shares of the Company’s Class A Common Stock at an initial conversion rate of 137.14286 shares of Class A Common Stock per share of PIK Preferred Shares which approximates an initial conversion price equal to $7.29 per share.

On January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK

85

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock, as described below. Accordingly, total accrued and paid-in-kind dividends amounted to $28.0 million and $5.6 million in fiscal years 2005 and 2004, respectively.

Also, on July 28, 2005, the Company’s Board of Directors authorized the redemption of all of the Company’s PIK Preferred Shares on or before September 30, 2005. On August 16, 2005, the Board of Directors set September 15, 2005 as the redemption date (the “Redemption Date”). In accordance with the terms of the PIK Preferred Shares, the Company would redeem all PIK Preferred Shares outstanding at the Redemption Date at a redemption rate of 37.26397 shares of Class A Common Stock per PIK Preferred Share. At any time prior to the Redemption Date, holders of PIK Preferred Shares could exercise their right to convert their PIK Preferred Shares into shares of Class A Common Stock at a conversion rate of 137.14286 shares of Class A Common Stock per PIK Preferred Share.

As of the close of business on the Redemption Date, five PIK Preferred Shares had been redeemed by the Company with the redemption price being paid by the issuance of 187 shares of Class A Common Stock. Additionally, 62,916 PIK Preferred Shares had been converted by holders into 8,628,473 shares of Class A Common Stock. Also, during the first quarter of fiscal 2005, five PIK Preferred Shares were converted into 686 shares of Class A Common Stock. As a result of these transactions, 8,629,346 additional shares of Class A Common Stock are now issued and outstanding and no PIK Preferred Shares are currently issued or outstanding.

Note 16. Derivatives and Other Financial Instruments and Hedging Activities

The Company uses derivative financial instruments to manage market risks and reduce its exposure to fluctuations in interest rates and foreign currencies. All hedging transactions are authorized and executed under clearly defined policies and procedures, which prohibit the use of financial instruments for trading purposes. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value and establish criteria for designation and effectiveness of hedging relationships.

The Company uses interest-rate derivative instruments to manage its exposure related to movements in interest rates with respect to its debt instruments. As indicated in Note 11 to the Consolidated Financial Statements, to mitigate its interest rate exposure as required by the Bank Facility and the Credit Facility, the Company entered into a pay-fixed, receive-variable interest rate swap, thus effectively converting the variable LIBOR-based interest payments associated with $212.5 million of the debt to fixed amounts at a LIBOR rate of 3.383%. The notional amount of this contract, which expires on May 8, 2007, was $212.5 million at both December 31, 2005 and January 1, 2005. Cash settlements are made quarterly and the floating rate is reset quarterly, coinciding with the reset dates of the current Credit Facility.

86

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In accordance with SFAS No. 133, the Company designated the swap as a cash flow hedge of the variability of interest payments and applied the shortcut method of assessing effectiveness. The agreement’s terms ensure complete effectiveness in offsetting the variability of the interest component associated with $212.5 million of first-lien term loan debt. As such, there is no ineffectiveness and changes in the fair value of the swap are recorded to accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. The fair value of the interest rate swap, based on current settlement values, was $3.8 million and $0.3 million as of December 31, 2005 and January 1, 2005, respectively. Those amounts were included in Other noncurrent assets in the Consolidated Balance Sheets.

The impact of this swap on Interest expense, net in the Consolidated Statements of Operations was a increase of $0.2 million for fiscal 2005 and an increase of $2.4 million for fiscal 2004. There were no interest rate swap agreements in effect during fiscal 2003.

In May 2005, the Company entered into a series of foreign exchange forward contracts to manage its U.S.-dollar exposure on Euro-based obligations for firm commitments related to certain capital expenditure projects. In accordance with SFAS No. 133, the Company designated the forward contracts as a fair value hedge. In addition, the forward contracts, which mature through September 15, 2006, are completely effective in hedging the Company’s specifically-covered firm commitments, meaning that any change in the foreign currency is offset by a similar change in the firm commitment. At December 31, 2005, the Company had approximately $30.1 million of notional amount in outstanding contracts with a third party financial institution.

During the fourth quarter of 2004, the Company used foreign currency options to establish a predictable range for the movements of the Euro in an effort to protect its European operations from the impact of a sudden change in the Euro. Approximately $0.3 million of expense was included in Foreign currency and other(gain) loss, net in the Consolidated Statements of Operations for fiscal 2004. The fair market value of the outstanding foreign currency option as of January 1, 2005 of $0.1 million was based on the actual settlement value and was included in Other current liabilities in the Consolidated Balance Sheets.

Note 17. Shareholders’ Equity

As of December 31, 2005 and January 1, 2005, the Company’s authorized capital stock consisted of the following classes of stock:

Type	Par Value			Authorized Shares
PIK Preferred stock		$	.01		173,000
Class A common stock		$	.01		39,200,000
Class B convertible common stock		$	.01		800,000
Class C convertible common stock		$	.01		118,453
Class D convertible common stock		$	.01		498,688
Class E convertible common stock		$	.01		523,557

All classes of the common stock have similar voting rights. In accordance with the Amended and Restated Certificate of Incorporation, Class C Common Stock has special rights to annual dividends, which are not significant, and all shares of Class B, C, D and E Common Stock may be converted into an equal number of shares of Class A Common Stock. The shares of preferred stock may be issued

87

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

from time to time with such designation, preferences, participation rights and optional or special rights (including, but not limited to, dividend rates, voting rights, maturity dates and the like) as determined by the Board of Directors. See Note 15 to the Consolidated Financial Statements for additional information related to the Company’s PIK Preferred Shares.

In April 2004, the United States Bankruptcy Court for the District of South Carolina resolved certain pending claims filed against the Company in connection with the Modified Plan and, as a result, approved the issuance of 1,327,177 shares of the Company’s Class A Common Stock and 19,359 shares of the Company’s Class C Common Stock which were issued on a pro rata basis to holders of the Predecessor Company’s Class 4 General Unsecured Claims per the Predecessor Company’s Chapter 11 Plan of Reorganization. If these shares had been outstanding for all Successor periods presented, the pro forma net loss per common share (basic and diluted) for the year ended January 1, 2005 and the ten months ended January 3, 2004 would have been $(0.08) per share and $(3.30) per share, respectively.

Note 18. Segment Information

The Company’s reportable segments consist of its primary operating divisions—Nonwovens and Oriented Polymers. This reflects how the overall business is managed by the Company’s senior management and reviewed by the Board of Directors. Each of these businesses sells to different end-use markets, such as hygiene, medical, wipes, industrial and specialty markets. Sales to P&G accounted for more than 10% of the Company’s sales in each of the periods presented. Sales to this customer are reported primarily in the Nonwovens segment and the loss of these sales would have a material adverse effect on this segment. The Company recorded charges and/or income in the Consolidated Statements of Operations during the fiscal years 2005 and 2004, the ten months ended January 3, 2004 and the two months ended March 1, 2003 relating to asset impairment charges, plant realignment costs, foreign currency losses, net and arbitration settlement, net that have not been allocated to the segment data.

88

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial data by segment is as follows (in thousands):

	Successor										Predecessor
	2005			2004			Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Net sales
Nonwovens	$	763,777		$	672,600			$	515,735			$	108,359
Oriented Polymers	185,071			172,541				129,683				24,536
Eliminations	—			(407		)		(525		)		—
	$	948,848		$	844,734			$	644,893			$	132,895
Operating income
Nonwovens	$	66,744		$	60,356			$	38,856			$	7,759
Oriented Polymers	10,677			12,699				8,489				1,465
Unallocated Corporate	(20,746		)	(18,958		)		(12,648		)		(3,509		)
Eliminations	259			202				124				115
	56,934			54,299				34,821				5,830
Asset impairment charges	—			(2,253		)		(1,207		)		—
Plant realignment costs	(9		)	(1,867		)		(6,802		)		(4		)
Foreign currency loss, net	(671		)	(2,027		)		(2,773		)		(1,343		)
Arbitration settlement, net	—			13,112				—				—
	$	56,254		$	61,264			$	24,039			$	4,483
Depreciation and amortization expense included in operating income (loss)
Nonwovens	$	45,083		$	41,923			$	34,283			$	5,766
Oriented Polymers	10,643			8,217				6,912				1,349
Unallocated Corporate	106			1,120				(272		)		272
Eliminations	(259		)	—				125				—
Depreciation and amortization expense included in operating income	55,573			51,260				41,048				7,387
Amortization of loan acquisition costs	1,977			1,970				1,572				1,425
	$	57,550		$	53,230			$	42,620			$	8,812
Capital spending
Nonwovens	$	77,088		$	23,766			$	32,836			$	2,732
Oriented Polymers	1,814			1,025				3,828				330
Corporate	—			—				11				—
	$	78,902		$	24,791			$	36,675			$	3,062
Division assets
Nonwovens	$	715,977		$	732,163			$	706,347
Oriented Polymers	144,477			149,393				147,075
Corporate	2,096			560				7,039
Eliminations	(97,549		)	(127,558		)		(141,399		)
	$	765,001		$	754,558			$	719,062

89

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Geographic Data:

Export sales from the Company’s United States operations to unaffiliated customers approximated $60.6 million, $60.2 million and $61.5 million during fiscal 2005, 2004 and 2003, respectively. Geographic data for the Company’s operations, based on the geographic region that the sale is made from, are presented in the following table (in thousands):

	Successor										Predecessor
	2005			2004			Ten Months Ended January 3, 2004				Two Months Ended March 1, 2003
Net sales
United States	$	444,968		$	381,421			$	289,064			$	60,219
Canada	116,158			111,591				88,088				16,416
Europe	184,743			190,470				152,608				33,631
Asia	44,297			32,384				26,730				4,773
Latin America	158,682			128,868				88,403				17,856
	$	948,848		$	844,734			$	644,893			$	132,895
Operating income
United States	$	3,366		$	3,402			$	895			$	(1,582	)
Canada	3,205			5,491				4,152				1,233
Europe	15,770			17,384				12,176				2,330
Asia	5,583			3,442				3,075				848
Latin America	29,010			24,580				14,523				3,001
	56,934			54,299				34,821				5,830
Asset impairment charges	—			(2,253		)		(1,207		)		—
Plant realignment costs	(9		)	(1,867		)		(6,802		)		(4		)
Foreign currency loss, net	(671		)	(2,027		)		(2,773		)		(1,343		)
Arbitration settlement, net	—			13,112				—				—
	$	56,254		$	61,264			$	24,039			$	4,483
Depreciation and amortization expense included in operating income (loss)
United States	$	24,891		$	24,240			$	20,882			$	3,658
Canada	8,429			6,015				5,045				950
Europe	9,286			8,862				6,991				1,166
Asia	4,149			4,014				3,141				628
Latin America	8,818			8,129				4,989				985
Depreciation and amortization expense included in operating income	55,573			51,260				41,048				7,387
Amortization of loan acquisition costs	1,977			1,970				1,572				1,425
	$	57,550		$	53,230			$	42,620			$	8,812
Identifiable assets (including intangible assets)
United States	$	323,596		$	294,042			$	286,277
Canada	94,531			99,382				106,428
Europe	202,324			294,811				279,269
Asia	60,267			35,996				37,987
Latin America	181,834			157,900				141,941
Eliminations	(97,551		)	(127,573		)		(132,840		)
	$	765,001		$	754,558			$	719,062

90

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 19. Foreign Currency Loss, Net

Components of foreign currency (gain) loss are shown in the table below (in thousands):

	Successor								Predecessor
	2005			2004		Ten Months Ended January 3, 2004			Two Months Ended March 1, 2003
Included in operating income	$	671		$	2,027		$	2,773		$	1,343
Included in other expense (income)	(280		)	1,046			972			471
	$	391		$	3,073		$	3,745		$	1,814

For international subsidiaries which have the U.S. dollar as their functional currency, local currency transactions are remeasured into U.S. dollars, using current rates of exchange for monetary assets and liabilities. Gains and losses from the remeasurement of such monetary assets and liabilities are reported in Foreign currency loss, net in the Consolidated Statements of Operations. Likewise, for international subsidiaries which have the local currency as their functional currency, gains and losses from the remeasurement of monetary assets and liabilities not denominated in the local currency are reported in Foreign currency loss, net in the Consolidated Statements of Operations. Additionally, currency gains and losses have been incurred on intercompany loans between subsidiaries, and to the extent that such loans are not deemed to be permanently invested, such currency gains and losses are also reflected in Foreign currency and other (gain) loss, net in the Consolidated Statement of Operations.

The Company includes gains and losses on receivables, payables and other operating transactions as a component of operating income in foreign currency loss, net. Other foreign currency gains and losses, primarily related to intercompany loans and debt, are included in Foreign currency and other (gain) loss, net.

91

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 20. Commitments and Contingencies

Non-affiliate Leases

The Company leases certain manufacturing, warehousing and other facilities and equipment under operating leases. The leases on most of the properties contain renewal provisions. Rent expense (net of sub-lease income), including incidental leases, approximated $3.3 million, $4.0 million and $3.2 million in 2005, 2004 and 2003, respectively. For the Successor ten month period and the Predecessor two month period of 2003, the rental expense was $2.6 million and $0.6 million, respectively. Rental income approximated $0.2 million, $0.6 million and $0.5 million in 2005, 2004 and 2003, respectively. The expenses are recognized on a straight-line basis over the life of the lease. The approximate net minimum rental payments required under non-affiliate operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2005 are presented in the following table. See Note 21 to the Consolidated Financial Statements for a discussion of leases between the Company and affiliated entities.

	Gross Minimum Rental Payments			Lease and Sub-Lease (Income)				Net Minimum Rental Payments
	(In Thousands)
2006		$	2,481		$	(26	)		$	2,455
2007		1,846			—				1,846
2008		1,406			—				1,406
2009		1,066			—				1,066
2010		475			—				475
		$	7,274		$	(26	)		$	7,248

Purchase Commitments

At December 31, 2005, the Company had commitments of approximately $36.6 million related to the purchase of raw materials, maintenance and converting services. Additionally, as part of its efforts to enhance the business, the Company has made commitments to expand its worldwide capacity. Currently, the Company has several major committed projects, including the construction of new spunmelt manufacturing facilities in Suzhou, China and Mooresville, North Carolina, as well as the installation of additional capacity in Nanhai, China. Remaining payments due related to these planned expansions as of December 31, 2005 totaled approximately $45.6 million and are expected to be expended during fiscal year 2006.

Collective Bargaining Agreements

At December 31, 2005, the Company had approximately 3,331 employees worldwide. Approximately 1,399 employees are represented by labor unions or trade councils, which have entered into separate collective bargaining agreements with the Company. Approximately 29% of the Company’s labor force is covered by collective bargaining agreements that will expire within one year.

Environmental

The Company is subject to a broad range of federal, foreign, state and local laws and regulations relating to pollution and protection of the environment. The Company believes that it is currently in substantial compliance with applicable environmental requirements and does not currently anticipate

92

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

any material adverse effect on its operations, financial or competitive position as a result of its efforts to comply with environmental requirements.

Litigation

On August 18, 2003, The Intertech Group, Inc. (“TIG”), an affiliate of Jerry Zucker, the former Chief Executive Officer of the Company, filed a claim seeking damages associated with a lease agreement and an alleged services agreement, between the Company and TIG, associated with the lease by the Company of its former corporate headquarters and the provision of shared administrative services. On April 29, 2005, the Company entered into a Settlement Agreement, Receipt and Release (the “Settlement Agreement”) with Jerry Zucker, TIG and ZS Associates LLC (an affiliate of Mr. Zucker). Pursuant to the Settlement Agreement, the Company paid TIG $3.1 million as full and final settlement. In addition, the Settlement Agreement contains mutual general releases of any and all claims by and among the parties thereto, and a requirement that the Company and TIG file a joint stipulation dismissing, with prejudice, TIG’s lawsuit against the Company, which was appropriately filed on May 2, 2005. The settlement amount was approximately equal to amounts previously accrued and, accordingly, there was no gain or loss recognized in fiscal 2005.

During 2005, the Company received approximately $1.9 million as its portion of class-action settlement agreements with various suppliers of raw materials. These recoveries were included in Selling, general and administrative expenses in the Consolidated Statement of Operations for fiscal 2005.

The Company is not currently a party to any material pending legal proceedings other than routine litigation incidental to the business of the Company. During 2005, the Company was served with a lawsuit by a former customer alleging breach of contract and other charges. The discovery phase has recently begun and there is not currently enough information to formulate an assessment of the ultimate outcome of the claim. Therefore, management is not able to estimate the amount of such loss at this time. The Company intends to vigorously defend this action and believes that it has reasonable arguments available in its defense. However, there is a possibility that resolution of this matter, or others that may arise in the normal course of business, could result in a loss in excess of established reserves, if any.

During 2004, the Company settled an issue under arbitration and received approximately $17.0 million from Johnson & Johnson as settlement of the arbitration issues. Net settlement proceeds of $13.1 million, after providing for $3.9 million of costs and expenses associated with the arbitration, were included in Arbitration settlement, net in the Consolidated Statement of Operations for the fiscal year ended January 1, 2005.

Note 21. Related Party Transactions

The Company leased office space, previously serving as the Company’s corporate headquarters, from an affiliate of the former Chief Executive Officer of the Company through August 31, 2003 at an approximate annual rental charge of $0.2 million. Shared service costs were charged to the Company and approximated $0.6 million in 2003. In fiscal 2005, the Company settled all outstanding litigation issues with the aforementioned affiliate of the former Chief Executive Officer with respect to the lease and shared services. See Note 20 to the Consolidated Financial Statements for additional details.

93

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company executed a consulting agreement in December 2004 with the Chairman of the Board of Directors to provide certain consulting services as an independent contractor on a month-to-month basis. The consulting agreement provided for a one-time issuance of 25,000 shares of the Company’s restricted shares authorized pursuant to the Restricted Plan and payment of $20,000 per month. Compensation expense recognized with respect to the consulting agreement during 2005 and 2004 totaled $0.2 million and $0.4 million, respectively, and is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. Effective December 31, 2005, the Company and the Chairman of the Board of Directors terminated the consulting agreement.

Note 22. Quarterly Results of Operations (Unaudited)

Quarterly financial data for the fiscal year ended December 31, 2005 and the fiscal year ended January 1, 2005 is presented below (amounts in thousands, except for per share data). All 2005 and 2004 fiscal quarters were comprised of 13 weeks.

Quarterly data for fiscal 2005:

	Fourth Quarter Ended December 31, 2005				Third Quarter Ended October 1, 2005				Second Quarter Ended July 2, 2005			First Quarter Ended April 2, 2005
Operating data:
Net sales		$	240,414			$	228,220			$	235,853		$	244,361
Gross profit		36,714				38,905				41,943			43,917
Net income (loss)		(2,433		)		194				4,070			5,166
Accrued and paid-in-kind dividends on PIK Preferred Shares		—				14,790				2,357			10,851
Income (loss) applicable to common shareholders		(2,433		)		(14,596		)		1,713			(5,685		)
Income (loss) per common share—basic		$	(0.13	)		$	(1.17	)		$	0.16		$	(0.55	)
Income (loss) per common share—diluted		$	(0.13	)		$	(1.17	)		$	0.16		$	(0.55	)

During the fourth quarter of 2005, the Company received approximately $1.1 million as its portion of class-action settlement agreements with various suppliers of raw materials. The Company also received approximately $0.9 million as settlement of a supply arrangement with a raw material provider.

During the fourth quarter of 2005, the Company recognized an income tax expense of $0.5 million on a pre-tax loss of $1.9 million. The effective tax rate for the quarter was unfavorably impacted by losses in the U.S. and other jurisdictions for which no tax benefit has been realized, as well as an adjustment to tax accruals recorded through the previous three quarters.

94

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Quarterly data for fiscal 2004:

	Fourth Quarter Ended January 1, 2005			Third Quarter Ended October 2, 2004				Second Quarter Ended July 3, 2004			First Quarter Ended April 3, 2004
Operating data:
Net sales		$	223,535		$	204,554			$	210,403		$	206,242
Gross profit		43,173			35,534				36,779			37,976
Net income (loss)		8,375			(596		)		5,723			(8,770		)
Accrued dividends on PIK Preferred Shares		2,342			1,953				1,271			—
Income (loss) applicable to common shareholders		6,033			(2,549		)		4,452			(8,770		)
Income (loss) per common share—basic		$	0.58		$	(0.25	)		$	0.45		$	(1.00	)
Income (loss) per common share—diluted		$	0.46		$	(0.25	)		$	0.36		$	(1.00	)

The fourth quarter of 2004 included a curtailment gain of $3.6 million related to amendments to various postretirement benefit plans as described in Note 13 to the Consolidated Financial Statements.

During the fourth quarter of 2004, the Company recognized an income tax benefit of $0.2 million. The effective tax rate for the quarter was favorably impacted by profits generated in certain jurisdictions which experienced losses in previous periods for which no tax benefit had been realized, as well as an adjustment for excess tax accruals in previous quarters.

Note 23. Supplemental Cash Flow Information

Cash payments of interest and taxes consist of the following (in thousands):

	Successor								Predecessor
	2005			2004		Ten Months Ended January 3, 2004			Two Months Ended March 1, 2003
Cash payments of interest, net of amounts capitalized	$	34,139		$	37,764		$	42,066		$	12,409
Cash payments (refunds) of income taxes, net of refunds	(9,705		)	6,827			6,102			1,120

Noncash transactions in 2005 included: (i) the conversion or redemption of 62,926 shares of the Company’s PIK Preferred Shares into approximately 8,629,346 shares of the Company’s Class A Common Stock, (ii) the issuance of 10,200 PIK Preferred Shares as payment-in-kind, in lieu of cash payment, of approximately $10.3 million of dividends on the Company’s PIK Preferred Shares, which resulted in an additional non-cash dividend charge of approximately $21.5 million in excess of the amounts accrued at the stated dividend rate of 16.0% on the PIK Preferred Shares and (iii) the accrual of $1.8 million of dividends on the PIK Preferred Shares from the date of the last dividend declaration date to the date the PIK Preferred Stock were redeemed or converted to Class A Common Stock.

95

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Noncash transactions in 2004 included (i) the issuance of 1,327,177 shares of the Company’s Class A Common Stock and 19,359 shares of the Company’s Class C Common Stock in accordance with the ruling of the United States Bankruptcy Court for the District of South Carolina, (ii) the conversion of $2.7 million of the Company’s Junior Notes into approximately 371,382 shares of the Company’s Class A Common Stock, (iii) the exchange of $42.6 million of the Company’s Junior Notes into approximately 42,633 shares of the Company’s PIK Preferred Shares, (iv) the exchange of $10.1 million of the Company’s Junior Notes into approximately 10,083 shares of the Company’s PIK Preferred Shares and 6,719 shares of the Company’s Class A Common Stock, (v) the payment in kind in lieu of cash payment of $1.8 million of interest expense on the Junior Notes and (vi) the accrual of $5.6 million of dividends on the PIK Preferred Shares.

Noncash transactions in 2003 included the payment in kind in lieu of cash payment of $3.7 million of interest expense on the Junior Notes.

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2005.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2005. Grant Thornton LLP, an independent registered public accounting firm, has issued its report on management’s assessment of the Company’s internal control over financial reporting which is included herein.

97

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting in the fourth quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of
Polymer Group, Inc.

We have audited management's assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Polymer Group, Inc. (a Delaware corporation) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Polymer Group, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Polymer Group, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on COSO as described in the introductory paragraph. Also in our opinion, Polymer Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on COSO as described in the introductory paragraph.

98

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Polymer Group, Inc. as of December 31, 2005, and the related consolidated statements of operations, changes in shareholders’ equity and comprehensive income (loss) and cash flows for the fiscal year ended December 31, 2005 and our report dated March 15, 2006 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Columbia, South Carolina
March 15, 2006

99

ITEM 9B.OTHER INFORMATION

None.

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this Item is set forth under the captions “Election of Directors” and “Management” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

Information on the beneficial ownership reporting for the Company’s directors and executive officers is contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

Information on the Company’s Audit Committee and Audit Committee Financial Expert is set forth under the caption “Information About the Board of Directors” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

The Company has a Code of Conduct that applies to all officers and employees, including the Company’s Chief Executive Officer, Chief Financial Officer and other key financial and accounting officers. The Code of Conduct can be found on the Investors’ page of the Company’s publicly-available website (www.polymergroupinc.com). The Company will post any amendments to the Code of Conduct, and any waivers that are required to be disclosed by Securities and Exchange Commission regulations, on the Company’s website.

ITEM 11.EXECUTIVE COMPENSATION

Information required under this Item is set forth under the captions “Executive Compensation” and “Compensation of Directors” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required under this Item is set forth under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

The following table provides certain information as of December 31, 2005 with respect to our equity compensation plans:

	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights		(b) Weighted-average exercise price of outstanding options, warrants and rights			(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		400,000		$	6.00		—
Total		400,000		$	6.00		—

100

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required under this Item is set forth under the caption “Certain Relationships and Related Transactions” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required under this Item is set forth under the caption “Fees Paid to Grant Thornton LLP and Ernst & Young LLP” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

101

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)1.Financial Statements

The following consolidated financial statements and reports of Independent Registered Public Accounting Firms required by this Item are filed herewith under Item 8 of this Annual Report on Form 10-K:

·Report of Grant Thornton LLP, Independent Registered Public Accounting Firm.

·  Report of Ernst & Young LLP, Independent Registered Public Accounting Firm.

·Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005.

·Consolidated Statements of Operations for the fiscal years ended December 31, 2005 and January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003.

·Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) for the fiscal years ended December 31, 2005, January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003.

·Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2005, January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003.

·Notes to Consolidated Financial Statements for the fiscal years ended December 31, 2005, January 1, 2005, the ten months ended January 3, 2004 and the two months ended March 1, 2003.

(a)   2.Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts (“Schedule II”). Supplemental schedules other than Schedule II are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or in the notes thereto.

(a)3.Exhibits

Exhibits required in connection with this Annual Report on Form 10-K are listed below. Certain exhibits are incorporated by reference to other documents on file with the Securities and Exchange Commission, with which they are physically filed, to be a part of this report as of their respective dates.

102

Exhibit Number		Document Description
2.1	Joint Second Amended Modified Plan of Reorganization of Polymer Group, Inc. and its Affiliated Debtors dated November 25, 2002.(1)
2.2	Confirmation Order entered by the United States Bankruptcy Court for the District of South Carolina dated January 16, 2003.(2)
3.1	Amended and Restated Certificate of Incorporation of the Company.(3)
3.2	Amended and Restated By-laws of the Company.(4)
4.1	Shareholders Agreement dated as of March 5, 2003.(5)
4.2	Amendment No. 1 to Shareholders Agreement, dated as of December 20, 2004 (6)
10.1	Credit Agreement, dated as of April 27, 2004 among Polymer Group, Inc. as Borrower, the Lenders referred to therein, Citicorp North America, Inc. as Administrative Agent, Documentation Agent, First Lien Collateral Agent, Second Lien Collateral Agent and Syndication Agent, and Citigroup Global Markets Inc., as Sole Lead Arranger and Sole Bookrunner (the “2004 Credit Agreement’’).(7)*
10.2	Security Agreement, by Polymer Group, Inc., and the domestic subsidiaries party thereto, as Grantors, and Citicorp North America, Inc. as First Lien Collateral Agent and Second Lien Collateral Agent, dated as of April 27, 2004.(8)*
10.3	Pledge Agreement, by Polymer Group, Inc., and the domestic subsidiaries party thereto, as pledgors, and Citicorp North America, Inc. as First Lien Collateral Agent and Second Lien Collateral Agent, dated as of April 27, 2004.(9)*
10.4	Guarantee Agreement, dated as of April 27, 2004 among each of the subsidiaries listed on Schedule I thereto of Polymer Group, Inc.and Citicorp North America, Inc. as First Lien Collateral Agent, Second Lien Collateral Agent and Administrative Agent. (10)*
10.5	Letter Agreement, dated April 11, 2003, between Polymer Group, Inc. and Matlin Patterson Global Opportunities Partners L.P.(11)
10.6	Master Separation Agreement among Polymer Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc., dated January 29, 1998.(12)
10.7	Consulting Agreement executed on December 15, 2004 between Polymer Group, Inc. and William B. Hewitt (effective December 9, 2004).(13)*
10.8	Amendment No. 2 to the 2004 Credit Agreement Credit Agreement.(14)*
10.9	Credit Agreement, dated as of November 22, 2005 among Polymer Group, Inc. as Borrower, the Lenders referred to therein, Citicorp North America, Inc. as Administrative Agent, Document Agent, Collateral Agent and Syndication Agent, and Citigroup Global Markets Inc., as Sole Lead Arranger and Sole Bookrunner.
10.10	Security Agreement, by Polymer Group, Inc., and the domestic subsidiaries party thereto, as Grantors, and Citicorp North America, Inc. as Collateral Agent, dated as of November 22, 2005.
10.11	Pledge Agreement, by Polymer Group, Inc., and the domestic subsidiaries party thereto, as pledgors, and Citicorp North America, Inc. as Collateral Agent, dated as of November 22, 2005.
10.12	Guarantee Agreement, dated as of November 22, 2005 among each of the subsidiaries listed on Schedule I thereto of Polymer Group, Inc., Citicorp North America, Inc. as Collateral Agent and Administrative Agent.
10.13	Settlement Agreement, Receipt and Release, dated as of April 29, 2005 by and among Polymer Group, Inc., Jerry Zucker, The Intertech Group, Inc., ZS Associates LLC and MatlinPatterson Global Advisors LLC (on behalf of itself and various affiliated entities named in the Settlement Agreement). (15)

103

10.14	Executive Employment Agreement dated March 30, 2004 between Polymer Group, Inc. and James L. Schaeffer. (16)**
10.15	Executive Employment Agreement dated as of October 27, 2003 between Polymer Group, Inc. and Willis C. Moore, III. (17)**
10.16	Polymer Group, Inc. 2003 Stock Option Plan. (18)**
10.17	Polymer Group, Inc. 2003 Stock Option Plan Amendments. (19)**
10.18	Polymer Group, Inc. 2004 Restricted Stock Plan. (20)**
10.19	Polymer Group, Inc. 2005 Stock Option Plan. (21)**
10.20	Form of Stock Option Agreement for 2003 Plan. (22)**
10.21	Polymer Group, Inc. Short-Term Incentive Compensation Plan. (23)**
21	List of Subsidiaries of the Company.
23.1	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.
23.2	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

(1)   Incorporated by reference to Exhibit 2.1 of the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2004.

(2)   Incorporated by reference to Exhibit 2.2 of the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2004.

(3)   Incorporated by reference to Exhibit 99.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2003.

(4)   Incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2005.

(5)   Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 19, 2003.

(6)   Incorporated by reference to Exhibit 4.7 of the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2005.

(7)   Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2004.

(8)   Incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2004.

(9)   Incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2004.

(10) Incorporated by reference to Exhibit 99.4 of the Company’s Current Report on Form 8-K filed with the SEC on April 30, 2004.

(11) Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 19, 2003.

(12) Incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K/A filed with the SEC on April 14, 1998.

104

(13) Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 17, 2004.

(14) Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 21, 2005.

(15) Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2005.

(16) Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 22, 2005.

(17) Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 22, 2005.

(18) Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 filed with the SEC on December 14, 2004.

(19) Incorporated by reference to Annex I of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 15, 2005.

(20) Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 filed with the SEC on December 14, 2004.

(21) Incorporated by reference to Annex III of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 15, 2005.

(22) Incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-8 filed with the SEC on December 14, 2004.

(23) Incorporated by reference to Annex II of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 15, 2005.

*     These agreements have been terminated and there are no remaining obligations pursuant thereto. These documents are filed as exhibits to this Annual Report on Form 10-K pursuant to Item 601(b)(10) of Regulation S-K which requires the filing of every material agreement that was entered into not more than two years before the filing of this Annual Report on Form 10-K.

**   Management contract or compensatory plan or arrangement.

105

POLYMER GROUP, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

COLUMN A	COLUMN B			COLUMN C						COLUMN D			COLUMN E
				ADDITIONS						DEDUCTIONS
Description	Balance at beginning of period			Charged To costs and expenses			Charged to other accounts (Describe)			(Describe)			Balance at end of period
Successor:
Fiscal Year ended December 31, 2005
Allowance for doubtful accounts		$	9,725		1,350			48	(4)		1,537	(2)		$	9,586
Valuation allowance for deferred tax assets		103,854			2,681			—			7,999	(4)(7)		98,536
Plant realignment		561			9			(32	)		375	(3)		163
Fiscal Year ended January 1, 2005
Allowance for doubtful accounts		$	13,570		(1,427	)(1)		869	(4)		3,287	(2)		$	9,725
Valuation allowance for deferred tax assets		100,751			3,103			—			—			103,854
Plant realignment		4,564			1,867			39			5,909	(3)		561
Ten months ended January 3, 2004
Allowance for doubtful accounts		$	13,394		1,670			408	(4)		1,902	(2)		$	13,570
Valuation allowance for deferred tax assets		85,677			10,651			—			(4,423	)(4)(6)		100,751
Plant realignment		785			6,802			—			3,023	(3)		4,564
Predecessor:
Two months ended March 1, 2003
Allowance for doubtful accounts		12,945			507			120	(4)		178	(2)		13,394
Valuation allowance for deferred tax assets		160,614			5,699			—			80,636	(5)		85,677
Plant realignment		893			4			1,158	(5)		1,270	(3)		785

(1)Reserve adjustments of $2,577, net of current year provision of $1,150.

(2)Uncollectible accounts written-off and price concessions.

(3)Cash payments and adjustments.

(4)Foreign currency translation adjustments.

(5)Fresh start adjustment.

(6)Basis study adjustment.

(7)    Net reductions due to realizations of deferred tax assets.

106

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	POLYMER GROUP, INC.
	By:	/s/ WILLIS C. MOORE, III
Date: March 16, 2006		Willis C. Moore, III Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 16, 2006.

	Signature		Title
/s/ JAMES L. SCHAEFFER		Chief Executive Officer and Director
James L. Schaeffer
/s/ WILLIS C. MOORE, III		Chief Financial Officer
Willis C. Moore, III
/s/ WILLIAM B. HEWITT		Chairman of the Board of Directors
William B. Hewitt
/s/ PEDRO A. ARIAS		Director
Pedro A. Arias
/s/ RAMON BETOLAZA		Director
Ramon Betolaza
		Director
Lap Wai Chan
/s/ EUGENE LINDEN		Director
Eugene Linden
/s/ JAMES A. OVENDEN		Director
James A. Ovenden
/s/ MICHAEL WATZKY		Director
Michael Watzky

107

EX-10.9

Exhibit 10.9

$455,000,000

CREDIT AGREEMENT

Dated as of November 22, 2005

among

POLYMER GROUP, INC.,
as Borrower,

THE LENDERS REFERRED TO HEREIN,

CITICORP NORTH AMERICA, INC.,
as Administrative Agent, Documentation Agent,
Collateral Agent and Syndication Agent,

and

CITIGROUP GLOBAL MARKETS INC.,
as Sole Lead Arranger and Sole Bookrunner

Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York  10005

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
SECTION 1.01.	Defined Terms	1
SECTION 1.02.	Classification of Loans and Borrowings	27
SECTION 1.03.	Terms Generally	27
ARTICLE II
THE CREDITS
SECTION 2.01.	Credit Commitments	27
SECTION 2.02.	Procedure for Borrowing	28
SECTION 2.03.	Conversion and Continuation Options for Loans	29
SECTION 2.04.	Swingline Loans	30
SECTION 2.05.	Optional and Mandatory Prepayments of Loans; Repayments of Term Loans	31
SECTION 2.06.	Letters of Credit	34
SECTION 2.07.	Repayment of Loans; Evidence of Debt	37
SECTION 2.08.	Interest Rates and Payment Dates	38
SECTION 2.09.	Computation of Interest	39
SECTION 2.10.	Fees	39
SECTION 2.11.	Termination, Reduction or Adjustment of Commitments	40
SECTION 2.12.	Inability to Determine Interest Rate; Unavailability of Deposits; Inadequacy of Interest Rate	40
SECTION 2.13.	Pro Rata Treatment and Payments	41
SECTION 2.14.	Illegality	42
SECTION 2.15.	Requirements of Law	42
SECTION 2.16.	Taxes	43
SECTION 2.17.	Indemnity	45
SECTION 2.18.	Change of Lending Office	45
SECTION 2.19.	Sharing of Setoffs	45
SECTION 2.20.	Assignment of Commitments Under Certain Circumstances	46
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01.	Organization, etc.	47
SECTION 3.02.	Due Authorization, Non-Contravention, etc.	47
SECTION 3.03.	Government Approval, Regulation, etc.	47
SECTION 3.04.	Validity, etc.	48
SECTION 3.05.	Financial Information	48
SECTION 3.06.	No Material Adverse Effect	48
SECTION 3.07.	Litigation	48
SECTION 3.08.	Compliance with Laws and Agreements	48
SECTION 3.09.	Subsidiaries	48

i

SECTION 3.10.	Ownership of Properties	48
SECTION 3.11.	Taxes	49
SECTION 3.12.	Pension and Welfare Plans	49
SECTION 3.13.	Environmental	50
SECTION 3.14.	Regulations U and X	51
SECTION 3.15.	Disclosure; Accuracy of Information; Pro Forma Balance Sheets and Projected Financial Statements	51
SECTION 3.16.	Insurance	52
SECTION 3.17.	Labor Matters	52
SECTION 3.18.	Solvency	52
SECTION 3.19.	Securities	52
SECTION 3.20.	Indebtedness Outstanding	53
SECTION 3.21.	Security Documents	53
SECTION 3.22.	Anti-Terrorism Laws	54
ARTICLE IV
CONDITIONS
SECTION 4.01.	Effective Date	54
SECTION 4.02.	Conditions to Each Credit Event	60
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01.	Financial Information, Reports, Notices, etc.	61
SECTION 5.02.	Compliance with Laws, etc.	63
SECTION 5.03.	Maintenance of Properties	63
SECTION 5.04.	Insurance	63
SECTION 5.05.	Books and Records; Visitation Rights	64
SECTION 5.06.	Environmental Covenant	64
SECTION 5.07.	Information Regarding Collateral	65
SECTION 5.08.	Existence; Conduct of Business	66
SECTION 5.09.	Performance of Obligations	66
SECTION 5.10.	Casualty and Condemnation	66
SECTION 5.11.	Pledge of Additional Collateral	66
SECTION 5.12.	Further Assurances	67
SECTION 5.13.	Use of Proceeds	67
SECTION 5.14.	Payment of Taxes	67
SECTION 5.15.	Equal Security for Loans and Notes	67
SECTION 5.16.	Guarantees	68
SECTION 5.17.	Subordination of Intercompany Loans	68
SECTION 5.18.	Interest Rate Protection	68
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01.	Indebtedness; Certain Equity Securities	69
SECTION 6.02.	Liens	71

ii

SECTION 6.03.	Fundamental Changes; Line of Business	73
SECTION 6.04.	Investments, Loans, Advances, Guarantees and Acquisitions	74
SECTION 6.05.	Asset Sales	75
SECTION 6.06.	Sale and Leaseback Transactions	76
SECTION 6.07.	Restricted Payments	77
SECTION 6.08.	Transactions with Affiliates	77
SECTION 6.09.	Restrictive Agreements	78
SECTION 6.10.	Amendments or Waivers of Certain Documents; Prepayments of Certain Indebtedness	78
SECTION 6.11.	No Other “Designated Senior Indebtedness.”	78
SECTION 6.12.	Interest Expense Coverage Ratio	79
SECTION 6.13.	Total Leverage Ratio	80
SECTION 6.14.	Capital Expenditures	81
SECTION 6.15.	Anti-Terrorism Law	81
SECTION 6.16.	Embargoed Person	82
SECTION 6.17.	Anti-Money Laundering	82
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01.	Listing of Events of Default	82
SECTION 7.02.	Action if Bankruptcy	84
SECTION 7.03.	Action if Other Event of Default	85
SECTION 7.04.	Action if Event of Termination	85
ARTICLE VIII
THE AGENTS
SECTION 8.01.	The Agents	85
ARTICLE IX
MISCELLANEOUS
SECTION 9.01.	Notices	87
SECTION 9.02.	Survival of Agreement	88
SECTION 9.03.	Binding Effect	88
SECTION 9.04.	Successors and Assigns	88
SECTION 9.05.	Expenses; Indemnity	91
SECTION 9.06.	Right of Setoff	93
SECTION 9.07.	Applicable Law	93
SECTION 9.08.	Waivers; Amendment	93
SECTION 9.09.	Interest Rate Limitation	97
SECTION 9.10.	Entire Agreement	97
SECTION 9.11.	WAIVER OF JURY TRIAL	97
SECTION 9.12.	Severability	97
SECTION 9.13.	Counterparts	97
SECTION 9.14.	Headings	97
SECTION 9.15.	Jurisdiction; Consent to Service of Process	98

iii

SECTION 9.16.	Confidentiality	98
SECTION 9.17.	Citigroup Direct Website Communications	98

iv

EXHIBIT A	Form of Administrative Questionnaire
EXHIBIT B	Form of Borrowing Request
EXHIBIT C	Form of Assignment and Acceptance
EXHIBIT D	Form of Compliance Certificate
EXHIBIT E	Form of Indemnity, Subrogation and Contribution Agreement
EXHIBIT F-1	Form of Term Note
EXHIBIT F-2	Form of Revolving Note
EXHIBIT F-3	Form of Swingline Note
EXHIBIT G	Form of Closing Certificate
EXHIBIT H	Form of Guarantee Agreement
EXHIBIT I	Form of Pledge Agreement
EXHIBIT J	Form of Security Agreement
EXHIBIT K	Form of Opinion of Local Counsel
EXHIBIT L	Form of Solvency Certificate
EXHIBIT M	Form of Mortgage
EXHIBIT N	Form of Landlord Access Agreement
SCHEDULE 1.01	Permitted Restructuring
SCHEDULE 1.02	Existing Letters of Credit
SCHEDULE 2.01	Lenders and Commitments
SCHEDULE 3.05	Financial Information
SCHEDULE 3.09	Subsidiaries
SCHEDULE 3.10(b)	Leased and Owned Real Property
SCHEDULE 3.13(a)	Facilities/Properties Not in Compliance with Environmental Laws
SCHEDULE 3.13(b)	Environmental Claims
SCHEDULE 3.13(c)	Hazardous Materials
SCHEDULE 3.16	Insurance
SCHEDULE 3.19	Securities
SCHEDULE 3.20(a)	Indebtedness to Be Paid
SCHEDULE 3.20(b)	Liens to Be Terminated
SCHEDULE 3.21(d)	Mortgage Filing Offices
SCHEDULE 4.01(f)	Local Counsel
SCHEDULE 4.01(u)(A)	Mortgaged Properties
SCHEDULE 4.01(u)(C)	Title Insurance Amounts
SCHEDULE 6.01	Existing Indebtedness
SCHEDULE 6.02	Existing Liens
SCHEDULE 6.04	Existing Investments
SCHEDULE 6.09	Existing Restrictions

v

CREDIT AGREEMENT (this “Agreement”) dated as of November 22, 2005, among POLYMER GROUP, INC., a Delaware corporation (the “Borrower”);  the financial institutions listed on Schedule 2.01, as such Schedule may from time to time be supplemented and amended (the “Lenders”); CITICORP NORTH AMERICA, INC., as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders, as documentation agent (in such capacity, the “Documentation Agent”), as syndication agent (in such capacity, the “Syndication Agent”), and as collateral agent for the Secured Parties (the “Collateral Agent”); and CITIGROUP GLOBAL MARKETS INC. (“CGMI”), as sole lead arranger and sole bookrunner (in such capacity, the “Lead Arranger”).

The parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01.              Defined Terms.  As used in this Agreement, the following terms shall have the meanings specified below:

“ABR Borrowing” means a Borrowing comprised of ABR Loans.

“ABR Loan” means any Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II.

“Acquisition Consideration” means the purchase consideration for any Permitted Acquisition and all other payments by the Borrower or any of its Subsidiaries in exchange for, or as part of, or in connection with any Permitted Acquisition, whether paid in cash or by exchange of Equity Interests or of assets, by the assumption of Indebtedness or otherwise and whether payable at or prior to the consummation of such Permitted Acquisition or deferred for payment at any future time, whether or not any such future payment is subject to the occurrence of any contingency, and includes any and all payments representing the purchase price and any assumptions of Indebtedness, “earn-outs” and other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any person or business.

“Additional Collateral” has the meaning assigned to such term in Section 5.11.

“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

“Administrative Agent” has the meaning assigned to such term in the preamble hereto.

“Administrative Questionnaire” means an Administrative Questionnaire in the form of Exhibit A.

“Affiliate” of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be “controlled by” any other Person if such other Person possesses, directly or indirectly, power

(a)           to vote 10% or more of the securities (on a fully diluted basis) of such Person having ordinary voting power for the election of directors or managing general partners; or

(b)           to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

“Agent Fees” has the meaning assigned to such term in Section 2.10(c).

“Agents” means the Administrative Agent and the Collateral Agent.

“Aggregate Revolving Credit Exposure” means the aggregate amount of the Revolving Lenders’ Revolving Credit Exposures.

“Agreement” has the meaning assigned to such term in the preamble hereto.

“Alternate Base Rate” means for any day, a rate per annum equal to the highest of (a) the Administrative Agent’s Base Rate in effect on such day, (b) 0.5% per annum above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the next previous Friday by the Administrative Agent on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by the Administrative Agent from three New York certificate of deposit dealers of recognized standing selected by the Administrative Agent, in either case adjusted to the nearest 0.25% or, if there is no nearest 0.25%, to the next higher 0.25% (the “Certificate of Deposit Rate”), and (c) the Federal Funds Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Base Rate, the Certificate of Deposit Rate or the Federal Funds Rate shall be effective as of the opening of business on the effective day of such change in the Base Rate, the Certificate of Deposit Rate or the Federal Funds Rate, respectively.

“Applicable Rate” means, for any day, (i) with respect to Term Loans, (A) 1.25% per annum, in the case of ABR Loans, and (B) 2.25% per annum, in the case of Eurodollar Loans, and (ii) with respect to Revolving Loans, (A) before the Trigger Date, (x) 1.25%per annum, in the case of ABR Loans, and (y) 2.25% per annum, in the case of Eurodollar Loans, and (B) on and after the Trigger Date, the applicable rate per annumset forth in the table below (x) under the caption “ABR Revolving Loans Spread,” in the case of ABR Loans, and (y) under the caption “Eurodollar Revolving Loans Spread,” in the case of Eurodollar Loans, in each case based upon the Total Leverage Ratio as of the most recent determination date:

Total Leverage Ratio	ABR Revolving Loans Spread		Eurodollar Revolving Loans Spread
>3.00 to 1.00	1.25	%	2.25	%
<3.00 to 1.00 >2.50 to 1.00	1.00	%	2.00	%
<2.50 to 1.00	0.75	%	1.75	%

For purposes of such calculation of the Applicable Rate with respect to Revolving Loans on and after the Trigger Date, (i) the Total Leverage Ratio shall be determined as of the end of each fiscal quarter of the Borrower’s fiscal year based upon the Borrower’s consolidated financial statements delivered pursuant to Section 5.01(a) or (b) and (ii) each change in the Applicable Rate resulting from a

2

change in the Total Leverage Ratio shall be effective three (3) Business Days after the date on which the Administrative Agent shall have received the applicable financial statements and a Compliance Certificate calculating the Total Leverage Ratio. If at any time the Borrower has not submitted to the Administrative Agent the applicable information as and when required under Section 5.01(a) or (b), the Applicable Rate shall be the highest rate set forth in the table above until such time as the Borrower has provided the information required under Section 5.01(a) or (b). Within one (1) Business Day of receipt of the applicable information as and when required under Section 5.01(a) or (b), the Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the Applicable Rate in effect from such date.

“Asset Sale” means any direct or indirect sale, transfer, lease, conveyance or other disposition by the Borrower or any of its Subsidiaries of any of its Property, including any sale or issuance of any Equity Interests of any Subsidiary, except (a) sales, dispositions and leases permitted by Section 6.05 (other than subsection (ix) thereof) and (b) any such transaction or series of transactions which, if an Asset Sale, would not generate Net Proceeds in excess of $2.0 million (or, when taken together with all other such transactions, in excess of $5.0 million in any Fiscal Year).

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04(b)), and accepted by the Administrative Agent, in the form of Exhibit C or such other form as shall be approved by the Administrative Agent.

“Attributable Indebtedness”  means, when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at the interest rate determined by the Borrower in good faith as its cost of borrowing for Indebtedness of comparable term) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such Sale and Leaseback Transaction; provided that if such Sale and Leaseback Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Consolidated Interest Expense”.

“Authorized Officer” means, with respect to the Borrower, those of its officers whose signature and incumbency has been certified to the Administrative Agent, the Collateral Agent and the Lenders by the Secretary of the Borrower in a certificate dated the Effective Date or any successor thereto.

“Available Revolving Credit Commitment” means as to any Revolving Lender, at any time of determination, an amount equal to such Revolving Lender’s Revolving Credit Commitment at such time minus such Revolving Lender’s Revolving Credit Exposure at such time.

“Base Amount” has the meaning assigned to such term in Section 6.14(a).

“Base Rate” means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its base rate in effect at its principal office in New York City (the Base Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors) (any change in such rate announced by the Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change).

“Board of Governors” means the Board of Governors of the Federal Reserve System of the United States.

3

“Borrower” has the meaning ascribed to such term in the preamble to this Agreement.

“Borrowing” means a Loan or group of Loans to the Borrower of the same Class and Type made (including through a conversion or continuation) by the applicable Lenders on a single date and as to which a single Interest Period is in effect.

“Borrowing Date” means any Business Day specified in a notice pursuant to Section 2.02 as a date on which the Borrower requests Loans to be made hereunder.

“Borrowing Request” has the meaning assigned to such term in Section 2.02(a).

“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

“Canadian Dollars” and “Cdn. $” means lawful money of Canada.

“Capital Expenditures” means, for any period, any and all expenditures made by the Borrower or any of its Subsidiaries in such period for assets added to or reflected in its property, plant and equipment accounts or other similar capital asset accounts or comparable items (which, for the avoidance of doubt, shall not include normal replacements and maintenance which are properly charged to current operations) or any other capital expenditures that are, or should be, set forth as “additions to plant, property and equipment” on the financial statement prepared in accordance with GAAP, whether such asset is purchased for cash or financed as an account payable or by the incurrence of Indebtedness, accrued as a liability or otherwise, but excluding expenditures made in connection with the repair, replacement, substitution or restoration of property pursuant to Section 2.05(c)(iv) or in connection with the reinvestment in capital assets pursuant to Section 2.05(c)(iii).

“Capital Lease Obligations” means all monetary or financial obligations of the Borrower and its Subsidiaries under any leasing or similar arrangement conveying the right to use real or personal property, or a combination thereof, which, in accordance with GAAP, would or should be classified and accounted for as capital leases, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date on which such lease may be terminated by the lessee without payment of a penalty.

“Cash Equivalents” means Permitted Investments (other than as described in clause (g) of the definition thereof).

“Cash Interest Expense” means, for any period, Consolidated Interest Expense for such period, excluding any interest expense not payable in cash (such as, for example, amortization of discount and amortization of debt issuance costs), net of interest income.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.

“CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System List.

“Certificate of Deposit Rate” has the meaning assigned to such term in the definition of “Alternate Base Rate”.

4

“CGMI” has the meaning assigned to such term in the preamble hereto.

“Change in Control” means any one or more of the following events shall occur and be continuing:

(i)           any Person (other than the GOF Holders) shall own, collectively, on a fully-diluted basis (in other words, giving effect to the exercise of any warrants, options and conversion and other rights), more than 35% of the aggregate shares of voting capital stock of the Borrower (representing at least 35% of the votes that may be cast in an election of directors of the Borrower); or

(ii)          during any period of 12 consecutive calendar months, at least a majority of the Board of Directors of the Borrower shall no longer be composed of individuals (w) who were appointed by one or more of the GOF Holders, (x) who were members of said Board on the first day of such period, (y) whose election or nomination to said Board was approved by individuals referred to in clause (x) above constituting at the time of such election or nomination at least a majority of said Board or (z) whose election or nomination to said Board was approved by individuals referred to in clauses (w), (x) and (y) above constituting at the time of such election or nomination at least a majority of said Board.

“Charges” has the meaning assigned to such term in Section 9.09.

“Class,” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Term Loans or Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Credit Commitment or Term Commitment and, when used in reference to any Lender, refers to whether such Lender is a Revolving Lender or a Term Lender.

“Closing Certificate” means a certificate substantially in the form of Exhibit G.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral” means each Mortgaged Property and any and all other Property of whatever kind and nature pledged as collateral under any Security Document.

“Collateral Account” means the collateral account or sub-account established and maintained by the Collateral Agent in its name as Collateral Agent for the benefit of the Secured Parties, in accordance with the provisions of the Security Agreement.

“Collateral Agent” has the meaning ascribed to such term in the preamble to this Agreement.

“Commitment” means, with respect to any Lender, such Lender’s Revolving Credit Commitment or Term Commitment or any combination thereof (as the context requires).

“Commitment Fee” has the meaning assigned to such term in Section 2.10(a).

“Commitment Fee Average Daily Amount” has the meaning assigned to such term in Section 2.10(a).

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“Commitment Fee Percentage” means 0.50% per annum; provided, however, that after the Trigger Date, the Commitment Fee Percentage shall mean the applicable percentage set forth in the table below under the appropriate caption:

Total Leverage Ratio	Commitment Fee Percentage
>2.50:1	0.500	%
<2.50:1	0.375	%

For purposes of such calculation of the Commitment Fee Percentage on and after the Trigger Date, (i) the Total Leverage Ratio shall be determined as of the end of each fiscal quarter of the Borrower’s fiscal year based upon the Borrower’s consolidated financial statements delivered pursuant to Section 5.01(a) or (b) and (ii) each change in the Commitment Fee Percentage resulting from a change in the Total Leverage Ratio shall be effective three (3) Business Days after the date on which the Administrative Agent shall have received the applicable financial statements and a Compliance Certificate calculating the Total Leverage Ratio. If at any time the Borrower has not submitted to the Administrative Agent the applicable information as and when required under Section 5.01(a) or (b), the Commitment Fee Percentage shall be the higher rate set forth in the table above until such time as the Borrower has provided the information required under Section 5.01(a) or (b). Within one (1) Business Day of receipt of the applicable information as and when required under Section 5.01(a) or (b), the Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the Commitment Fee Percentage in effect from such date.

“Commitment Fee Termination Date” has the meaning assigned to such term in Section 2.10(a).

“Commitment Percentage” means the percentage of the Total Revolving Credit Commitment represented by such Lender’s Revolving Credit Commitment. If the Revolving Credit Commitments have terminated or expired, the Commitment Percentage shall be determined based upon the Revolving Credit Commitments most recently in effect, giving effect to any assignments.

“Commitments” means the Revolving Credit Commitments, the Swingline Commitments and the Term Commitments.

“Communications” has the meaning assigned to such term in Section 9.17(a).

“Compliance Certificate” has the meaning assigned to such term in Section 5.01(a) and shall be substantially in the form of Exhibit D.

“Conduit Financing Arrangement” has the meaning assigned to such term in Section 2.16.

“Consolidated Current Assets” means, as at any date of determination, the total assets of the Borrower and its Subsidiaries which may properly be classified as current assets on a consolidated balance sheet of the Borrower and its Subsidiaries in accordance with GAAP (other than cash and Cash Equivalents).

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“Consolidated Current Liabilities” means, as at any date of determination, the total liabilities of the Borrower and its Subsidiaries which may properly be classified as current liabilities (other than the current portion of any Loans) on a consolidated balance sheet of the Borrower and its Subsidiaries in accordance with GAAP.

“Consolidated EBITDA” means, for any period, Consolidated Net Income for such period, plus, without duplication and to the extent deducted in determining Consolidated Net Income for such period, the sum of:  (a) the aggregate amount of Consolidated Interest Expense for such period, (b) the aggregate amount of income and franchise tax expense for such period, (c) all amounts attributable to depreciation and amortization for such period, (d) all unusual or non-recurring non-cash charges during such period (excluding any non-cash item of expense requiring an accrual or reserve for future cash expense), (e) plant restructuring and realignment costs not to exceed $25.0 million in the aggregate during the term of this Agreement, (f) all fees and expenses paid during such period directly relating to the refinancing of the Existing Credit Agreement and (g) all non-cash stock compensation expense; and minus, without duplication and to the extent included in determining Consolidated Net Income for such period, all non-recurring non-cash gains during such period; all as determined on a consolidated basis with respect to the Borrower and its Subsidiaries in accordance with GAAP. Other than for purposes of calculating Excess Cash Flow, Consolidated EBITDA shall be calculated on a Pro Forma Basis to give effect to the Transactions, any Permitted Acquisition and Asset Sales consummated at any time on or after the first day of the Test Period thereof as if the Transactions and each such Permitted Acquisition had been effected on the first day of such period and as if each such Asset Sale had been consummated on the day prior to the first day of such period.

“Consolidated Indebtedness” means, at a particular date, the aggregate stated balance sheet amount of all Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP at such date.

“Consolidated Interest Expense” means, for any period, the total consolidated interest expense of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP plus, without duplication:

(a)           imputed interest on Capital Lease Obligations and Attributable Indebtedness of the Borrower and its Subsidiaries for such period;

(b)           commissions, discounts and other fees and charges owed by the Borrower or any of its Subsidiaries with respect to letters of credit securing financial obligations, bankers’ acceptance financing and receivables financings for such period;

(c)           amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by the Borrower or any of its Subsidiaries for such period;

(d)           all interest paid or payable with respect to discontinued operations of the Borrower or any of its Subsidiaries for such period;

(e)           the interest portion of any deferred payment obligations of the Borrower or any of its Subsidiaries for such period; and

(f)            all interest on any Indebtedness of the Borrower or any of its Subsidiaries of the type described in clause (iii) or (x) of the definition of “Indebtedness” for such period

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Consolidated Interest Expense and Cash Interest Expense (other than for purposes of calculating Excess Cash Flow) shall be calculated on a Pro Forma Basis to give effect to any Indebtedness incurred, assumed or permanently repaid or extinguished during the relevant Test Period in connection with the Transactions, any Permitted Acquisitions and Asset Sales as if such incurrence, assumption, repayment or extinguishing had been effected on the first day of such period.

“Consolidated Net Income” means, for any period, the sum of net income (or loss) and minority interests for such period of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP, but excluding:  (a) any income (or loss) of any Person if such Person is not a Subsidiary of the Borrower, except that the aggregate amount of cash actually distributed by such Person during such period to the Borrower or a Subsidiary of the Borrower as a dividend or other distribution shall be included; (b) the amount of any cash distributed by any non-Wholly Owned Subsidiary to a Person other than the Borrower or any of its Subsidiaries; (c) gains and losses due solely to fluctuations in currency values and the related tax effects determined in accordance with GAAP for such period; (d) unrealized gains and losses with respect to Hedging Agreements for such period; and (e) the income of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of that income is prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to such Subsidiary.

“Contested Collateral Lien Conditions” means (a) any proceeding instituted contesting such Lien shall conclusively operate to stay the sale or forfeiture of any portion of the Collateral on account of such Lien; and (b) in the event the amount of any such Lien shall exceed $2.0 million, the Loan Party or its applicable Subsidiary shall either obtain a bond or maintain cash reserves, in either case, in an amount sufficient to pay and discharge such Lien and the Collateral Agent’s reasonable estimate of all interest and penalties related thereto.

“Credit Event” has the meaning assigned to such term in Section 4.02.

“Cumulative Retained Excess Cash Flow Amount” shall mean, at any date, an amount, not less than zero, determined on a cumulative basis equal to (x) the amount of Excess Cash Flow for all Fiscal Years (commencing with the Fiscal Year ending December 30, 2006) which is not (and, in the case of any Fiscal Year where the respective required date of prepayment has not yet occurred pursuant to Section 2.05(c)(v), will not on such date of required prepayment be) required to be applied in accordance with Section 2.05(c)(v) minus(y) the aggregate amount of Capital Expenditures made on or prior to such date pursuant to Section 6.14(b)(ii).

“Debt Incurrence” has the meaning assigned to such term in Section 2.05(c)(ii).

“Debt Repayments” means, for any period, principal repayments permitted by Section 6.10 and optional prepayments (to the extent such repayments and optional prepayments are made from internally generated funds) of Indebtedness made by the Borrower and its Subsidiaries during such period (other than repayments or prepayments of intercompany loans); provided that, with respect to payments of Revolving Loans, such payments shall only be included in this definition to the extent that such payment is accompanied by a simultaneous reduction of the Revolving Credit Commitments).

“Default” means any Event of Default, any Event of Termination and any event or condition which upon notice, lapse of time or both would constitute an Event of Default or Event of Termination.

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“Destruction” means any and all damage to, or loss or destruction of, or loss of title to, all or any portion of the Property of the Borrower or any of its Subsidiaries.

“Disqualified Equity Interests” has the meaning assigned to such term in Section 6.01(b).

“Documentation Agent” has the meaning assigned to such term in the preamble hereto.

“Dollars” or “$” means lawful money of the United States of America.

“Domestic Subsidiary” means any Subsidiary of the Borrower that is not a Non-U.S. Subsidiary.

“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.08).

“Engagement Letter” means the Engagement Letter dated October 17, 2005 between CGMI and the Borrower.

“Environment” means ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, natural resources such as flora and fauna, or as otherwise defined in any applicable Environmental Law.

“Environmental Claim” means any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any other Person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the Environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon:  (a) the existence, or the continuation of the existence, of a Release or threatened Release (including sudden or non-sudden, accidental or non-accidental Releases); (b) exposure to any Hazardous Material; (c) the presence, generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Material; or (d) the violation or alleged violation of any Environmental Law or Environmental Permit.

“Environmental Laws” means any and all applicable treaties, laws (including common law), rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the Environment, preservation or reclamation of natural resources, the management, Release or threatened Release of, or exposure to, any Hazardous Material.

“Environmental Liability” means any liability, contingent or otherwise (including, but not limited to, any liability for damages, natural resource damage, costs of environmental remediation, administrative oversight costs, fines, penalties or indemnities), of the Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials or (d) the Release or threatened Release of any Hazardous Materials into the Environment.

“Environmental Permit” means any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law.

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“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person.

“Equity Issuance” has the meaning assigned to such term in Section 2.05(c)(i).

“Equity Rights” means all securities convertible or exchangeable for Equity Interests and all warrants, options or other rights to purchase or subscribe for any Equity Interests, whether or not presently convertible, exchangeable or exercisable.

“ERISA” means the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any Loan Party, is treated as a single employer under Sections 414(b) or (c) of the Code, and for the purpose of Section 302 of ERISA and/or Section 412, 4971, 4977, 4980D, 4980E and/or each “applicable section” under Section 414(t)(2) of the Code, within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“ERISA Event” means (a) any “reportable event,” as defined in Section 4043(c) of ERISA or the regulations issued thereunder, with respect to a Pension Plan (other than an event for which the 30-day notice period is waived by regulation); (b) the existence with respect to any Pension Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, the failure to make by its due date a required installment under Section 412(m) of the Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (d) the incurrence by any Loan Party or ERISA Affiliate of any liability under Title IV of ERISA with respect to any Pension Plan; (e) the receipt by any Loan Party or ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Pension Plan, to appoint a trustee to administer any Pension Plan, or to take any other action with respect to a Pension Plan that could result in material liability to a Loan Party or a Subsidiary, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of or the appointment of a trustee to administer, any Pension Plan; (f) the incurrence by any Loan Party or ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Pension Plan or Multiemployer Plan; (g) the receipt by a Loan Party or ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the making of any amendment to any Pension Plan which could result in the imposition of a lien or the posting of a bond or other security; or (i) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could result in liability to a Loan Party or any of the Subsidiaries.

“Eurodollar Borrowing” means a Borrowing comprised of Eurodollar Loans.

“Eurodollar Loan” means any Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II.

“Event of Default” has the meaning assigned to such term in Section 7.01.

“Event of Termination” has the meaning assigned to such term in Section 7.01.

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“Excess Cash Flow” means, for the Borrower and its Subsidiaries, for any period, (a) the sum, without duplication, of:

(i)           Consolidated EBITDA for such period;

(ii)          extraordinary or non-recurring cash receipts of the Borrower and its Subsidiaries, if any, during such period and not included in Consolidated EBITDA;

(iii)         reductions to non-cash working capital of the Borrower and its Subsidiaries for such period (i.e., the decrease, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such period); and

(iv)         to the extent subtracted in determining Consolidated EBITDA, all items that did not result from a cash payment by the Borrower or any of its Subsidiaries on a consolidated basis during such period,

minus (b) the sum, without duplication, of:

(i)           the amount of any cash income and franchise taxes paid by the Borrower and its Subsidiaries with respect to such period;

(ii)          Cash Interest Expense of the Borrower and its Subsidiaries during such period;

(iii)         Capital Expenditures committed or made in cash only from internally generated funds in accordance with Section 6.14(a) and (c) during such period (and not deducted from Excess Cash Flow in any prior year);

(iv)         extraordinary or non-recurring expenses and losses to the extent paid in cash by the Borrower and its Subsidiaries, if any, during such period and not included in Consolidated EBITDA;

(v)          additions to non-cash working capital of the Borrower and its Subsidiaries for such period (i.e., the increase, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such period);

(vi)         the amount of all fees and expenses paid in cash during such period directly relating to the refinancing of the Existing Credit Agreement;

(vii)        expenses or losses excluded from the calculation of Consolidated EBITDA during such period by operation of clause (e) of the definition thereof to the extent paid in cash during such period; and

(viii)       to the extent added to determine Consolidated EBITDA, all items that did not result from a cash payment to the Borrower or any of its Subsidiaries on a consolidated basis during such period;

provided that, to the extent otherwise included herein, the Net Proceeds of Asset Sales, Destructions, Takings, Debt Incurrences and Equity Issuances which are applied towards the prepayment of Loans and/or the reduction of Commitments and/or the repair, replacement, substitution, restoration of or reinvestment

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in property in accordance with Section 2.05(c) shall be excluded from the calculation of Excess Cash Flow.

“Excess Cash Flow Percentage” means, as of any date of determination, (i) 50% if the Total Leverage Ratio is greater than or equal to 3.0x as of such date and (ii) 25% if the Total Leverage Ratio is less than 3.0x as of such date.

“Exchange” has the meaning set forth in Section 4.01(h).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Excluded Equity Issuance” means (a) the issuance of any warrants, options or Equity Interests to directors, officers or employees of the Borrower or any of its Subsidiaries in the ordinary course of business and any Equity Interests of the Borrower issued upon the exercise of such warrants or options, (b) any issuance of Equity Interests (other than Disqualified Equity Interests) of the Borrower to the GOF Holders and (c) any issuance of Equity Interests (other than Disqualified Equity Interests) of the Borrower to the extent the proceeds thereof are contemporaneously applied to fund Permitted Acquisitions permitted by Section 6.04 or to fund Capital Expenditures permitted by Section 6.14(a).

“Existing Credit Agreement” means the Credit Agreement dated as of April 27, 2004 among the Borrower, Citicorp North America Inc., as administrative agent, and the other financial institutions party thereto, as amended.

“Federal Funds Rate” means, for any day, the weighted average of the rates (rounded upwards, if necessary, to the nearest 1/100th of 1%) on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York; provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate for such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.

“Fees” means the Commitment Fees, the LC Fees and the Agent Fees.

“Financial Covenants” means those covenants and agreements of the Loan Parties set forth in Sections 6.12 through 6.14, inclusive.

“Financial Officer” of any corporation, partnership or other entity means the chief financial officer, the principal accounting officer, Treasurer or Controller of such corporation, partnership or other entity.

“Fiscal Quarter” means any quarter of a Fiscal Year.

“Fiscal Year” means any period of twelve consecutive calendar months which form the basis for the Borrower’s financial statements in its Form 10-K; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the “2005 Fiscal Year”) refer to the Fiscal Year as disclosed in the Borrower’s SEC filings.

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“Foreign Plan” means any employee benefit plan, program, policy, arrangement or agreement maintained or contributed to outside the United States by any Loan Party or any Subsidiary primarily for the benefit of employees of any Loan Party or any Subsidiary employed outside the United States.

“GAAP” means generally accepted accounting principles in the United States applied on a consistent basis.

“GOF” means MatlinPatterson Global Opportunities Partners LP.

“GOF Holders” means GOF and each of its Affiliates that hold the equity of the Borrower on the date hereof, so long as such entities continue to be managed or controlled by GOF or are Affiliates or Subsidiaries of GOF.

“Governmental Authority” means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body, including any central bank.

“Greenshoe Option” has the meaning assigned to such term in Section 9.08(g).

“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof (including pursuant to a “synthetic lease”), (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of the obligation under any Guarantee shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made (including principal, interest and fees) and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of the obligation under such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the guarantor in good faith; irrespective, in any such case, of any amount thereof that would, in accordance with GAAP, be required to be reflected on a balance sheet of such Person.

“Guarantee Agreement” means the Guarantee Agreement, substantially in the form of Exhibit H, made by the Borrower and the Subsidiary Loan Parties.

“Hazardous Materials” means all pollutants, contaminants, wastes, substances, chemicals, materials and constituents, including without limitation, crude oil, petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls (“PCBs”) or PCB-containing materials or equipment of any nature which can give rise to liability under, or are subject to regulation pursuant to, any Environmental Law.

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“Hedging Agreement” means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement and all other similar agreements or arrangements designed to alter the risks of any Person arising from fluctuations in interest rate, currency values or commodity prices.

“Impermissible Qualification” means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification:

(a)           which is of a “going concern” or similar nature;

(b)           which relates to the limited scope of examination of matters relevant to such financial statement; or

(c)           which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under any of Sections 6.12 or 6.13.

“Increased Cost Lender” has the meaning assigned to such term in Section 2.20.

“Indebtedness” of any Person means the sum of all indebtedness of such Person on a consolidated basis (without duplication) with respect to (i) borrowed money or represented by bonds, debentures, notes and the like; (ii) the aggregate amount of Capital Lease Obligations; (iii) all indebtedness secured by any Lien on any Property of such Person; (iv) all indebtedness representing the deferred purchase price of Property or services, excluding trade payables in the ordinary course of business; (v) all obligations for the reimbursement of any obligor in respect of letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions; (vi) all obligations under conditional sale or other title retention agreements relating to property purchased by such Person; (vii) synthetic lease obligations of such Person; (viii) all obligations under Hedging Agreements to the extent required to be reflected on a balance sheet of such Person; (ix) all Attributable Indebtedness of such Person; and (x) direct Guarantees and indemnities in respect of, and to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, or to assure an obligee against failure to make payment in respect of, liabilities, obligations or indebtedness of the kind described in clauses (i) through (ix).

“Indebtedness to Be Paid” has the meaning assigned to such term in Section 3.20(a).

“Indemnity, Subrogation and Contribution Agreement” means the Indemnity, Subrogation and Contribution Agreement, substantially in the form of Exhibit E.

“Information Memorandum” means the Confidential Information Memorandum dated as of November 2005 and posted electronically on Intralinks relating to the Borrower and this Agreement.

“Installment Payment Date” has the meaning assigned to such term in Section 2.05(d).

“Interest Expense Coverage Ratio” means, for any Test Period, the ratio of (a) Consolidated EBITDA to (b) Cash Interest Expense, in each case for such Test Period.

“Interest Payment Date” means, with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing

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with an Interest Period of more than three months’ duration, (a) each day that would have been an Interest Payment Date had successive Interest Periods of three months’ duration been applicable to such Borrowing and, in addition, (b) the date of any refinancing of such Borrowing with a Borrowing of a different Type.

“Interest Period” means (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing (including any date on which such Borrowing shall have been converted from a Borrowing of a different Type) or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months (or if available to all Lenders, two weeks or 9 or 12 months) thereafter, as the Borrower may elect; or (b) as to any ABR Borrowing (other than a Swingline Borrowing), the period commencing on the date of such Borrowing (including any date on which such Borrowing shall have been converted from a Borrowing of a different Type) or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Revolving Credit Maturity Date and (iii) the date such Borrowing is prepaid in accordance with Section 2.05 or converted in accordance with Section 2.03 and (c) as to any Swingline Loan, a period commencing on the date of such Loan and ending on the earliest of (i) the fifth Business Day thereafter, (ii) the Revolving Credit Maturity Date and (iii) the date such Loan is prepaid in accordance with Section 2.05; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.

“Investment” has the meaning assigned to such term in Section 6.04.

“Issuing Bank” means Citibank NA, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.06(i), or any other Revolving Lender approved by the Administrative Agent and the Borrower. The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

“Landlord Access Agreement” means a landlord access agreement substantially in the form of Exhibit N attached hereto

“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter of Credit.

“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender at any time shall be its Commitment Percentage of the total LC Exposure at such time.

“LC Fees” has the meaning assigned to such term in Section 2.10(b).

“Lead Arranger” has the meaning assigned to such term in the preamble hereto.

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“Lender Affiliate” means (a) with respect to any Lender, (i) an Affiliate of such Lender or (ii) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“Lenders” has the meaning assigned to such term in the preamble hereto.

“Letter of Credit” means any letter of credit issued pursuant to this Agreement and shall also include the letters of credit issued by Citibank NA under the Existing Credit Agreement and set forth on Schedule 1.02 hereto.

“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for Dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate supplied to the Administrative Agent at its request quoted by the Reference Banks in the London interbank market as of the day two Business Days prior to the commencement of such Interest Period as the rate for Dollar deposits with a maturity comparable to such Interest Period.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, deed to secure debt, lien, pledge, encumbrance, charge, assignment, hypothecation or security interest in or on such asset, in each of the foregoing cases whether voluntary or imposed by law, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset, (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities, (d) in the case of any investment property or deposit account, any contract or other agreement under which any third party has the right to control such investment property or deposit account and (e) any other agreement intended to create any of the foregoing.

“Loan Documents” means this Agreement, the Indemnity, Subrogation and Contribution Agreement, the Guarantee Agreement, the Security Documents, each Note and, solely for purposes of Section 7.01(a), the Engagement Letter.

“Loan Parties” means the Borrower and the Subsidiary Loan Parties.

“Loans” means the Revolving Loans, the Swingline Loans and the Term Loans.

“Material Adverse Effect” means a materially adverse effect on (a) the business, assets, operations, properties, financial condition or liabilities of the Loan Parties and their consolidated Subsidiaries, taken as a whole, or (b) the ability of any Loan Party to perform their obligations under the Loan Documents, (c) the rights of or benefits available to the Lenders under any Loan Document or (d) the value of the Collateral or the validity, enforceability, perfection or priority of the Liens granted to the Collateral

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Agent (for its benefit and for the benefit of the other Secured Parties) on the Collateral pursuant to the Security Documents.

“Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit) of any one or more of the Borrower and the Borrower’s Subsidiaries, individually or in an aggregate principal amount exceeding $10.0 million. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.

“Maximum Rate” has the meaning assigned to such term in Section 9.09.

“Moody’s” means Moody’s Investors Service, Inc.

“Mortgage” means a mortgage, deed of trust, leasehold mortgage or deed of trust or other security document granting a Lien on any Mortgaged Property, which shall be substantially in the form of Exhibit M.

“Mortgaged Property” means, initially, each parcel of real property and the improvements thereto owned or leased by a Loan Party and identified on Schedule 4.01(u)(A), and includes each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.11 or 5.12.

“Multiemployer Plan” means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA (i) to which any Loan Party or ERISA Affiliate is then making or has an obligation to make contributions, (ii) to which any Loan Party or ERISA Affiliate has within the preceding six plan years made contributions, including any Person which ceased to be an ERISA Affiliate during such six year period, or (iii) with respect to which Loan Party or any Subsidiary could incur liability.

“Net Proceeds” means, with respect to any Equity Issuance, Debt Incurrence, Asset Sale, Destruction or Taking, (a) the cash proceeds actually received in respect of such event, including (i) any cash received in respect of any non-cash proceeds, but only as and when received, (ii) in the case of a Destruction, insurance proceeds only to the extent in excess of $2.5 million, in the aggregate for all such events and (iii) in the case of a Taking, condemnation awards and similar payments only to the extent in excess of $2.5 million, in the aggregate for all such events, net of (b) the sum of (i) all reasonable fees and out-of-pocket expenses paid by the Borrower and its Subsidiaries in connection with such event, (ii) the amount of all taxes paid (or reasonably estimated to be payable) by the Borrower and its Subsidiaries, and (iii) in the case of an Asset Sale, Destruction or Taking, the amount of all payments required to be made by the Borrower and its Subsidiaries as a result of such event to repay Indebtedness (other than Loans) secured by a Prior Lien (as defined in the Security Agreement or applicable Mortgage) on such asset and the amount of any reserves established by the Borrower and its Subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding two years, and that are directly attributable to such event (as determined reasonably and in good faith by the Borrower); provided that any amount by which such reserves are reduced for reasons other than payment of any such contingent liabilities shall be considered “Net Proceeds” upon such reduction.

“Non-Consenting Lender” has the meaning assigned thereto in Section 2.20.

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“Non-U.S. Jurisdiction” means each jurisdiction of organization of a Subsidiary of the Borrower other than the United States (or any State thereof) or the District of Columbia.

“Non-U.S. Pledge Agreements” means one or more pledge agreements in form and substance reasonably satisfactory to the Collateral Agent covering 65% of the Equity Interests owned by a Loan Party directly in a Non-U.S. Subsidiary.

“Non-U.S. Subsidiary” means any Subsidiary of the Borrower that is or becomes organized under the laws of a Non-U.S. Jurisdiction, other than following the consummation of the Permitted Restructuring, Chicopee Holdings B.V., to the extent that such Subsidiary is a “disregarded entity” for purposes of United States tax laws.

“Note” means a note substantially in the form of Exhibit F-1, -2, or -3.

“Obligations” means the (a) unpaid principal of and interest on (including interest accruing after the maturity of the Loans made to the Borrower and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans made to or LC Disbursements made pursuant to Letters of Credit issued for the account of the Borrower and all other obligations and liabilities of the Loan Parties to any Secured Party, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document or any other document made, delivered or given in connection herewith, whether on account of principal, interest, fees, indemnities, costs or expenses (including, without limitation, all reasonable fees, charges and disbursements of counsel), or otherwise, (b) the due and punctual payment and performance of all obligations of the Borrower and the other Loan Parties under each interest rate protection agreement constituting a Hedging Agreement relating to the Loans entered into with any counterparty that was a Lender or a Lender Affiliate at the time such interest rate protection agreement was entered into and (c) the due and punctual payment and performance of all obligations of the Loan Parties in respect of overdrafts and related liabilities owed to any Lender, any Lender Affiliate or any Agent arising from treasury, depositary and cash management services or in connection with any automated clearinghouse transfer of funds.

“Organic Document” means (i) relative to each Person that is a corporation, its charter, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock, (ii) relative to each Person that is a partnership, its partnership agreement and any other similar arrangements applicable to any partnership or other equity interests in the Person and (iii) relative to any Person that is any other type of legal entity, such documents as shall be comparable to the foregoing.

“Overdraft Obligations” means the obligations described in clause (c) of the definition of “Obligations.”

“Participant” has the meaning assigned to such term in Section 9.04(f).

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA.

“Pension Plan” means a “pension plan,” as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer Plan) and to which any Loan Party or any ERISA Affiliate may have liability, including any liability by reason of having been a substantial

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employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

“Perfection Certificate” means a certificate in the form of Annex 2 to the Security Agreement or any other form approved by the Administrative Agent.

“Permitted Acquisition” means any acquisition, whether by purchase, merger, consolidation or otherwise, by the Borrower or any Subsidiary of all or substantially all the assets of, or all the Equity Interests in, a Person or a division, line of business or other business unit of a Person so long as:

(a)           such acquisition shall not have been preceded by a tender offer that has not been approved or otherwise recommended by the board of directors of such Person;

(b)           such assets are to be used in, or such Person so acquired is engaged in, as the case may be, a business of the type conducted by the Borrower and its Subsidiaries on the Effective Date or in a business reasonably related thereto;

(c)           immediately after giving effect thereto, (i) no Default has occurred and is continuing or would result therefrom, (ii) all transactions related thereto are consummated in all material respects in accordance with applicable laws, (iii) in the case of an acquisition of Equity Interests, the Person acquired shall become, immediately after giving effect thereto, a Subsidiary or be merged into a Subsidiary and all actions required to be taken under Sections 5.11, 5.12 and 5.16 shall have been taken, (iv) the Borrower and its Subsidiaries are in compliance, on a Pro Forma Basis after giving effect to such acquisition, with the covenants contained in Sections 6.12 and 6.13 recomputed as at the date of the last ended Test Period, as if such acquisition (and any related incurrence or repayment of Indebtedness) had occurred on the first day of the relevant Test Period, (v) any Indebtedness or any preferred stock that is incurred, acquired or assumed in connection with such acquisition shall be in compliance with Section 6.01 and (vi) after giving effect to any Revolving Credit Borrowings made in connection therewith, the Total Revolving Credit Commitment less the Revolving Credit Exposure of all Revolving Lenders shall not be less than $15.0 million; and

(d)           the Borrower has delivered to the Administrative Agent an officers’ certificate to the effect set forth in clauses (a), (b) and (c)(i) through (vi) above, together with all relevant financial information for the Person or assets to be acquired.

“Permitted Factoring Transaction” means the factoring of receivables by the Borrower or any of its Subsidiaries structured as a true sale to a Person that is not an Affiliate of the Borrower or any of its Subsidiaries pursuant to a structured factoring program on market terms for companies having a credit profile similar to the Borrower and its Subsidiaries at the time of entering into the factoring program; provided that the outstanding proceeds of all factoring programs shall not exceed (i) $20.0 million in the case of the Borrower and its Domestic Subsidiaries or (ii) $20.0 million in the case of the Borrower’s Non-U.S. Subsidiaries. For purposes of the foregoing limitations, outstanding proceeds at any time shall be deemed to equal the then outstanding capital amount or principal amount received by the Borrower or the relevant Subsidiary in respect of sales of accounts receivable.

“Permitted Investments” means:

(a)           marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or any member state of the European Union or issued by any agency

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or instrumentality thereof and backed by the full faith and credit of the United States of America or such member state of the European Union, in each case maturing within one year from the date of acquisition thereof;

(b)           marketable direct obligations issued by any State of the United States of America or any political subdivision of any such State or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s;

(c)           commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s;

(d)           time deposits, demand deposits, certificates of deposit, Eurodollar time deposits or bankers’ acceptances maturing within one year from the date of acquisition thereof or overnight bank deposits, in each case, issued by any bank organized under the laws of any member state of the European Union, the United States of America or any State thereof or the District of Columbia, any U.S. branch of a foreign bank or any other bank in any country where operations are conducted by the Borrower and its Subsidiaries, in any case, having at the date of acquisition thereof combined capital and surplus of not less than $500.0 million;

(e)           repurchase obligations with a term of not more than 90 days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (d) above;

(f)            investments in money market funds which invest substantially all their assets in securities of the types described in clauses (a) through (e) above; and

(g)           Hedging Agreements entered into for non-speculative purposes.

“Permitted Lien” has the meaning assigned to such term in Section 6.02.

“Permitted Refinancing” means, with respect to any Indebtedness, any refinancing thereof; provided, however, that (i) no Default shall have occurred and be continuing or would arise therefrom, (ii) any such refinancing Indebtedness shall (a) not have a stated maturity or Weighted Average Life to Maturity that is shorter than the Indebtedness being refinanced, (b) be at least as subordinate to the Obligations as the Indebtedness being refinanced (and unsecured if the refinanced Indebtedness is unsecured), and (c) be in principal amount that does not exceed the principal amount so refinanced, plus all accrued and unpaid interest thereon, plus the stated amount of any premium and other payments required to be paid in connection with such refinancing pursuant to the terms of the Indebtedness being refinanced, plus in either case, the amount of reasonable expenses of the Borrower or any of its Subsidiaries incurred in connection with such refinancing, and (iii) the sole obligors and/or guarantors on such refinancing Indebtedness shall be the obligors and/or guarantors on such Indebtedness being refinanced.

“Permitted Restructuring” means a corporate restructuring of the Borrower and its Subsidiaries substantially as set forth on Schedule 1.01, which may be consummated in one or more steps; provided that (i) no Default shall have occurred and be continuing or would arise therefrom and (ii) all actions required to be taken under Sections 5.11, 5.12 and 5.16 shall have been taken, including, without limitation, delivery of opinions of counsel, including Dutch counsel, reasonably satisfactory to the Administrative

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Agent confirming the enforceability of the guarantees and security interests in favor of the Secured Parties.

“Person” means any natural person, corporation, trust, joint venture, association, company, partnership, limited liability company or government, or any agency or political subdivision thereof.

“Plan” means any Pension Plan or Welfare Plan.

“Platform” has the meaning assigned to such term in Section 9.17(b).

“Pledge Agreement” means the Pledge Agreement, substantially in the form of Exhibit I, among the Loan Parties and the Collateral Agent for the benefit of the Secured Parties.

“Pledged Securities” has the meaning provided in the Pledge Agreement.

“Preferred Stock” means, with respect to any Person, any and all preferred or preference Equity Interests (however designated) of such Person whether or not outstanding or issued on the Effective Date.

“Prepayment Date” has the meaning assigned to such term in Section 2.05(f).

“Pro Forma Basis” means on a pro forma basis in accordance with GAAP and Regulation S-X under the Exchange Act and otherwise reasonably satisfactory to the Administrative Agent.

“Projected Financial Statements” has the meaning assigned to such term in Section 3.15(c).

“Pro Rata Percentage” of any Revolving Lender at any time means the percentage of the aggregate Available Revolving Credit Commitment represented by such Lender’s Available Revolving Credit Commitment.

“QRTC Amount” means $75.0 million.

“Property” means any right, title or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible and including any ownership interests of any Person.

“Real Property” means all right, title and interest of any Loan Party in and to a parcel of real property owned, leased or operated (including, without limitation, any leasehold estate) by any Loan Party together with, in each case, all improvements and appurtenant fixtures, equipment, personal property, easements and other property and rights incidental to the ownership, lease or operation thereof.

“Reference Banks” means:

(a)           in connection with the initial syndication of the Loans and Commitments, in respect of LIBO Rate, the principal London office of Citibank, N.A.; and

(b)           at all other times, in respect of LIBO Rate, the principal London office of Citibank, N.A. and such two other banks as may be appointed by the Administrative Agent in consultation with the Borrower.

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“Register” has the meaning assigned to such term in Section 9.04(d).

“Regulation U” means Regulation U of the Board of Governors as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“Regulation X” means Regulation X of the Board of Governors as from time to time in effect and all official rulings and interpretations thereunder or thereof.

“Related Hedging Obligations” means the obligations described in clause (b) of the definition of “Obligations.”

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents, trustees and advisors of such Person and such Person’s Affiliates.

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the Environment.

“Remedial Action” means (a) ”remedial action” as such term is defined in CERCLA, 42 USC Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to:  (i) clean up, remove, treat, abate or otherwise take corrective action to address any Hazardous Material in the Environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the Environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above.

“Requirement of Law” means, as to any Person, any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or assets or to which such Person or any of its property or assets is subject.

“Requisite Class Lenders” means, at any time, (i) for the Class of Lenders having Term Loans, Lenders holding more than fifty percent (50%) of the aggregate Term Loans of all Lenders; and (ii) for the Class of Lenders having Revolving Credit Commitments, Lenders holding more than fifty percent (50%) of the aggregate outstanding amount of the Revolving Credit Commitments or, after the Revolving Credit Maturity Date, the Revolving Credit Exposure of all Lenders.

“Requisite Lenders” means, at any time, Lenders having more than fifty percent (50%) of the sum of (a) the aggregate amount of the Revolving Credit Commitments or, after the Revolving Credit Maturity Date, the Revolving Credit Exposure and (b) the aggregate outstanding amount of all Term Loans at such time.

“Requisite Revolving Lenders” means, at any time, Lenders having more than fifty percent (50%) of the aggregate outstanding amount of the Revolving Credit Commitments or, after the Revolving Credit Maturity Date, the Revolving Credit Exposure.

“Restricted Payment” means any direct or indirect dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests or Equity Rights in the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking

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fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interests or Equity Rights in the Borrower or any Subsidiary.

“Revolving Credit Borrowing” means a Borrowing comprised of Revolving Loans.

“Revolving Credit Borrowing Request” means a Borrowing Request in connection with a Revolving Credit Borrowing.

“Revolving Credit Commitment” means, with respect to each Revolving Lender, the commitment of such Revolving Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed in each case as an amount representing the maximum principal amount of such Revolving Lender’s Revolving Credit Exposure hereunder, as the same may be reduced from time to time pursuant to the provisions of this Agreement. The initial amount of each Revolving Lender’s Revolving Credit Commitment is set forth on Schedule 2.01 (in the case of Revolving Credit Commitments in effect on the Effective Date), or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Credit Commitment, as applicable. The aggregate amount of the Revolving Lenders’ Revolving Credit Commitments as of the Effective Date is $50.0 million.

“Revolving Credit Commitment Period” means the period from and including the Effective Date to but not including the Revolving Credit Maturity Date or any earlier date on which the Revolving Credit Commitments to make Revolving Loans pursuant to Section 2.01 shall terminate as provided herein.

“Revolving Credit Exposure” means with respect to any Revolving Lender at any time, the sum of (a) the aggregate principal amount at such time of all outstanding Revolving Loans of such Revolving Lender, plus (b) such Revolving Lender’s LC Exposure at such time, plus (c) such Revolving Lender’s Commitment Percentage of the aggregate principal amount at such time of all outstanding Swingline Loans.

“Revolving Credit Maturity Date” means the fifth anniversary of the Effective Date.

“Revolving Lender” means a Lender with a commitment to make Revolving Loans or with any Revolving Credit Exposure, in its capacity as such.

“Revolving Loans” means the revolving loans made pursuant to clause (iii) of Section 2.01(a).

“S&P” means Standard & Poor’s Corporation.

“SEC” means the Securities and Exchange Commission.

“Sale and Leaseback Transaction” has the meaning assigned thereto in Section 6.06.

“Secured Parties” means the Agents, each Lender that holds Loans or has Commitments (in its capacity as such), each holder of any Related Hedging Obligations (in its capacity as such) and each person holding Overdraft Obligations (in its capacity as such).

“Security Agreement” means the Security Agreement, substantially in the form of Exhibit J, among the Loan Parties and the Collateral Agent for the benefit of the Secured Parties.

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“Security Documents” means the Security Agreement, the Pledge Agreement, the Non-U.S. Pledge Agreements, the Mortgages, the Perfection Certificate, Cash Management Agreements (as defined in the Security Agreement) and each other security agreement or other instrument or document executed and delivered pursuant to Section 5.11, 5.12 or 5.16 to secure any of the Obligations.

“Statutory Reserve Rate” means a fraction (expressed as a decimal) the numerator of which is the number one and the denominator of which is the number one minus the aggregate (expressed as a decimal) of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by any Governmental Authority of the United States or of the jurisdiction of such currency or any jurisdiction to which banks in such jurisdiction are subject for any category of deposits or liabilities customarily used to fund loans. Such reserve percentages shall include those imposed pursuant to such Regulation D. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Subordinated Debt” means Indebtedness of Borrower or any other Loan Party that is by its terms expressly subordinated in right of payment to the Obligations of Borrower or such Loan Party, as applicable.

“Subordinated Debt Documents” means each document governing or pursuant to which is issued any Subordinated Debt, as the same may be in effect from time to time in accordance with the terms hereof and thereof.

“Subsidiary” means, with respect to any Person, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person; (ii) any partnership of which more than 50% of the outstanding partnership interests having the power to act as a general partner of such partnership (irrespective of whether at the time any partnership interests other than general partnership interests of such partnership shall or might have voting power upon the occurrence of any contingency) are at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person; or (iii) any other legal entity the accounts of which would or should be consolidated with those of such Person on a consolidated balance sheet of such Person prepared in accordance with GAAP. Unless otherwise indicated, when used in this Agreement, the term “Subsidiary” shall refer to a Subsidiary of the Borrower.

“Subsidiary Loan Party” means each of the Borrower’s Domestic Subsidiaries that guarantees the Obligations pursuant to the Guarantee Agreement.

“Survey” means a survey of any Mortgaged Property (and all improvements thereon):  (i) prepared by a surveyor or engineer licensed to perform surveys in the state where such Mortgaged Property is located, (ii) dated (or redated) not earlier than six months prior to the date of delivery thereof unless there shall have occurred within six months prior to such date of delivery any exterior construction on the site of such Mortgaged Property, in which event such survey shall be dated (or redated) after the completion of such construction or if such construction shall not have been completed as of such date of delivery, not earlier than 20 days prior to such date of delivery, (iii) certified by the surveyor (in a manner reasonably acceptable to the Collateral Agent) to the Collateral Agent and the Title Company, (iv) complying in all respects with the minimum detail requirements of the American Land Title Association as such requirements are in effect on the date of preparation of such survey and (v) sufficient for the Title

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Company to remove all standard survey exceptions from the title insurance policy (or marked title insurance commitment having the effect of a policy) and issue a survey endorsement.

“Swingline Commitment” means the commitment of the Swingline Lender to make Loans pursuant to Section 2.04.

“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Revolving Lender at any time shall be its Commitment Percentage of the total Swingline Exposure at such time.

“Swingline Lender” means Citicorp North America, Inc., in its capacity as lender of Swingline Loans.

“Swingline Loan” has the meaning assigned to such term in Section 2.04(a).

“Swingline Sublimit” has the meaning assigned to such term as Section 2.04(a).

“Syndication Agent” has the meaning assigned to such term in the preamble hereto.

“Taking” means any taking of any Property of the Borrower or any Subsidiary or any portion thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of the temporary requisition or use of any Property of the Borrower or any Subsidiary or any portion thereof, by any Governmental Authority.

“Taxes” has the meaning assigned to such term in Section 2.16.

“Term Borrowing” means a Borrowing comprised of Term Loans on the Effective Date.

“Term Borrowing Request” means a Borrowing Request in connection with the Term Loans on the Effective Date.

“Term Commitment” means, with respect to each Lender, the commitment, if any, of such Lender to make a Term Loan hereunder on the Effective Date, expressed as an amount representing the maximum principal amount of the Term Loan to be made by such Lender hereunder, as the same may be reduced from time to time pursuant to the provisions of this Agreement. The initial amount of each Lender’s Term Commitment is set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Term Commitment, as applicable. The initial aggregate amount of the Lenders’ Term Commitments is $405.0 million.

“Term Lender” means a Lender with a Term Commitment or an outstanding Term Loan, in its capacity as such.

“Term Loan Maturity Date” means the seventh anniversary of the Effective Date.

“Term Loans” means the Loans made pursuant to clause (i) of Section 2.01(a).

“Terminated Lender” has the meaning assigned to such term in Section 2.20.

“Test Period” means (i) for the covenants contained in Sections 6.12 and 6.13, the four consecutive complete Fiscal Quarters of the Borrower then last ended as of the date closest to each date listed under the heading “Date” therein and (ii) for all other provisions in this Agreement, the four consecutive

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complete Fiscal Quarters of the Borrower ended as of the time indicated. Compliance with such covenants shall be tested, as of the end of each Test Period, on the date on which the financial statements pursuant to Section 5.01(a) or (b) have been, or should have been, delivered for the applicable fiscal period.

“Title Company” means Chicago Title Insurance Company or such other title insurance or abstract company as shall be reasonably approved by the Administrative Agent.

“Total Leverage Ratio” means, at any date, the ratio of (a) Consolidated Indebtedness as of such date to (b) Consolidated EBITDA for the Test Period most recently ended.

“Total Revolving Credit Commitment” means, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time.

“Transactions” means, collectively, the execution and delivery by each Loan Party of each of the Loan Documents to which it is a party and the Borrowing of the Term Loans and Revolving Loans hereunder in each case on the Effective Date, the payment of Indebtedness to be Paid and the payment of fees and expenses in connection with any of the foregoing.

“Trigger Date” means the date on which a Compliance Certificate for the first quarter ending after the Effective Date shall have been received by the Administrative Agent pursuant to Section 5.01(a) or (b).

“Type,” when used in respect of any Loan or Borrowing, refers to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, “Rate” shall include the Adjusted LIBO Rate and the Alternate Base Rate.

“UCC” means the Uniform Commercial Code as in effect in the applicable state or jurisdiction.

“Unrefunded Swingline Loans” has the meaning assigned to such term in Section 2.04(c).

“U.S. Dollar Equivalent” means, on any day, with respect to any loan denominated in Canadian Dollars, the amount of U.S. Dollars that would be required to purchase the Canadian Dollar amount of such loan on such day, assuming a rate of exchange equal to the New York foreign exchange selling rate quoted for such Canadian Dollars in the Wall Street Journal for such day (or, for the most recent day on which the Wall Street Journal shall have been published), provided that if for any reason the Wall Street Journal shall cease to be published for three or more consecutive Business Days, “U.S. Dollar Equivalent” shall mean the amount of U.S. Dollars that would be required to purchase the Canadian Dollar amount of such loan on such day, based upon the spot selling rate at which the Administrative Agent offers to sell Canadian Dollars for U.S. Dollars in the London foreign exchange market at approximately 11:00 a.m. London time for delivery two Business Days later.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the original aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each scheduled installment, sinking fund, serial maturity or other required payment of principal including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment.

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“Welfare Plan” means a “welfare plan,” as such term is defined in Section 3(1) of ERISA, that is maintained or contributed to by a Loan Party or any Subsidiary or with respect to which a Loan Party or any Subsidiary could incur liability.

“Wholly Owned Subsidiary” means, with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors’ qualifying shares) are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person.

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part 1 of Subtitle E of Title IV of ERISA.

SECTION 1.02.              Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”), by Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Credit Borrowing”), by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Revolving Credit Borrowing”).

SECTION 1.03.              Terms Generally. (a)  The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (i) any reference in this Agreement to any Loan Document means such document as amended, restated, supplemented or otherwise modified from time to time and (ii) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that for purposes of determining compliance with the covenants contained in Article VI, all accounting terms herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP as in effect on the Effective Date and applied on a basis consistent with the application used in the financial statements referred to in Section 3.05.

(b)           If any payment under this Agreement or any other Loan Document shall be due on any day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and in the case of any payment accruing interest, interest thereon shall be paid for the period of such extension.

ARTICLE II

THE CREDITS

SECTION 2.01.              Credit Commitments. (a)  Subject to the terms and conditions hereof, (i) each Term Lender severally agrees to make a Term Loan in Dollars to the Borrower on the Effective Date in a principal amount not exceeding its Term Commitment and (ii) each Revolving Lender severally agrees to make Revolving Loans in Dollars to the Borrower from time to time during the Revolving Credit Commitment Period. Amounts repaid or prepaid in respect of the Term Loans may not be reborrowed. During the Revolving Credit Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Loans in whole or in part, and reborrowing, all in

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accordance with the terms and conditions hereof. Notwithstanding anything to the contrary contained in this Agreement, in no event may Revolving Loans be borrowed under this Article II if, after giving effect thereto (and to any concurrent repayment or prepayment of Loans), (i) the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment then in effect or (ii) the Revolving Credit Exposure of any Revolving Lender would exceed such Revolving Lender’s Revolving Credit Commitment.

(b)           The Revolving Loans and the Term Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.02 and 2.03.

(c)           Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.

SECTION 2.02.              Procedure for Borrowing. (a)  The Borrower may borrow under the Revolving Credit Commitments (subject to the limitations in Section 2.01(a)) or the Term Commitments by giving the Administrative Agent notice substantially in the form of Exhibit B (a “Borrowing Request”), which notice must be received by the Administrative Agent prior to (a) 12:00 noon, New York City time, three Business Days prior to the requested Borrowing Date, in the case of a Eurodollar Borrowing, or (b) 12:00 noon, New York City time, on the Business Day prior to the requested Borrowing Date, in the case of an ABR Borrowing. The Borrowing Request for each Borrowing shall specify (i) whether the requested Borrowing is to be a Revolving Credit Borrowing or a Term Borrowing, (ii) the amount to be borrowed, (iii) the requested Borrowing Date (which must be the Effective Date, in the case of a Term Borrowing), (iv) whether the Borrowing is to be of Eurodollar Loans or ABR Loans, (v) if the Borrowing is to be of Eurodollar Loans, the length of the initial Interest Period therefor, and (vi) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of this Agreement. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(b)           Each Borrowing shall be in a minimum aggregate principal amount of (i) in the case of a Term Borrowing, $1.0 million or an integral multiple of $500,000 in excess thereof or (ii) in the case of a Revolving Credit Borrowing, $1.0 million or an integral multiple of $500,000 in excess thereof or, if less, the aggregate amount of the then Available Revolving Credit Commitments.

(c)           Upon receipt of the Term Borrowing Request, the Administrative Agent shall promptly notify each Term Lender of the aggregate amount of the Term Borrowing and of the amount of such Term Lender’s pro rata portion thereof, which shall be based on their respective Term Commitments. Each Term Lender will make the amount of its pro rata portion of the Term Borrowing available to the Administrative Agent for the account of the Borrower at the New York office of the Administrative Agent specified in Section 9.01 prior to 10:00 a.m., New York City time, on the Effective Date in funds immediately available to the Administrative Agent. Amounts so received by the Administrative Agent will promptly be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent.

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(d)           Upon receipt of a Revolving Credit Borrowing Request, the Administrative Agent shall promptly notify each Revolving Lender of the aggregate amount of such Revolving Credit Borrowing and of the amount of such Revolving Lender’s pro rata portion thereof, which shall be based on the respective Available Revolving Credit Commitments of all the Revolving Lenders. Each Revolving Lender will make the amount of its pro rata portion of each such Revolving Credit Borrowing available to the Administrative Agent for the account of the Borrower at the New York office of the Administrative Agent specified in Section 9.01 prior to 12:00 p.m., New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Amounts so received by the Administrative Agent will promptly be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent; provided that if on the Borrowing Date of any Revolving Loans to be made to the Borrower, any Swingline Loans made to the Borrower or LC Disbursements for the account of the Borrower shall be then outstanding, the proceeds of such Revolving Loans shall first be applied to pay in full such Swingline Loans or LC Disbursements, with any remaining proceeds to be made available to the Borrower as provided above; and provided further that ABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the Issuing Bank.

SECTION 2.03.              Conversion and Continuation Options for Loans. (a)  The Borrower may elect from time to time to convert (i) Eurodollar Loans to ABR Loans, by giving the Administrative Agent prior notice of such election not later than 12:00 noon, New York City time, on the Business Day prior to a requested conversion or (ii) ABR Loans to Eurodollar Loans by giving the Administrative Agent prior notice of such election not later than 12:00 noon, New York City time, three Business Days prior to a requested conversion; provided that if any such conversion of Eurodollar Loans is made other than on the last day of an Interest Period with respect thereto, the Borrower shall pay any amounts due to the Lenders pursuant to Section 2.17 as a result of such conversion. Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. All or any part of the outstanding Eurodollar Loans or ABR Loans may be converted as provided herein; provided that (i) no Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing, and (ii) no Loan may be converted into a Eurodollar Loan after the date that is one month prior to the Revolving Credit Maturity Date or the Term Loan Maturity Date, as applicable.

(b)           Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving prior notice to the Administrative Agent, not later than 12:00 noon, New York City time, three Business Days prior to a requested continuation setting forth the length of the next Interest Period to be applicable to such Loans; provided that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing, and (ii) after the date that is one month prior to the Revolving Credit Maturity Date or the Term Loan Maturity Date, as applicable; and provided, further, that if the Borrower shall fail to give any required notice as described above in this Section 2.03 or if such continuation is not permitted pursuant to the preceding proviso, then such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period (in which case the Administrative Agent shall notify the Borrower of such conversion).

(c)           In connection with any Eurodollar Loans, there shall be no more than ten (10) Interest Periods outstanding at any time.

(d)           This Section shall not apply to Swingline Loans.

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SECTION 2.04.              Swingline Loans. (a)  Subject to the terms and conditions hereof, the Swingline Lender agrees to make swingline loans (individually, a “Swingline Loan” and collectively, the “Swingline Loans”) to the Borrower from time to time during the Revolving Credit Commitment Period in accordance with the procedures set forth in this Section 2.04, provided that (i) the aggregate principal amount of all Swingline Loans shall not exceed $10.0 million (the “Swingline Sublimit”) at any one time outstanding, (ii) the principal amount of any borrowing of Swingline Loans may not exceed the aggregate amount of the Available Revolving Credit Commitments of all Revolving Lenders immediately prior to such borrowing or result in the Aggregate Revolving Credit Exposure then outstanding exceeding the Total Revolving Credit Commitments then in effect, and (iii) in no event may Swingline Loans be borrowed hereunder if (x) a Default or Event of Default or Event of Termination shall have occurred and be continuing and (y) such Default or Event of Default or Event of Termination shall not have been subsequently cured or waived. Amounts borrowed under this Section 2.04 may be repaid and, up to but excluding the Revolving Credit Maturity Date, reborrowed. All Swingline Loans shall at all times be ABR Loans. The Borrower shall give the Administrative Agent notice of any Swingline Loan requested hereunder (which notice must be received by the Administrative Agent prior to 2:00 p.m., New York City time, on the requested Borrowing Date) specifying (A) the amount to be borrowed, and (B) the requested Borrowing Date. Upon receipt of such notice, the Administrative Agent shall promptly notify the Swingline Lender of the aggregate amount of such borrowing. Not later than 4:00 p.m., New York City time, on the Borrowing Date specified in such notice the Swingline Lender shall make such Swingline Loan available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent set forth in Section 9.01 in funds immediately available to the Administrative Agent. Amounts so received by the Administrative Agent will promptly be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the amount made available to the Administrative Agent by the Swingline Lender (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the Issuing Bank) and in like funds as received by the Administrative Agent. Each Borrowing pursuant to this Section 2.04 shall be in a minimum principal amount of $500,000 or an integral multiple of $100,000 in excess thereof.

(b)           Notwithstanding the occurrence of any Default or Event of Default or Event of Termination or noncompliance with the conditions precedent set forth in Article IV or the minimum borrowing amounts specified in Section 2.02, if any Swingline Loan shall remain outstanding at 10:00 a.m., New York City time, on the seventh Business Day following the Borrowing Date thereof and if by such time on such seventh Business Day the Administrative Agent shall have received neither (i) a notice of borrowing delivered by the Borrower pursuant to Section 2.02 requesting that Revolving Loans be made pursuant to Section 2.01 on the immediately succeeding Business Day in an amount at least equal to the aggregate principal amount of such Swingline Loan, nor (ii) any other notice satisfactory to the Administrative Agent indicating the Borrower’s intent to repay such Swingline Loan on the immediately succeeding Business Day with funds obtained from other sources, the Administrative Agent shall be deemed to have received a notice from the Borrower pursuant to Section 2.02 requesting that ABR Revolving Loans be made pursuant to Section 2.01 on such immediately succeeding Business Day in an amount equal to the amount of such Swingline Loan, and the procedures set forth in Section 2.02 shall be followed in making such ABR Revolving Loans; provided that for the purposes of determining each Lender’s Pro Rata Percentage with respect to such Borrowing, the Swingline Loan to be repaid with the proceeds of such Borrowing shall be deemed to not be outstanding. The proceeds of such ABR Revolving Loans shall be applied to repay such Swingline Loan.

(c)           If, for any reason, ABR Revolving Loans may not be, or are not, made pursuant to paragraph (b) of this Section 2.04 to repay any Swingline Loan as required by such paragraph, effective on the date such ABR Revolving Loans would otherwise have been made, each Revolving Lender severally,

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unconditionally and irrevocably agrees that it shall, without regard to the occurrence of any Default or Event of Default, purchase a participating interest in such Swingline Loan (“Unrefunded Swingline Loan”) in an amount equal to the amount of the ABR Revolving Loan which would otherwise have been made pursuant to paragraph (b) of this Section 2.04. Each Revolving Lender will immediately transfer to the Administrative Agent, in immediately available funds, the amount of its participation, and the proceeds of such participations shall be distributed by the Administrative Agent to the Swingline Lender. All payments by the Revolving Lenders in respect of Unrefunded Swingline Loans and participations therein shall be made in accordance with Section 2.13.

(d)           Notwithstanding the foregoing, a Lender shall not have any obligation to acquire a participation in a Swingline Loan pursuant to the foregoing paragraphs if a Default or Event of Default or Event of Termination shall have occurred and be continuing at the time such Swingline Loan was made and such Lender shall have notified the Swingline Lender in writing prior to the time such Swingline Loan was made, that such Default or Event of Default or such Event of Termination has occurred and that such Lender will not acquire participations in Swingline Loans made while such Default or Event of Default or such Event of Termination is continuing.

SECTION 2.05.              Optional and Mandatory Prepayments of Loans; Repayments of Term Loans. (a)  The Borrower may at any time and from time to time prepay the Loans (subject to compliance with the terms of Section 2.17), in whole or in part, subject to Section 2.05(e), upon irrevocable notice to the Administrative Agent not later than 12:00 noon, New York City time, two Business Days prior to the date of such prepayment, specifying (i) the date and amount of prepayment, and (ii) the Class of Loans to be prepaid and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof (including in the case of Eurodollar Loans, the Borrowing to which such prepayment is to be applied and, if of a combination thereof, the amount allocable to each). Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments of Loans (other than Swingline Loans) shall be in an aggregate principal amount of $1.0 million or a whole multiple of $500,000 in excess thereof (or, if less, the remaining outstanding principal amount thereof). Partial prepayments of Swingline Loans shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof (or, if less, the remaining outstanding principal amount thereof).

(b)           In the event and on such occasion that the Aggregate Revolving Credit Exposure exceeds the Total Revolving Credit Commitment, the Borrower shall prepay Revolving Credit Borrowings or Swingline Borrowings (or, if no such Borrowings are outstanding, deposit cash collateral in the account established with the Collateral Agent pursuant to Section 2.06(j)) in an aggregate amount equal to such excess.

(c)           (i)  If the Borrower shall issue any Equity Interests or Equity Rights (it being understood that the issuance of debt securities convertible into, or exchangeable or exercisable for, any Equity Interest or Equity Right shall be governed by Section 2.05(c)(ii) below) (other than any Excluded Equity Issuance) (each, an “Equity Issuance”), then 25% of the Net Proceeds thereof shall be applied within three Business Days after receipt thereof toward the prepayment of the Loans in accordance with Section 2.05(e) below.

(ii)If the Borrower or any of its Subsidiaries shall incur any Indebtedness (including pursuant to debt securities which are convertible into, or exchangeable or exercisable for, any Equity Interest or Equity Rights) (other than as permitted by Section 6.01(a)) (each, a “Debt Incurrence”),

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100% of the Net Proceeds thereof shall be applied within three Business Days after receipt thereof toward the prepayment of the Loans in accordance with Section 2.05(e) below.

(iii)                 If the Borrower or any of its Subsidiaries shall receive Net Proceeds from any Asset Sale, 100% of such Net Proceeds shall be applied within three Business Days after receipt thereof toward the prepayment of the Loans in accordance with Section 2.05(e) below; provided that (x) the Net Proceeds from Asset Sales permitted by Section 6.05 shall not be required to be applied as provided herein on such date if and to the extent that (1) no Default or Event of Default then exists or would arise therefrom and (2) the Borrower delivers an officers’ certificate to the Administrative Agent on or prior to the date of such Asset Sale stating that such Net Proceeds shall be reinvested or committed to be reinvested in capital assets of the Borrower or any Subsidiary in each case within 180 days following the date of such Asset Sale (which certificate shall set forth the estimates of the proceeds to be so expended), (y) all such Net Proceeds shall be held in the Collateral Account and released therefrom only in accordance with the terms of the Security Agreement, and (z) if all or any portion of such Net Proceeds not so applied as provided herein is not so used within such 180-day period (or if, prior to such 180th day, the Borrower or any such Subsidiary shall have entered into a binding agreement to so use any such Net Proceeds, within 360 days following the date of such binding agreement), such remaining portion shall be applied on the last day of such period as specified in this subsection (c)(iii); provided, further, if the Property subject to such Asset Sale constituted Collateral under the Security Documents, then any capital assets purchased with the Net Proceeds thereof pursuant to this subsection shall be mortgaged or pledged, as the case may be, to the Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Section 5.11.

(iv)                If the Borrower or any of its Subsidiaries shall receive proceeds from insurance or condemnation recoveries in respect of any Destruction or any proceeds or awards in respect of any Taking, 100% of the Net Proceeds thereof shall be applied within three Business Days after receipt thereof toward the prepayment of the Loans in accordance with Section 2.05(e) below; provided, that (x) so long as no Default or Event of Default then exists or would arise therefrom, such Net Proceeds shall not be required to be so applied to the extent that the Borrower has delivered an officers’ certificate to the Administrative Agent promptly following the receipt of such Net Proceeds stating that such proceeds shall be used to (1) repair, replace or restore any Property in respect of which such Net Proceeds were paid or (2) fund the substitution of other Property used or usable in the business of the Borrower or the Subsidiaries, in each case within 180 days following the date of the receipt of such Net Proceeds, (y) all such Net Proceeds shall be held in the Collateral Account and released therefrom only in accordance with the terms of the Security Agreement, and (z) if all or any portion of such Net Proceeds not so applied as provided herein is not so used within 180 days (or if, prior to such 180th day, the Borrower or any such Subsidiary shall have entered into a binding agreement to so use any such Net Proceeds, within 360 days following the date of such binding agreement) after the date of the receipt of such Net Proceeds, such remaining portion shall be applied on the last day of such period as specified in this subsection (c)(iv); provided, further, if the Property subject to such Destruction or Taking constituted Collateral under the Security Documents, then any replacement or substitution Property purchased with the Net Proceeds thereof pursuant to this subsection shall be mortgaged or pledged, as the case may be, to the Collateral Agent, for its benefit and for the benefit of the other Secured Parties in accordance with Section 5.11.

(v)                 If, for any Fiscal Year of the Borrower commencing with its Fiscal Year ending on December 30, 2006, there shall be Excess Cash Flow for such Fiscal Year, an amount equal to (a) the Excess Cash Flow Percentage of such Excess Cash Flow less (b) the amount of Debt Repayments for such Fiscal Year shall be applied, not later than 10 days after the date upon which the Borrower is required to deliver its annual audit report pursuant to Section 5.01(b), toward the prepayment of the Loans in accordance with Section 2.05(e) below.

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(d)           The Term Loans shall be repaid in consecutive quarterly installments on the dates set forth below (each such day, an “Installment Payment Date”), commencing on March 31, 2006, in an aggregate amount equal to the amount specified below for each such Installment Payment Date.

Installment Payment Date	Installment Amount
March 31, 2006	$	1,012,500
June 30, 2006	$	1,012,500
September 30, 2006	$	1,012,500
December 31, 2006	$	1,012,500
March 31, 2007	$	1,012,500
June 30, 2007	$	1,012,500
September 30, 2007	$	1,012,500
December 31, 2007	$	1,012,500
March 31, 2008	$	1,012,500
June 30, 2008	$	1,012,500
September 30, 2008	$	1,012,500
December 31, 2008	$	1,012,500
March 31, 2009	$	1,012,500
June 30, 2009	$	1,012,500
September 30, 2009	$	1,012,500
December 31, 2009	$	1,012,500
March 31, 2010	$	1,012,500
June 30, 2010	$	1,012,500
September 30, 2010	$	1,012,500
December 31, 2010	$	1,012,500
March 31, 2011	$	1,012,500
June 30, 2011	$	1,012,500
September 30, 2011	$	1,012,500
December 31, 2011	$	1,012,500
March 31, 2012	$	1,012,500
June 30, 2012	$	1,012,500
September 30, 2012	$	1,012,500
Term Loan Maturity Date	$	377,662,500

(e)           (i)  Optional prepayments in respect of Term Loans under this Agreement and mandatory prepayments shall be applied first to reduce remaining scheduled installments of principal due in respect of outstanding Term Loans under Section 2.05(d) in direct order of maturity up to but not including the first scheduled installment due after the date that is 24 months following the date of such prepayment. After application of prepayments pursuant to the first sentence of this paragraph (e)(i) and to the extent there are mandatory prepayment amounts remaining after such application, such excess prepayments shall be applied to reduce outstanding Term Loans pro rata against the remaining scheduled installments of principal due in respect of the Term Loans under Section 2.05(d).

(ii)After application of prepayments pursuant to paragraph (e)(i) and to the extent there are prepayment amounts remaining after such application, the Revolving Loans shall be repaid (but the Revolving Commitments not reduced), ratably among the Revolving Lenders, in accordance with their applicable Revolving Loans outstanding in an aggregate amount equal to the excess.

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(iii)Optional terminations or reductions in Revolving Credit Commitments shall be made in accordance with Section 2.11(b).

(iv)Except as otherwise may be directed by the Borrower, any prepayment of Loans pursuant to this Section 2.05 shall be applied, first, to any ABR Loans then outstanding and the balance of such prepayment, if any, to the Eurodollar Loans then outstanding.

(f)            If on any day on which Loans would otherwise be required to be prepaid pursuant to this Section 2.05, but for the operation of this Section 2.05(f) (each, a “Prepayment Date”), the amount of such required prepayment exceeds the then outstanding aggregate principal amount of ABR Loans which are of the Type required to be prepaid, and no Default or Event of Default exists or is continuing, then, at the Borrower’s election, on such Prepayment Date, (i) the Borrower shall deposit funds into the Collateral Account in an amount equal to such excess, and only the outstanding ABR Loans which are of the Type required to be prepaid shall be required to be prepaid on such Prepayment Date, and (ii) on the last day of each Interest Period after such Prepayment Date in effect with respect to a Eurodollar Loan which is of the Type required to be prepaid, the Administrative Agent is irrevocably authorized and directed to apply funds from the Collateral Account (and liquidate investments held in the Collateral Account as necessary) to prepay such Eurodollar Loans for which the Interest Period is then ending to the extent funds are available in the Collateral Account.

SECTION 2.06.              Letters of Credit.

(a)           General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Revolving Credit Commitment Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.

(b)           Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, (i) the LC Exposure shall not exceed $25.0 million and (ii) the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment. With respect to any Letter of Credit which contains any “evergreen” automatic renewal provision, the Issuing Bank shall be deemed to have consented to any such extension or renewal provided that all of the requirements of this Section 2.06 are met and no Default or Event of Default exists.

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(c)           Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Revolving Credit Maturity Date.

(d)           Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Revolving Lender’s Commitment Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Revolving Lender’s Commitment Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or an Event of Default or reduction or termination of the Revolving Credit Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(e)           Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York City time, on (i) the Business Day that the Borrower receives such notice, if such notice is received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.02 that such payment be financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline Loan. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Revolving Lender’s Commitment Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Commitment Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.02 with respect to Loans made by such Revolving Lender (and Section 2.02 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Revolving Lenders and the Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR

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Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.

(f)            Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section 2.06 shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Revolving Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s bad faith, gross negligence or willful misconduct or its failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of bad faith, gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(g)           Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement.

(h)           Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; provided that if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section 2.06, then Section 2.08(c)

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shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section 2.07 to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.

(i)            Replacement of the Issuing Bank. The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.10(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

(j)            Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Requisite Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in the Collateral Account an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (a) of Section 7.01 or any Event of Default described in clause (i) of Section 7.01. Each such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement and the Borrower hereby grants the Collateral Agent a security interest in respect of each such deposit and the Collateral Account in which such deposits are held. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over the Collateral Account. Other than any interest earned on the investment of such deposits, which investments shall be made in accordance with the Security Agreement, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in the Collateral Account. Moneys deposited in the Collateral Account pursuant to this Section 2.06(j) shall be applied by the Collateral Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Defaults or Events of Default have been cured or waived.

SECTION 2.07.              Repayment of Loans; Evidence of Debt. (a)  The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the relevant Lenders (i) in respect of Revolving Credit Borrowings, on the Revolving Credit Maturity Date (or such earlier date as, and to the extent that, such Revolving Loan becomes due and payable pursuant to Section 2.05 or Article VII),

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the unpaid principal amount of each Revolving Loan and each Swingline Loan made to it by each such Lender and (ii) in respect of Term Borrowings, on the Term Loan Maturity Date (or such earlier date as, and to the extent that, such Term Loan becomes due and payable pursuant to Section 2.05 or Article VII), the unpaid principal amount of each Term Loan held by each such Lender. The Borrower hereby further agrees to pay interest in immediately available funds at the applicable office of the Administrative Agent (as specified in Section 2.13(a)) on the unpaid principal amount of the Revolving Loans, Swingline Loans and Term Loans made to it from time to time from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.08. All payments required hereunder shall be made in Dollars.

(b)           Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the appropriate lending office of such Lender resulting from each Loan made by such lending office of such Lender from time to time, including the amounts of principal and interest payable and paid to such lending office of such Lender from time to time under this Agreement.

(c)           The Administrative Agent shall maintain the Register pursuant to Section 9.04, and a subaccount for each Lender, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each such Loan, the Class and Type of each such Loan and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of each such Loan and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of each such Loan and each Lender’s share thereof.

(d)           The entries made in the Register and accounts maintained pursuant to paragraphs (b) and (c) of this Section 2.07 and the Notes maintained pursuant to paragraph (e) of this Section 2.07 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement.

(e)           The Loans of each Class made by each Lender to the Borrower shall, if requested by the applicable Lender (which request shall be made to the Administrative Agent), be evidenced by a single Note duly executed on behalf of the Borrower, in substantially the form attached hereto as Exhibit F-1, -2 or -3, as applicable, with the blanks appropriately filled, payable to the order of such Lender.

SECTION 2.08.              Interest Rates and Payment Dates. (a)  Each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) for each day during each Interest Period with respect thereto at a rate per annum equal to the Adjusted LIBO Rate determined for such Interest Period, plus the Applicable Rate.

(b)           Each ABR Loan (including each Swingline Loan) shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, or over a year of 360 days when the Alternate Base Rate is determined by reference to clause (c) of the definition of “Alternate Base Rate”) at a rate per annum equal to the Alternate Base Rate plus the Applicable Rate.

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(c)           If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any Commitment Fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity thereof or by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal (except as otherwise provided in clause (y) below), the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section 2.08 plus 2.00% per annum or (y) in the case of any overdue interest, Commitment Fee or other amount, the rate described in Section 2.08(b) applicable to an ABR Revolving Loan plus 2.00% per annum, in each case from the date of such nonpayment to (but excluding) the date on which such amount is paid in full (after as well as before judgment).

(d)           Interest shall be payable in arrears on each Interest Payment Date and on the Term Loan Maturity Date and the Revolving Credit Maturity Date; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. Interest in respect of each Loan shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.

SECTION 2.09.              Computation of Interest. Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error.

SECTION 2.10.              Fees. (a)  The Borrower agrees to pay a commitment fee (a “Commitment Fee”) to each Revolving Lender, for which payment will be made in arrears through the Administrative Agent on the last day of March, June, September and December beginning after the Effective Date, and on the Commitment Fee Termination Date (as defined below). The Commitment Fee due to each Revolving Lender shall commence to accrue for a period commencing on the Effective Date and shall cease to accrue on the date (the “Commitment Fee Termination Date”) that is the earlier of (i) the date on which the Revolving Credit Commitment of such Revolving Lender shall be terminated as provided herein and (ii) the first date after the end of the Revolving Credit Commitment Period. The Commitment Fee accrued to each Revolving Lender shall equal the Commitment Fee Percentage multiplied by such Lender’s Commitment Fee Average Daily Amount (as defined below) for the applicable quarter (or shorter period commencing on the date of this Agreement and ending with such Lender’s Commitment Fee Termination Date). A Revolving Lender’s “Commitment Fee Average Daily Amount” with respect to a calculation period shall equal the average daily amount during such period calculated using the daily amount of such Revolving Lender’s Revolving Credit Commitment less such Revolving Lender’s Revolving Credit Exposure (excluding clause (c) of the definition thereof for purposes of determining the Commitment Fee Average Daily Amount only) for any applicable days during such Revolving Lender’s Revolving Credit Commitment Period. All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

(b)           The Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at a rate equal to the Applicable Rate for Eurodollar Revolving Loans on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Revolving Lender’s Revolving Credit Commitment terminates and the date on which such Revolving Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which

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shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Credit Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank’s reasonable and customary fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees (collectively, “LC Fees”) accrued through and including the last day of March, June, September and December of each calendar year during the Revolving Credit Commitment Period shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Revolving Credit Commitments terminate and any such fees accruing after the date on which the Revolving Credit Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand therefor. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(c)           The Borrower agrees to pay to the Administrative Agent the correct administrative fee set forth in the Engagement Letter (the “Agent Fees”).

(d)           All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution. Once paid, none of the Fees shall be refundable.

SECTION 2.11.              Termination, Reduction or Adjustment of Commitments. (a)  Unless previously terminated, (i) the Term Commitments shall terminate at 5:00 p.m., New York City time, on the Effective Date and (ii) the Revolving Credit Commitments shall terminate on the Revolving Credit Maturity Date.

(b)           The Borrower shall have the right, upon one Business Day’s notice to the Administrative Agent, to terminate or, from time to time, reduce the amount of the Revolving Credit Commitments; provided that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any repayments of the Loans made on the effective date thereof, the Aggregate Revolving Credit Exposure then outstanding would exceed the Total Revolving Credit Commitment then in effect.

(c)           The Borrower shall pay to the Administrative Agent for the account of the applicable Revolving Lenders, on each date of termination or reduction of the Revolving Credit Commitments, the Commitment Fee on the amount of the Revolving Credit Commitments so terminated or reduced accrued to the date of such termination or reduction.

SECTION 2.12.              Inability to Determine Interest Rate; Unavailability of Deposits; Inadequacy of Interest Rate. If prior to 11:00 a.m., London time, two Business Days before the first day of any Interest Period, including an initial Interest Period, for a requested Eurodollar Borrowing:

(i)              the Administrative Agent shall have determined in good faith (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market generally, adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Eurodollar Borrowing for such Interest Period, or

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(ii)             the Administrative Agent shall have received notice from a majority in interest of the Lenders of the applicable Class that the Adjusted LIBO Rate determined or to be determined for such Interest Period for such Eurodollar Borrowing will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period,

then the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the Lenders by 12:00 noon, New York City time, on the same day. The Administrative Agent shall give telecopy or telephonic notice to the Borrower and the Lenders as soon as practicable after the circumstances giving rise to such notice no longer exist, and until such notice has been given, any affected Eurodollar Loans shall not be (x) converted or continued pursuant to Section 2.03 or (y) made pursuant to a Borrowing Request, and shall be continued or made as an ABR Loans, as the case may be.

SECTION 2.13.              Pro Rata Treatment and Payments. (a)  Each reduction of the Revolving Credit Commitments of the Revolving Lenders shall be made pro rata according to the amounts of such Revolving Lenders’ Commitment Percentages. Each payment (including each prepayment) by the Borrower on account of principal of and interest on Loans which are ABR Loans shall be made pro rata according to the respective outstanding principal amounts of such ABR Loans then held by the Lenders of the applicable Class. Each payment (including each prepayment) by the Borrower on account of principal of and interest on Loans which are Eurodollar Loans designated by the Borrower to be applied to a particular Eurodollar Borrowing shall be made pro rata according to the respective outstanding principal amounts of such Loans then held by the Lenders of the applicable Class. Each payment (including each prepayment) by the Borrower on account of principal of and interest on Swingline Loans shall be made pro rata according to the respective outstanding principal amounts of the Swingline Loans or participating interests therein, as the case may be, then held by the relevant Lenders. All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 noon, New York time, on the due date thereof to the Administrative Agent, for the account of the Lenders of the applicable Class, at the Administrative Agent’s New York office specified in Section 9.01 in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders entitled thereto promptly upon receipt. If any payment hereunder (other than payments on Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.

(b)           Subject to Section 2.12, unless the Administrative Agent shall have been notified in writing by any Lender prior to a Borrowing that such Lender will not make the amount that would constitute its share of such Borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section 2.13(b)

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shall be conclusive in the absence of manifest error. If such Lender’s share of such Borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Revolving Loans hereunder, on demand, from the Borrower, but without prejudice to any right or claim that the Borrower may have against such Lender.

(c)           If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.

SECTION 2.14.              Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law, or in the interpretation or application thereof, shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be suspended until such time as the making or maintaining of Eurodollar Loans shall no longer be unlawful, and (b) such Lender’s Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law.

SECTION 2.15.              Requirements of Law. (a)  If at any time any Lender or the Issuing Bank reasonably determines that the introduction of, or any change in or in the interpretation of, any law, treaty or governmental rule, regulation or order (other than any change by way of imposition or increase of reserve requirements included in determining the Adjusted LIBO Rate) or the compliance by such Lender or the Issuing Bank with any guideline, request or directive from any central bank or other Governmental Authority (whether or not having the force of law), shall have the effect of increasing the cost to such Lender or the Issuing Bank for agreeing to make or making, funding or maintaining any Eurodollar Loans or participating in, issuing or maintaining any Letter of Credit, then the Borrower shall from time to time, within five days of demand therefor by such Lender or the Issuing Bank (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender or the Issuing Bank additional amounts sufficient to compensate such Lender or the Issuing Bank for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender or the Issuing Bank, shall be conclusive and binding for all purposes, absent manifest error. Such Lender or the Issuing Bank, as applicable, shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender or the Issuing Bank, as applicable, for such increased cost or reduced amount. Such additional amounts shall be payable directly to such Lender or the Issuing Bank, as applicable, within five days of the Borrower’s receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower.

(b)           If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other Governmental Authority after the date hereof affects or would affect the amount of capital required or expected to be maintained by any Lender or the Issuing Bank (or a holding company controlling such Lender or the Issuing Bank) and such

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Lender or the Issuing Bank reasonably determines that the rate of return on its capital (or the capital of its holding company, as the case may be) as a consequence of its Revolving Credit Commitment or the Loans made by it or its participations in Swingline Loans or any issuance, participation or maintenance of Letters of Credit is reduced to a level below that which such Lender or the Issuing Bank (or its holding company) could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender or the Issuing Bank to the Borrower, the Borrower shall, within five days of the Borrower’s receipt of such notice, pay directly to such Lender or the Issuing Bank, as the case may be, additional amounts sufficient to compensate such Lender or the Issuing Bank (or its holding company) for such reduction in rate of return. A statement of such Lender or the Issuing Bank as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Lender or the Issuing Bank may use any reasonable method of averaging and attribution that it shall deem applicable.

(c)           In the event that the Issuing Bank or any Lender determines that any event or circumstance that will lead to a claim under this Section 2.15 has occurred or will occur, the Issuing Bank or such Lender will use its best efforts to so notify the Borrower; provided that any failure to provide such notice shall in no way impair the rights of the Issuing Bank or such Lender to demand and receive compensation under this Section 2.15, but without prejudice to any claims of the Borrower for compensation for actual damages sustained as a result of any failure to observe this undertaking.

SECTION 2.16.              Taxes. All payments by the Borrower of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority on the Administrative Agent, the Issuing Bank or any Lender (or any assignee of such Lender or the Issuing Bank, as the case may be, or a Participant or a change in designation of the lending office of a Lender or the Issuing Bank, as the case may be (a “Transferee”)), but excluding franchise taxes and taxes imposed on or measured by the recipient’s net income (such non-excluded items being called “Taxes”) unless required by applicable law, rule or regulation. In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will:

(a)           pay directly to the relevant authority the full amount required to be so withheld or deducted;

(b)           promptly forward to the Administrative Agent an official receipt or other documentation reasonably satisfactory to the Administrative Agent evidencing such payment to such authority; and

(c)           pay to the Administrative Agent for the account of the Lenders or the Issuing Bank, as the case may be, such additional amount or amounts as are necessary to ensure that the net amount actually received by each Lender or the Issuing Bank, as the case may be, will equal the full amount such Lender or the Issuing Bank, as the case may be, would have received had no such withholding or deduction been required.

Moreover, if any Taxes are directly asserted against the Administrative Agent, the Issuing Bank or any Lender or Transferee with respect to any payment received by the Administrative Agent, the Issuing Bank or such Lender or Transferee hereunder, the Administrative Agent, the Issuing Bank or such Lender or Transferee may pay such Taxes and the Borrower will promptly pay such additional amounts (including

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any penalties, interest or expenses) as shall be necessary in order that the net amount received by such Person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Taxes not been asserted. In addition, the Borrower shall also reimburse each Lender or Transferee or the Issuing Bank, upon the written request of such Lender or Transferee or Issuing Bank, for taxes imposed on or measured by the net income of such Person pursuant to the laws of the United States of America, any state or political subdivision thereof, or the jurisdiction in which such Person is incorporated, or a jurisdiction in which the principal executive office or lending office of such Person is located, or under the laws of any political subdivision or taxing authority of any such jurisdiction, as such Person shall reasonably determine are or were payable by such Person, in respect of amounts payable to such Person pursuant to this Section 2.16 taking into account the amount of Taxes that are (x) allowed as a deduction in determining taxes imposed on or measured by the net income or allowed as a credit against any taxes imposed on or measured by net income and (y) payable to such Person pursuant to this Section 2.16.

If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the Issuing Bank, the respective Lenders or Transferees, the required receipts or other required documentary evidence, the Borrower shall indemnify the Issuing Bank, Lenders and Transferees for any incremental Taxes, interest, penalties or other costs (including reasonable attorneys’ fees and expenses) that may become payable by the Issuing Bank, any Lender or Transferee as a result of any such failure. For purposes of this Section 2.16, a distribution hereunder by the Administrative Agent to or for the account of the Issuing Bank, any Lender or Transferee shall be deemed a payment by the Borrower.

Each Lender or Transferee that is organized under the laws of a jurisdiction other than the United States of America or any state or political subdivision thereof shall, on or prior to the Effective Date (in the case of each Lender that is a party hereto on the Effective Date) or on or prior to the date of any assignment, participation or change in the designated lending office hereunder (in the case of a Transferee) and thereafter as reasonably requested from time to time by the Borrower or the Administrative Agent, execute and deliver, if legally able to do so, to the Borrower and the Administrative Agent one or more (as the Borrower or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms W-8BEN or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender or Transferee is exempt from or entitled to a reduced rate of withholding or deduction of Taxes.

With respect to obligations under this Agreement other than those specified in the immediately following paragraph, the Borrower shall not be required to indemnify or to pay any additional amounts to the Issuing Bank, any Lender or Transferee with respect to any Taxes pursuant to this Section 2.16 to the extent that (i) any obligation to withhold, deduct or pay amounts with respect to such Tax existed on the date the Issuing Bank, such Lender or Transferee became a party to this Agreement or otherwise becomes a Transferee (and, in such case, the Borrower may deduct and withhold such Tax from payments to the Issuing Bank, such Lender or Transferee), or (ii) any Lender or Transferee fails to comply in full with the provisions of the immediately preceding paragraph (and, in such case, the Borrower may deduct and withhold all Taxes required by law as a result of such noncompliance from payments to the Issuing Bank, such Lender or Transferee).

Notwithstanding anything to the contrary in this Section 2.16, if the Internal Revenue Service determines that a Lender (or Transferee) is a conduit entity participating in a conduit financing arrangement as defined in Section 7701(l) of the Code and the regulations thereunder and the Borrower was not a participant to such arrangement (other than as the Borrower under this Agreement) (a “Conduit Financing Arrangement”), then (i) the Borrower shall have no obligation to pay additional amounts or

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indemnify the Lender or Transferee for any Taxes with respect to any payments hereunder to the extent the amount of such Taxes exceeds the amount that would have otherwise been withheld or deducted had the Internal Revenue Service not made such a determination and (ii) such Lender or Transferee shall indemnify the Borrower in full for any and all taxes for which the Borrower is held directly liable under Section 1461 of the Code by virtue of such Conduit Financing Arrangement; provided that the Borrower (i) promptly forwards to the indemnitor an official receipt or other documentation satisfactorily evidencing such payment, (ii) shall contest such tax upon the reasonable request of the indemnitor and at such indemnitor’s cost and (iii) shall pay to such indemnitor within 30 days any refund of such taxes (including interest thereon). Each Lender or Transferee represents that it is not participating in a Conduit Financing Arrangement.

In the event that the Issuing Bank or any Lender determines that any event or circumstance that will lead to a claim by it under this Section 2.16 has occurred or will occur, the Issuing Bank or such Lender will use its best efforts to so notify the Borrower; provided that any failure to provide such notice shall in no way impair the rights of the Issuing Bank or any Lender to demand and receive compensation under this Section 2.16, but without prejudice to any claims of the Borrower for failure to observe this undertaking.

SECTION 2.17.              Indemnity. In the event any Lender shall incur any loss or expense (including any loss (other than lost profit) or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a Eurodollar Loan) as a result of any conversion of a Eurodollar Loan to an ABR Loan or repayment or prepayment of the principal amount of any Eurodollar Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 2.03, 2.05, 2.07, 2.14, 2.15 or 2.20 or otherwise, or any failure to borrow or convert any Eurodollar Loan after notice thereof shall have been given hereunder, whether by reason of any failure to satisfy a condition to such Borrowing or otherwise, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower.

SECTION 2.18.              Change of Lending Office. Each Lender (or Transferee) agrees that, upon the occurrence of any event giving rise to the operation of Section 2.14, 2.15 or 2.16 with respect to such Lender (or Transferee), it will, if requested by the Borrower, use commercially reasonable efforts (subject to overall policy considerations of such Lender (or Transferee)) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its respective lending offices to suffer no material economic, legal or regulatory disadvantage; and provided, further, that nothing in this Section 2.18 shall affect or postpone any of the obligations of the Borrower or the rights of any Lender (or Transferee) pursuant to Sections 2.14, 2.15 and 2.16.

SECTION 2.19.              Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker’s lien, setoff or counterclaim against the Borrower, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loans or participations in LC Disbursements which at the time shall be due and payable as a result of which the unpaid principal portion of its Loans and participations in LC Disbursements which at

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the time shall be due and payable shall be proportionately less than the unpaid principal portion of such Loans and participations in LC Disbursements of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in such Loans and participations in LC Disbursements of such other Lender, so that the aggregate unpaid principal amount of such Loans and participations in LC Disbursements held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all such Loans and participations in LC Disbursements as prior to such exercise of banker’s lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.19 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustments restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Loan or an LC Disbursement deemed to have been so purchased may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender were a direct creditor directly to the Borrower in the amount of such participation.

SECTION 2.20.              Assignment of Commitments Under Certain Circumstances. In the event that (a) any Lender shall have delivered a notice or certificate pursuant to Section 2.14 or 2.15, or the Borrower shall be required to make additional payments to any Lender under Section 2.16 (each, an “Increased Cost Lender”) or (b) subject to the terms and conditions of Section 9.08(e), in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof described in Section 9.08(e), the consent of all Lenders required hereunder would have been obtained but for such Lender’s failure to consent (such Lender, a “Non-Consenting Lender”); then, with respect to each such Non-Consenting Lender and Increased Cost Lender (the “Terminated Lender”), the Borrower shall have the right, but not the obligation, at its own expense, upon notice to such Terminated Lender and the Administrative Agent, to replace such Terminated Lender with an assignee (in accordance with and subject to the restrictions contained in Section 9.04) approved by the Administrative Agent, the Issuing Bank and the Swingline Lender (which approval shall not be unreasonably withheld), and such Terminated Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in Section 9.04) all its interests, rights and obligations under this Agreement to such assignee; provided, however, that no Terminated Lender shall be obligated to make any such assignment unless (i) such assignment shall not conflict with any law or any rule, regulation or order of any Governmental Authority and (ii) such assignee or the Borrower shall pay to the affected Terminated Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Terminated Lender and participations in LC Disbursements and Swingline Loans held by such Terminated Lender and all commitment fees and other fees owed to such Terminated Lender hereunder and all other amounts accrued for such Terminated Lender’s account or owed to it hereunder (including, without limitation, any Commitment Fees). Each Lender agrees that, if it becomes a Terminated Lender, it shall execute and deliver to the Administrative Agent an Assignment and Acceptance to evidence such sale and purchase and shall deliver to the Administrative Agent any Note (if the assigning Lender’s Loans are evidenced by Notes) subject to such Assignment and Acceptance; provided, however, that the failure of any Terminated Lender to execute an Assignment and Acceptance shall not render such sale and purchase (and the corresponding assignment) invalid and such assignment shall be recorded in the Register.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

In order to induce the Lenders and the Administrative Agent to enter into this Agreement and to extend credit hereunder and under the other Loan Documents on the Effective Date, the Loan Parties, jointly and severally, make the representations and warranties set forth in this Article III (after giving effect to the Transactions) and upon the occurrence of each Credit Event thereafter:

SECTION 3.01.              Organization, etc. Each Loan Party (a) is a corporation or other form of legal entity, and each of its Subsidiaries is a corporation, partnership or other form of legal entity, validly organized and existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be, (b) has all requisite corporate or other power and authority to carry on its business as now conducted, (c) is duly qualified to do business and is in good standing as a foreign corporation or foreign partnership (or comparable foreign qualification, if applicable, in the case of any other form of legal entity), as the case may be, in each jurisdiction where the nature of its business requires such qualification, except where the failure to so qualify will not have a Material Adverse Effect, and (d) has full power and authority and holds all requisite material governmental licenses, permits and other approvals to enter into and perform its obligations under this Agreement and each other Loan Document to which it is a party and to own or hold under lease its Property and to conduct its business substantially as currently conducted by it.

SECTION 3.02.              Due Authorization, Non-Contravention, etc. The execution, delivery and performance by each Loan Party of this Agreement and each other Loan Document to which it is a party, the borrowing of the Loans, the use of the proceeds thereof and the issuance of the Letters of Credit hereunder are within each Loan Party’s corporate, partnership or comparable powers, as the case may be, have been duly authorized by all necessary corporate, partnership or comparable and, if required, stockholder action, as the case may be, and do not

(a)           contravene the Organic Documents of any Loan Party or any of its respective Subsidiaries;

(b)           contravene any material law, statute, rule or regulation binding on or affecting any Loan Party or any of its respective Subsidiaries;

(c)           violate or result in a default or event of default or an acceleration of any rights or benefits under any material indenture, agreement or other instrument binding upon any Loan Party or any of its respective Subsidiaries; or

(d)           result in, or require the creation or imposition of, any Lien on any assets of any Loan Party or any of its respective Subsidiaries that would have or could reasonably be expected to have a Material Adverse Effect, except Liens created under the Loan Documents.

SECTION 3.03.              Government Approval, Regulation, etc. No consent, authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower or any other Loan Party of this Agreement or any other Loan Document, the borrowing of the Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens under the Security

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Documents. No Loan Party or any of its respective Subsidiaries is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

SECTION 3.04.              Validity, etc. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Loan Document to which any Loan Party is to be a party will, on the due execution and delivery thereof and assuming the due execution and delivery of this Agreement by each of the other parties hereto, constitute, the legal, valid and binding obligation of such Loan Party enforceable in accordance with its respective terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity.

SECTION 3.05.              Financial Information. (a)  The consolidated balance sheets of the Borrower and its Subsidiaries as of January 1, 2005 reported on by Ernst & Young LLP, independent public accountants, and the related consolidated statements of income, stockholders’ equity and cash flow of the Borrower for the three years ended January 1, 2005, copies of which have been furnished to the Administrative Agent, have been prepared in accordance with GAAP, and present fairly in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as of the dates thereof and the results of their operations and cash flows for the periods then ended (including with respect to the fresh-start accounting adjustments made to the first three fiscal quarters of 2003).

(b)           As of the Effective Date, except as disclosed in the financial statements referred to above or the notes thereto or on Schedule 3.05, none of the Borrower or its Subsidiaries has any material Indebtedness, contingent liabilities, long-term commitments or unrealized losses.

SECTION 3.06.              No Material Adverse Effect. Since January 1, 2005, no event or circumstance has occurred that has had, or could reasonably be expected to have, a Material Adverse Effect.

SECTION 3.07.              Litigation. There is no pending or, to the knowledge of the Loan Parties, threatened, litigation, action or proceeding affecting the Borrower or any of its Subsidiaries, or any of their respective operations, properties, businesses, assets or prospects, or the ability of the parties to consummate the transactions contemplated hereby, which has a reasonable likelihood of adverse determination and, if determined adversely, in the case of the Borrower and its Subsidiaries, would reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document or the transactions contemplated hereby or thereby.

SECTION 3.08.              Compliance with Laws and Agreements. None of the Loan Parties has violated, is in violation of or has been given written notice of any violation of any laws (other than Environmental Laws, which are the subject of Section 3.13), regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except for any violations which do not have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.

SECTION 3.09.              Subsidiaries. Schedule 3.09 sets forth the name of, and the direct or indirect ownership interest of the Borrower in, each Subsidiary of the Borrower and identifies each Subsidiary that is a Loan Party, in each case as of the Effective Date.

SECTION 3.10.              Ownership of Properties. (a)  Each of the Borrower and its Subsidiaries has good and marketable title to (or other similar title in jurisdictions outside the United States of America), or valid leasehold interests in, or easements or other limited property interests in, or is licensed

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to use, all its material properties and assets (including all Mortgaged Properties), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title in the aggregate could not reasonably be expected to have a Material Adverse Effect. All such material properties and assets are free and clear of Liens, other than Permitted Liens.

(b)As of the Effective Date, Schedule 3.10(b) contains a true and complete list of each parcel of Real Property (i) owned by any Loan Party as of the date hereof and describes the type of interest therein held by such Loan Party and (ii) leased, subleased or otherwise occupied or utilized by any Loan Party, as lessee, as of the date hereof and describes the type of interest therein held by such Loan Party and whether such lease, sublease or other instrument requires the consent of the landlord thereunder or other parties thereto to the Transactions.

(c)Each of the Borrower and its Subsidiaries has complied with all obligations under all leases to which it is a party, except where the failure to comply would not have a Material Adverse Effect, and all such leases are in full force and effect, except leases in respect of which the failure to be in full force and effect could not reasonably be expected to have a Material Adverse Effect. Each of the Borrower and its Subsidiaries enjoys peaceful and undisturbed possession under all such leases, other than leases in respect of which the failure to enjoy peaceful and undisturbed possession could not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

(d)Each of the Borrower and its Subsidiaries owns, possesses, is licensed or otherwise has the right to use, or could obtain ownership or possession of, on terms not materially adverse to it, all patents, trademarks, service marks, trade names, copyrights, licenses and rights with respect thereto necessary for the present conduct of its business, without any known conflict with the rights of others, except where such conflicts could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(e)As of the Effective Date, no Loan Party or any of its respective Subsidiaries has received any written notice of, or has any knowledge of, any pending or contemplated condemnation proceeding affecting any of the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation that remains unresolved as of the Effective Date.

(f)Neither the Borrower nor any of its Subsidiaries is obligated on the Effective Date under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein.

SECTION 3.11.Taxes. Each of the Borrower and its Subsidiaries has timely filed all federal and all other material income tax returns and reports required by law to have been filed by it and has paid all material taxes and governmental charges due, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; provided that any such contest of taxes or charges with respect to Collateral shall satisfy the Contested Collateral Lien Conditions.

SECTION 3.12.Pension and Welfare Plans. No ERISA Event has occurred or is reasonably expected to occur which could reasonably be expected to have a Material Adverse Effect or give rise to a Lien on the assets of the Borrower or any of its Subsidiaries. The Borrower and its Subsidiaries and their ERISA Affiliates are in compliance in all respects with the presently applicable provisions of ERISA and the Code with respect to each Plan except for failures to so comply which could not reasonably be expected to have a Material Adverse Effect. No condition exists or event or transaction has occurred

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with respect to any Plan which reasonably might result in the incurrence by the Borrower or any of its Subsidiaries or any ERISA Affiliate of any liability, fine or penalty which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has any contingent liability with respect to post-retirement benefits provided by the Borrower or any of its Subsidiaries under a Welfare Plan, other than (i) liability for continuation coverage described in Part 6 of Subtitle B of Title I of ERISA and (ii) liabilities that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

Except as could not reasonably be expected to have a Material Adverse Effect, (a) each Foreign Plan has been maintained in compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities, and (b) neither the Borrower nor any of its Subsidiaries has incurred any obligation in connection with the termination of or withdrawal from any Foreign Plan.

SECTION 3.13.Environmental. (a)  Except as set forth on Schedule 3.13(a), all facilities and property owned, leased or operated by the Borrower or any of its Subsidiaries, and all operations conducted thereon, are in compliance with all Environmental Laws, except for such noncompliance that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

(b)Except as set forth on Schedule 3.13(b), there are no pending or threatened (in writing):

(i)Environmental Claims received by the Borrower or any of its Subsidiaries, or

(ii)written claims, complaints, notices or inquiries received by the Borrower or any of its Subsidiaries regarding Environmental Liability,

in each case which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(c)Except as set forth on Schedule 3.13(c), there have been no Releases of Hazardous Materials at, on, under or from any property or facility now or, to any Loan Party’s knowledge, previously owned, leased or operated by the Borrower or any of its Subsidiaries that, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect.

(d)The Borrower and its Subsidiaries have been issued and are in compliance with all Environmental Permits necessary for their operations, facilities and businesses and each is in full force and effect, except for such Environmental Permits which, if not so obtained or as to which the Borrower and its Subsidiaries are not in compliance, or are not in effect, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

(e)No property now or, to any Loan Party’s knowledge previously, owned, leased or operated by the Borrower or any of its Subsidiaries is listed or, to any Loan Party’s knowledge, proposed (with respect to owned property only) for listing (i) on the National Priorities List pursuant to CERCLA or (ii) on the CERCLIS or on any similar list of sites requiring investigation or clean-up, which, in the case of this clause (ii) only, singly or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.

(f)There are no underground storage tanks, active or abandoned, including petroleum storage tanks, surface impoundments or disposal areas, on or under any property now or, to any

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Loan Party’s knowledge previously, owned or leased by the Borrower or any of its Subsidiaries which, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(g)Neither the Borrower nor any of its Subsidiaries has transported or arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar list or which is the subject of federal, state or local enforcement actions or other investigations which would reasonably be expected to lead to any Environmental Claim against the Borrower or such Subsidiary which (other than in the case of a listing or proposed listing on the National Priorities List pursuant to CERCLA), singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(h)No liens have been recorded pursuant to any Environmental Law with respect to any property or other assets currently owned or leased by the Borrower or its Subsidiaries.

(i)Neither the Borrower nor any of its Subsidiaries is currently conducting any Remedial Action pursuant to any Environmental Law, nor has any of the Loan Parties or any of their respective Subsidiaries assumed by contract, agreement or operation of law any obligation under Environmental Law, the cost of which, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(j)There are no polychlorinated biphenyls or friable asbestos present at any property or facility owned, leased or operated by the Borrower or any of its Subsidiaries, which, singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

SECTION 3.14.Regulations U and X. The Loans, the use of the proceeds thereof, this Agreement and the transactions contemplated hereby will not result in a violation of any provision of Regulation U or Regulation X.

SECTION 3.15.Disclosure; Accuracy of Information; Pro Forma Balance Sheets and Projected Financial Statements. (a)  The Loan Parties have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which they or any of their Subsidiaries is subject, and all other matters known to any of them that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither this Agreement nor any other material document, certificate or statement furnished to the Administrative Agent or any Lender by or on behalf of any Loan Party in connection herewith (including, without limitation, the Information Memorandum and the Projected Financial Statements) contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein and therein not misleading, in light of the circumstances under which they were made; provided that to the extent this or any such document, certificate or statement (including without limitation the Information Memorandum and the Projected Financial Statements) was based upon or constitutes a forecast or projection, the Loan Parties represent only that they acted in good faith and utilized assumptions believed by management to be reasonable at the time made. The Administrative Agent and the Lenders recognize, however, that forecasts and projections as to future events are not to be viewed as representations with respect to future performance and that the actual results during the period or periods covered by the forecasts or projections probably will differ from the projected results and that the difference may be material.

(b)The Borrower shall have furnished to the Lenders the pro forma consolidated balance sheet as of October 1, 2005, prepared giving effect to the Transactions as if the Transactions had occurred on such date. Such pro forma consolidated balance sheet (i) was prepared in good faith based on the same assumptions used to prepare the pro forma financial statements included in the Information

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Memorandum, (ii) accurately reflects in all material respects all adjustments necessary to give effect to the Transactions and (iii) presents fairly in all material respects the pro forma financial position of the Borrower and its consolidated Subsidiaries as of October 1, 2005.

(c)The Borrower shall have furnished to the Lenders pro forma consolidated income statement projections for the Borrower and its Subsidiaries, pro forma consolidated balance sheet projections for the Borrower and its Subsidiaries and pro forma consolidated cash flow projections for the Borrower and its Subsidiaries through the 2012 Fiscal Year, which shall be prepared on a quarterly basis through the 2006 Fiscal Year and annually thereafter (the “Projected Financial Statements”), which give effect to the Transactions and all Indebtedness and Liens incurred or created in connection with the Transactions.

SECTION 3.16.Insurance. As of the Effective Date, set forth on Schedule 3.16 is a summary of all insurance policies maintained by the Borrower and each of its Subsidiaries with financially sound and responsible insurance companies (a) with respect to its properties material to the business of the Borrower and its Subsidiaries against such casualties and contingencies and of such types and in such amounts as are customary in the case of similar businesses operating in the same or similar locations, and (b) required to be maintained pursuant to the Security Documents.

SECTION 3.17.Labor Matters. Except as could not reasonably be expected to have a Material Adverse Effect, (a) there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of any Loan Party, threatened; (b) the hours worked by and payments made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters; and (c) all payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary.

SECTION 3.18.Solvency. Immediately following the making of each Loan and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets of the Borrower, individually, and the Loan Parties, taken as a whole, at a fair valuation, will exceed its or their debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of the Borrower, individually, and the Loan Parties, taken as a whole, will be greater than the amount that will be required to pay the probable liability of its or their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) the Borrower, individually, and the Loan Parties, taken as a whole, will be able to pay its or their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

SECTION 3.19.Securities. The Equity Interests of each Subsidiary held, directly or indirectly, by the Borrower are owned, directly or indirectly, by the Borrower free and clear of all Liens other than Liens permitted by Section 6.02 (i), (v) or (x). There are not, as of the Effective Date, any existing options, warrants, calls, subscriptions, convertible or exchangeable securities, rights, agreements, commitments or arrangements for any Person to acquire any common stock of the Borrower or its Subsidiaries or any other securities convertible into, exchangeable for or evidencing the right to subscribe for any such common stock, except as set forth on Schedule 3.19.

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SECTION 3.20.Indebtedness Outstanding. (a)  Set forth on Schedule 3.20(a) hereto is a list and description of all Indebtedness of the Loan Parties and their respective Subsidiaries that will be repaid, defeased, transferred or otherwise terminated on or immediately prior to the Effective Date (such Indebtedness, “Indebtedness to Be Paid”).

(b)Set forth on Schedule 3.20(b) hereto is a list and description of all Liens of the Loan Parties and their respective Subsidiaries that will be repaid, defeased, transferred or otherwise terminated on or immediately prior to the Effective Date.

SECTION 3.21.Security Documents. (a)  The Pledge Agreement is effective to create in favor of the Collateral Agent for its benefit and the benefit of the Secured Parties, legal, valid and enforceable security interests in the Collateral (as defined in the Pledge Agreement) and, when such Collateral is delivered to the Collateral Agent, the Pledge Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the pledgor thereunder in such Collateral to the extent such Liens and security interests can be perfected by possession.

(b)(i) The Security Agreement and each Non-U.S. Pledge Agreement is effective to create in favor of the Collateral Agent, for its benefit and the benefit of the Secured Parties, legal, valid and enforceable security interests in the Collateral (as defined in the Security Agreement) and (ii) when (x) financing statements in appropriate form are filed in the offices specified on Schedule 7 to the Perfection Certificate and (y) upon the taking of possession or control by the Collateral Agent of any such Collateral in which a security interest may be perfected only by possession or control (which possession or control shall be given to the Collateral Agent to the extent possession or control by the Collateral Agent is required by the Security Agreement), the Security Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the grantors thereunder in such Collateral to the extent such Liens and security interests can be perfected by the filing of a financing statement pursuant to the UCC or by possession or control by the Collateral Agent, in each case prior and superior in right to any other Person, other than with respect to Permitted Liens.

(c)When the filings in clause (b)(ii)(x) above are made and when the Security Agreement (or a summary thereof) is filed in the United States Patent and Trademark Office and the United States Copyright Office, the Security Agreement shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in the Intellectual Property (as defined in the Security Agreement) in which a security interest may be perfected by filing, recording or registering a security agreement, financing statement or analogous document in the United States Patent and Trademark Office or the United States Copyright Office, as applicable (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect Liens on registered trademarks, trademark applications and copyrights acquired by the Loan Parties after the Effective Date), in each case prior and superior in right to any other Person other than with respect to Permitted Liens.

(d)Each Mortgage executed and delivered to the Collateral Agent to secure the Obligations as of the Effective Date is, or, to the extent any Mortgage is duly executed and delivered thereafter by the relevant Loan Party, will be, effective to create, subject to the exceptions listed in each title insurance policy covering each such Mortgage, in favor of the Collateral Agent, for its benefit and the benefit of the Secured Parties, legal, valid and enforceable Liens on and security interests in all of the Loan Parties’ right, title and interest in and to the Mortgaged Properties thereunder and the proceeds thereof, and when such Mortgages are filed in the offices specified on Schedule 3.21(d), such Mortgages shall constitute Liens on, and security interests in, all right, title and interest of the Loan Parties in such Mortgaged Properties and the proceeds thereof, in each case prior and superior in right to any other Person,

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other than with respect to the rights of Persons under the exceptions listed in each title insurance policy covering each such Mortgage.

SECTION 3.22.Anti-Terrorism Laws. (a)  None of the Loan Parties or, to the knowledge of any of the Loan Parties, any of their Affiliates is in violation of any laws relating to terrorism or money laundering (“Anti-Terrorism Laws”), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the “Executive Order”), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law
107-56.

(b)No Loan Party or, to the knowledge of any of the Loan Parties, any of their Affiliates or their respective brokers or other agents acting or benefiting in any capacity in connection with the Loans is any of the following:

(i)a Person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the
Executive Order;

(ii)a Person or entity owned or controlled by, or acting for or on behalf of, any Person or entity that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

(iii)a Person or entity with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

(iv)a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order; or

(v)a Person or entity that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website or any replacement website or other replacement official publication of such list.

(c)No Loan Party or, to the knowledge of any Loan Party, any of its brokers or other agents acting in any capacity in connection with the Loans (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in clause (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

ARTICLE IV

CONDITIONS

SECTION 4.01.Effective Date. The obligations of the Lenders to make Loans, and the obligation of each Issuing Bank to issue Letters of Credit, in each case, on the Effective Date are subject, at the time of the making of such Loans or the issuance of such Letters of Credit, to satisfaction or waiver of the following conditions on or prior to the Effective Date:

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(a)The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

(b)The Administrative Agent shall have received (i) counterparts of the Guarantee Agreement signed on behalf of each Domestic Subsidiary and (ii) counterparts of the Indemnity, Subrogation and Contribution Agreement signed on behalf of each Loan Party.

(c)The Administrative Agent shall have received from the Borrower a Closing Certificate, dated the Effective Date and signed on behalf of the Borrower by a Financial Officer of the Borrower.

(d)The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Loan Party, the authorization of the Transactions and any other legal matters relating to the Loan Parties, the Loan Documents or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.

(e)The Administrative Agent shall have received from Kirkland & Ellis LLP, counsel to the Loan Parties, an opinion addressed to each Agent and the Lenders and dated the Effective Date substantially in form and substance reasonably satisfactory to the Administrative Agent.

(f)The Administrative Agent shall have received favorable written opinions of (i) local counsel in each of the jurisdictions (in each case unless, and to the extent otherwise agreed by the Administrative Agent) referred to in Schedule 4.01(f), in each case reasonably satisfactory to the Administrative Agent, which opinions shall (x) be addressed to each Agent and the Lenders and be dated the Effective Date, (y) cover various matters regarding the perfection and priority of the security interests granted in respect of the Equity Interests of Persons organized in such Non-U.S. Jurisdiction, and such other maters incident to the transactions contemplated herein as the Agents may reasonably request and (z) be in form, scope and substance reasonably satisfactory to the Agents, and (ii) local counsel to the Loan Parties as specified in Schedule 4.01(f) in the form of Exhibit K, which opinions (x) shall be addressed to each Agent and each of the Lenders and be dated the Effective Date, (y) shall cover the enforceability of the respective Mortgage and perfection of the Liens and security interests granted pursuant to the relevant Security Documents and such other matters incident to the transactions contemplated herein as the Agents may reasonably request and (z) shall be in form and substance reasonably satisfactory to the Agents.

(g)All documents executed or submitted in connection with this Agreement, the borrowings hereunder and the other Loan Documents shall be reasonably satisfactory to the Lenders.

(h)The Lenders shall have received the audited consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of the Borrower described in Section 3.05, which audited financial statements (and the notes thereto) shall be in form and scope reasonably satisfactory to the Lenders.

(i)All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Loan Documents to

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occur on or prior to the Effective Date shall be in form and substance reasonably satisfactory to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates and bring down telegrams or facsimiles, if any, which the Administrative Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities.

(j)The Requisite Lenders shall be satisfied that the representations and warranties set forth in Article III hereof and in the other Loan Documents that are made as of the Effective Date shall be true and correct (or true and correct in all material respects if not otherwise qualified by materiality or by a Material Adverse Effect) with the same effect as if then made.

(k)The Requisite Lenders shall be satisfied that at the time of and immediately after the Borrowings and issuances of Letters of Credit, no Default or Event of Default shall have occurred and be continuing.

(l)The Lenders shall have received a certificate of the chief financial officer of the Borrower in the form of Exhibit L and reasonably satisfactory to the Administrative Agent, together with such other evidence reasonably requested by the Lenders, confirming the solvency of each of the Loan Parties on a consolidated basis after giving effect to the Transactions.

(m)The Lenders shall have received (i) the pro forma consolidated balance sheet referred to in Section 3.15(b), together with the certificate of the chief financial officer of the Borrower certifying clauses (i)-(iii) thereof and the Lenders shall be reasonably satisfied that such balance sheet is not materially inconsistent with the forecasts previously provided to the Lenders and (ii) the Projected Financial Statements.

(n)The Administrative Agent shall have received reasonably satisfactory evidence that all loans and letters of credit outstanding under, and all other amounts due in respect of, the Indebtedness to Be Paid shall have been repaid in full (or satisfactory arrangements made for such repayment and letters of credit) and the commitments thereunder shall have been permanently terminated, and all related guarantees and security interests shall have been terminated (or provisions reasonably satisfactory to the Administrative Agent shall have been made for their termination).

(o)After giving effect to the Transactions, none of the Borrower or its respective Subsidiaries shall have outstanding any Indebtedness other than (i) the Loans and other extensions of credit under this Agreement and (ii) Indebtedness permitted under Section 6.01 (other than clauses (vi), (vii), (xiii), (xiv) and (xv) thereof).

(p)All requisite material governmental authorities and third parties shall have approved or consented to the Transactions to the extent required, all applicable appeal periods shall have expired and there shall be no judicial or regulatory action by a governmental agency, actual or threatened, that could reasonably be expected to restrain, prevent or impose materially burdensome conditions on the Transactions or the other transactions contemplated hereby.

(q)The Lenders shall be reasonably satisfied that no litigation or administrative proceeding or development in any litigation or administrative proceeding by any entity (private or governmental) shall be pending or, to the knowledge of the Borrower, threatened that could reasonably

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be expected to have, a Material Adverse Effect or a material adverse effect on the ability of the parties to consummate the Transactions.

(r)The Administrative Agent shall have received all fees payable to the Administrative Agent or any Lender on or prior to the Effective Date under the Engagement Letter and all other amounts due and payable pursuant to the Loan Documents on or prior to the Effective Date, including reimbursement or payment of all reasonable and invoiced out-of-pocket expenses (including reasonable fees, charges and disbursements of Cahill Gordon & Reindel LLP and domestic and foreign local counsel) required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document.

(s)The Collateral Agent shall have received counterparts of the Pledge Agreement signed by each Loan Party and covering pledges of 100% of the Equity Interests held by the Loan Parties in all of their Domestic Subsidiaries and 65% of the Equity Interests of their “first tier” Non-U.S. Subsidiaries (other than any Equity Interests of such Subsidiaries pledged pursuant to Non-U.S. Pledge Agreements) of the Borrower or any Domestic Subsidiary and counterparts of the Non-U.S. Pledge Agreements covering pledges of 65% of the Equity Interests of the “first tier” Non-U.S. Subsidiaries of the Borrower, and the Collateral Agent shall have received all promissory notes (the “Intercompany Notes”) evidencing all intercompany Indebtedness owed to any Loan Party by the Borrower or any Subsidiary as of the Effective Date and stock powers and instruments of transfer, endorsed in blank, with respect to the Equity Interests of the Borrower’s Domestic Subsidiaries and any such promissory notes.

(t)The Collateral Agent shall have received counterparts of the Security Agreement and Pledge Agreement signed by each Loan Party, in each case, together with the following in form and substance reasonably satisfactory to the Collateral Agent:

(A)certificates representing all Pledged Securities, together with executed and undated stock powers and/or assignments in blank;

(B)a favorable written opinion of foreign counsel in the jurisdiction of organization of each “first-tier” Non-U.S. Subsidiary (except for PGI Nonwovens Mauritius Ltd.) as shall be reasonably acceptable to the Collateral Agent, (a) addressed to the Collateral Agent and the Lenders and (b) covering such matters relating to the Security Documents and the Loan Documents as the Collateral Agent shall reasonably request including, without limitation, the perfection of the security interest created in the Pledged Securities of such Non-U.S. Subsidiaries;

(C)instruments representing all intercompany Indebtedness payable to any Loan Party, together with executed and undated instruments of assignment endorsed in blank;

(D)certificates of insurance required under this Agreement;

(E)appropriate financing statements or comparable documents authorized by (and executed by, to the extent applicable) the appropriate entities in proper form for filing under the provisions of the UCC and applicable domestic or local laws, rules or regulations in each of the offices where such filing is necessary or appropriate, in the Collateral Agent’s reasonable discretion, to grant to the Collateral Agent perfected Liens on

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such Collateral, superior and prior to the rights of all third persons other than the holders of Permitted Liens;

(F)UCC, judgment and tax lien, bankruptcy and pending lawsuit search reports listing all effective financing statements or comparable documents which name any applicable Loan Party as debtor and which are filed in those jurisdictions in which, any Loan Party is organized and to the extent the Administrative Agent reasonably requests, any jurisdiction in which any of such Collateral is located and the jurisdictions in which any applicable Loan Party’s principal place of business is located in the United States, together with copies of such existing financing statements, none of which shall encumber such Collateral covered or intended or purported to be covered by the Security Documents other than Permitted Liens;

(G)evidence of the preparation for recording or filing, as applicable, of all recordings and filings of each such Security Document, including, without limitation, with the United States Patent and Trademark Office and the United States Copyright Office, and delivery and recordation, if necessary, of such other security and other documents, including, without limitation, UCC-3 termination statements with respect to UCC filings that do not constitute Permitted Liens, as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the Liens created, or purported or intended to be created, by such Security Documents;

(H)with respect to leased Real Property which is not subject to a leasehold Mortgage as of the Effective Date, if any Pledged Collateral (as defined in the Security Agreement) of any Loan Party or its Subsidiaries is maintained on such premises, the Borrower shall use its commercially reasonable efforts to deliver a Landlord Access Agreement with respect thereto;

(I)evidence that all other actions reasonably necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interest created by the Security Documents have been taken; and

(J)a completed Perfection Certificate dated the Effective Date and signed by an executive officer or Financial Officer of the Borrower, together with all attachments contemplated thereby, including the results of a search of the UCC (or equivalent) filings made with respect to the Loan Parties in the jurisdictions contemplated by the Perfection Certificate and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are Permitted Liens or have been released.

(u)The Collateral Agent shall have received the following documents and instruments:

(A)with respect to each Mortgaged Property indicated on Schedule 4.01(u)(A) hereto, a Mortgage encumbering each of the same in favor of the Collateral Agent, for its benefit and the benefit of the Secured Parties, duly executed and acknowledged by the applicable Loan Party, and otherwise in form for recording in the recording office where each such Mortgaged Property is situated, together with such certificates, affidavits, questionnaires or returns as shall be required in connection with the

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recording or filing thereof to create a first priority lien under applicable law, in favor of the Collateral Agent for the benefit of the Secured Parties, and such UCC-1 financing statements and other similar statements as are contemplated by the counsel opinions described in Section 4.01(f) in respect of such Mortgages, all of which shall be in form and substance reasonably satisfactory to the applicable Collateral Agent, and any other instruments necessary to grant a mortgage lien under the laws of any applicable jurisdiction, which Mortgages and financing statements and other instruments shall when recorded be effective to create Liens on such Mortgaged Property subject to no other Liens except the Prior Liens;

(B)with respect to each Mortgaged Property, such consents, approvals, amendments, supplements, estoppels, tenant subordination agreements or other instruments, in form acceptable to the Collateral Agent, as necessary or required to consummate the transactions contemplated hereby or as shall reasonably be deemed necessary by the Collateral Agent in order for the owner or holder of the fee or leasehold interest constituting such Mortgaged Property to grant the Liens contemplated by the Mortgages with respect to such Mortgaged Property;

(C)with respect to each Mortgage granted in favor of the Collateral Agent, a policy of title insurance (or marked title commitment having the effect of a title insurance policy) insuring the Liens of such Mortgages, respectively, as valid first mortgage Liens on the real property and fixtures described therein in favor of the Collateral Agent for the benefit of the Secured Parties in an amount equal to not less than in an amount not less than the amount set forth on Schedule 4.01(u)(C) (115% of the fair market value thereof), which policies (or marked commitments having the effect of title insurance policies) shall (w) be issued by the Title Company, (x) include such reinsurance arrangements (with provisions for direct access) as shall be reasonably acceptable to the Collateral Agent, (y) contain a “tie-in” or “cluster” endorsement (if available under applicable law) (i.e., policies which insure against losses regardless of location or allocated value of the insured property up to a stated maximum coverage amount) and have been supplemented by such endorsements (or where such endorsements are not available, opinions of special counsel, architects or other professionals reasonably acceptable to the Collateral Agent to the extent that such opinions can be obtained at a cost which is reasonable with respect to the value of the real property subject to such Mortgage) as shall be reasonably requested by the Collateral Agent (including, without limitation, endorsements, to the extent available in each jurisdiction at commercially reasonably rates, on matters relating to usury, first loss, last dollar, zoning, contiguity, variable rate, revolving credit, doing business, access, survey, address, subdivision, separate tax lot, lender non-imputation and so-called comprehensive coverage over covenants and restrictions) and (z) contain only such exceptions to title as shall be agreed to by the Collateral Agent on or prior to the Effective Date with respect to such Mortgaged Property;

(D)with respect to each Mortgaged Property, policies or certificates of insurance as required hereby or by the Mortgage relating thereto, which policies or certificates shall comply with the insurance requirements contained herein or in such Mortgage;

(E)with respect to each Mortgaged Property, a Survey in form and substance acceptable to the
Collateral Agent;

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(F)with respect to each Mortgaged Property, such affidavits, certificates, information (including financial data) and instruments of indemnification (including, without limitation, a so-called “gap” indemnification) as shall be required to induce the Title Company to issue the policy or policies (or marked commitment having the effect of a title insurance policy) and endorsements contemplated in subparagraph (C) above;

(G)evidence acceptable to the Collateral Agent of payment by the appropriate Loan Party or Subsidiary thereof of all applicable title insurance premiums, search and examination charges, survey costs and related charges, mortgage recording taxes, fees, charges, costs and expenses required for the recording of the Mortgages and issuance of the title insurance policies referred to in subparagraph (C) above; and

(H)with respect to each Real Property or Mortgaged Property, copies of all leases or other agreements relating to possessory interests to which any Loan Party or Subsidiary thereof is a party. To the extent any of the foregoing in which any Loan Party is a landlord or sublandlord affect any Mortgaged Property, such agreement shall be subordinate to the Mortgage to be recorded against such Mortgaged Property and otherwise acceptable to the Collateral Agent.

(v)The Administrative Agent shall have received subordination agreements in form and substance reasonably satisfactory to it covering all intercompany notes or other obligations owed by a Loan Party to a Subsidiary of the Borrower that is not a Loan Party.

(w)The Collateral Agent shall have received evidence and be reasonably satisfied that the insurance required by Section 5.04 and the Security Documents is in effect in form and substance satisfactory to the Collateral Agent.

SECTION 4.02.Conditions to Each Credit Event. The agreement of each Lender to make any Loan and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit (such event being called a “Credit Event”) (excluding continuations and conversions of Loans) requested to be made by it on any date is subject to the satisfaction of the following conditions:

(a)The Administrative Agent shall have received a notice of such Credit Event as required by Section 2.02 or 2.05, as applicable.

(b)The representations and warranties set forth in Article III hereof and in the other Loan Documents shall be true and correct (or true and correct in all material respects if not otherwise qualified by materiality or by a Material Adverse Effect) with the same effect as if then made (unless expressly stated to relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date).

(c)At the time of and immediately after such Credit Event, no Default or Event of Default shall have occurred and be continuing.

Each Credit Event shall be deemed to constitute a representation and warranty by the Borrower on the date of such Credit Event, as to the matters specified in paragraphs (b) and (c) of this Section 4.02.

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ARTICLE V

AFFIRMATIVE COVENANTS

Each Loan Party hereby covenants and agrees with the Lenders that on or after the Effective Date and until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees and other amounts due and payable hereunder or under any other Loan Document have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed:

SECTION 5.01.Financial Information, Reports, Notices, etc. The Borrower will furnish, or will cause to be furnished, to each Lender and the Administrative Agent copies of the following financial statements, reports, notices and information:

(a)as soon as available and in any event within 45 days (or, if SEC Form 12b-25 is filed in respect of such
Fiscal Quarter, 50 days or such shorter period for the filing of the Borrower’s Form 10-Q as may be required by the SEC) after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and consolidated statements of earnings, stockholders’ equity and cash flow of the Borrower and its Subsidiaries for such Fiscal Quarter and for the same period in the prior Fiscal Year and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by a Financial Officer of the Borrower, it being understood and agreed that the delivery of the Borrower’s Form 10-Q (as filed with the SEC), if certified as required in this clause (a), shall satisfy the requirements set forth in this clause, together with a certificate from a Financial Officer of the Borrower (a “Compliance Certificate”) containing a computation in reasonable detail of, and showing compliance with, each of the financial ratios and restrictions contained in the Financial Covenants and to the effect that, in making the examination necessary for the signing of such certificate, such Financial Officer has not become aware of any Default or Event of Default that has occurred and is continuing, or, if such Financial Officer has become aware of such Default or Event of Default, describing such Default or Event of Default and the steps, if any, being taken to cure it;

(b)as soon as available and in any event within 90 days (or, if SEC Form 12b-25 is filed in respect of such
Fiscal Year, 105 days or such shorter period as may be required for the filing of the Borrower’s Form 10-K by the SEC) after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such Fiscal Year for the Borrower, including therein a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and consolidated statements of earnings, stockholders’ equity and cash flow of the Borrower and its Subsidiaries for such Fiscal Year, in each case certified (without any Impermissible Qualification) in a manner reasonably acceptable to the Administrative Agent by Ernst & Young LLP or other independent public accountants reasonably acceptable to the Administrative Agent (it being understood and agreed that the delivery of the Borrower’s Form 10-K (as filed with the SEC), if certified as required in this clause (b), shall satisfy such delivery requirement in this clause), together with a Compliance Certificate and a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Event of Default under any of the Financial Covenants (which certificate may be limited to the extent required by accounting rules or guidelines);

(c)no later than February 28 of each Fiscal Year of the Borrower, a detailed consolidated budget by Fiscal Quarter for such Fiscal Year (including a projected consolidated balance

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sheet and related statements of projected operations and cash flow as of the end of and for each Fiscal Quarter during such Fiscal Year) and the next two succeeding Fiscal Years and, promptly when available, any significant revisions of such budgets;

(d)promptly upon receipt thereof, copies of all reports submitted to the Borrower by independent certified public accountants in connection with each annual, interim or special audit of the books of the Borrower or any of its Subsidiaries made by such accountants, including any management letters submitted by such accountants to management in connection with their annual audit;

(e)as soon as possible and in any event within five Business Days after becoming aware of the occurrence of any Default or Event of Default, a statement of a Financial Officer of the Borrower setting forth details of such Default or Event of Default and the action which the Borrower has taken and proposes to take with respect thereto;

(f)as soon as possible and in any event within five Business Days after (i) the occurrence of any adverse
development with respect to any litigation, action or proceeding that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (ii) the commencement of any litigation, action or proceeding that could reasonably be expected to have a Material Adverse Effect or that purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, notice thereof and copies of all documentation relating thereto;

(g)promptly after the sending or filing thereof, copies of all reports which the Borrower sends to any of its security holders (in their capacity as such), and all reports, registration statements (other than on Form S-8 or any successor form) or other materials (including affidavits with respect to reports) which the Borrower or any of its Subsidiaries files with the SEC or any national securities exchange;

(h)promptly upon becoming aware of the taking of any specific actions by the Borrower or any other Person to terminate any Pension Plan (other than a termination pursuant to Section 4041(b) of ERISA which can be completed without the Borrower or any Subsidiary having to provide more than $5.0 million in addition to the normal contribution required for the plan year in which termination occurs to make such Pension Plan sufficient), or the occurrence of an ERISA Event which could result in a Lien on the assets of any Loan Party or a Subsidiary or in the incurrence by a Loan Party of any liability, fine or penalty which could reasonably be expected to have a Material Adverse Effect, or any increase in the contingent liability of a Loan Party with respect to any post-retirement Welfare Plan benefit if the increase in such contingent liability which could reasonably be expected to have a Material Adverse Effect, notice thereof and copies of all documentation relating thereto;

(i)upon request by the Administrative Agent, copies of:  (i) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any Loan Party or ERISA Affiliate with the Internal Revenue Service with respect to each Pension Plan; (ii) the most recent actuarial valuation report for each Pension Plan and each Foreign Plan for which a report is prepared; (iii) all notices received by any Loan Party or ERISA Affiliate from a Multiemployer Plan sponsor or any governmental agency concerning an ERISA Event; and (iv) such other documents or governmental reports or filings relating to any Plan or Foreign Plan as the Administrative Agent shall reasonably request;

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(j)as soon as possible, notice of any other development that could reasonably be expected to have a Material Adverse Effect; and

(k)such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request.

SECTION 5.02.Compliance with Laws, etc. The Loan Parties will, and will cause each of their Subsidiaries to, comply in all respects with all applicable laws, rules, regulations and orders, except where such noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, such compliance to include, subject to the foregoing:

(a)the maintenance and preservation of their and their Subsidiaries’ existence and their qualification as a foreign corporation or partnership (or comparable foreign qualification, if applicable, in the case of any other form of legal entity), and

(b)the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon them or upon their property in excess of $250,000 other than any such tax, assessment or charge the payment of which is being contested in good faith and by proper proceeding and for which proper reserves are being maintained in accordance with GAAP.

SECTION 5.03.Maintenance of Properties. Each Loan Party and each of its respective Subsidiaries will maintain, preserve, protect and keep its material properties and assets in good repair, working order and condition (ordinary wear and tear and loss from casualty or condemnation excepted), and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times; provided that nothing in this Section 5.03 shall prevent any Loan Party from discontinuing the operation and maintenance of any of its properties or any of those of its Subsidiaries if such discontinuance is, in the reasonable commercial judgment of such Loan Party, desirable in the conduct of its or their business and does not in the aggregate have a Material Adverse Effect.

SECTION 5.04.Insurance. The Loan Parties will and will cause each of their respective Subsidiaries to maintain or cause to be maintained with financially sound and responsible insurance companies (a) insurance with respect to their properties material to the business of the Loan Parties and their respective Subsidiaries against such casualties and contingencies and of such types and in such amounts with such deductibles as is customary in the case of similar businesses operating in the same or similar locations (including, without limitation, (i) physical hazard insurance on an “all risk” basis, (ii) commercial general liability against claims for bodily injury, death or property damage covering any and all claims, (iii) explosion insurance in respect of any boilers, machinery or similar apparatus constituting Collateral, (iv) business interruption insurance, (v) worker’s compensation insurance as may be required by any Requirement of Law, (vi) flood insurance, if at any time the area in which any improvements located on any Mortgaged Property is designated a “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency) and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973 (as amended from time to time) and (vii) such other insurance against risks as the Administrative Agent may from time to time reasonably require) and (b) all insurance required to be maintained pursuant to the Security Documents, and will, upon request of the Administrative Agent, furnish to each Lender at reasonable intervals a certificate of an Authorized Officer of the Borrower setting forth the nature and extent of all insurance maintained by the Loan Parties and their respective Subsidiaries in accordance with this Section. Each such insurance policy shall provide that (i) it may not be cancelled or otherwise

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terminated without at least thirty (30) days’ prior written notice to the Collateral Agent (and to the extent any such policy is cancelled, modified or renewed, the Borrower shall deliver a copy of the renewal or replacement policy (or other evidence thereof) to the Administrative Agent and the Collateral Agent, or insurance certificate with respect thereto, together with evidence reasonably satisfactory to the Administrative Agent and Collateral Agent of the payment of the premium therefor); (ii) the Collateral Agent and the Administrative Agent are permitted to pay any premium therefor within thirty (30) days after receipt of any notice stating that such premium has not been paid when due; (iii) all losses thereunder shall be payable notwithstanding any act or negligence of any Loan Party or any of its Subsidiaries or its agents or employees which otherwise might have resulted in a forfeiture of all or a part of such insurance payments; (iv) to the extent such insurance policy constitutes property insurance, all losses payable thereunder in an amount in excess of $1.0 million shall be payable to the Collateral Agent, as additional insured and as loss payee, pursuant to a standard non-contributory New York mortgagee endorsement and shall be in an amount at least sufficient to prevent coinsurance liability; provided that the Collateral Agent, as loss payee pursuant to the foregoing, shall not agree to the adjustment of any claim without the consent of the Borrower (such consent not to be unreasonably withheld or delayed); and (v) with respect to liability insurance, the Collateral Agent shall be named as an additional insured. Notwithstanding the inclusion in each insurance policy of the provision described in clause (ii) of the immediately preceding sentence, in the event any Loan Party gives the Collateral Agent written notice that it does not intend to pay any premium relating to any insurance policy when due, the Collateral Agent shall not exercise its right to pay such premium so long as such Loan Party delivers to the Collateral Agent a replacement insurance policy or insurance certificate evidencing that such replacement policy or certificate provides the same insurance coverage required under this Section 5.04 as the policy being replaced by such Loan Party with no lapse in such coverage.

SECTION 5.05.Books and Records; Visitation Rights. Each Loan Party will, and will cause each of its respective Subsidiaries to, keep books and records which accurately reflect its business affairs in all material respects and material transactions and permit the Administrative Agent or its representatives, at reasonable times and intervals and upon reasonable notice, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant and, upon the reasonable request of the Administrative Agent or a Lender, to examine (and, at the expense of the Borrower, photocopy extracts from) any of its books or other corporate or partnership records.

SECTION 5.06.Environmental Covenant. Each Loan Party will, and will cause each of its respective Subsidiaries to:

(a)use and operate all of its facilities and properties in compliance with all applicable Environmental Laws
except for such noncompliance which, singly or in the aggregate, would not reasonably be expected to have a Material Adverse Effect and handle all Hazardous Materials in compliance with all applicable Environmental Laws, except for any noncompliance that would not reasonably be expected to have a Material Adverse Effect;

(b)promptly notify the Administrative Agent and provide copies of all written inquiries, claims, complaints or notices from any Person relating to the environmental condition of its facilities and properties or compliance with or liability under any Environmental Law which could reasonably be expected to have a Material Adverse Effect, and promptly cure and have dismissed with prejudice or contest in good faith any actions and proceedings relating thereto;

(c)in the event of the presence of any Hazardous Material on any Mortgaged Property which is in violation of any Environmental Law or which could reasonably be expected to result in Environmental Liability which violation or Environmental Liability could reasonably be

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expected to have a material adverse effect on any Mortgaged Property, each applicable Loan Party and its Subsidiaries, upon discovery thereof, shall take all necessary steps to initiate and expeditiously complete all response, corrective or other action to mitigate and eliminate any such adverse effect in accordance with and to the extent required by applicable Environmental Laws, and shall keep the Administrative Agent informed of their actions;

(d)at the written request of the Administrative Agent or the Requisite Lenders, which request shall specify in reasonable detail the basis therefor, each Loan Party will provide, at such Loan Party’s sole cost and expense, an environmental site assessment report concerning any Mortgaged Property now or hereafter owned or leased by such Loan Party or any of its respective Subsidiaries, prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the potential cost of any Remedial Action in connection with such Hazardous Materials on, at, under or emanating from such Mortgaged Property pursuant to any applicable Environmental Law; provided that such request may be made only if (i) there has occurred and is continuing an Event of Default or (ii) the Administrative Agent or the Requisite Lenders reasonably believe that the Borrower or any such Mortgaged Property is not in compliance with Environmental Law and such noncompliance could reasonably be expected to have a Material Adverse Effect, or that circumstances exist that could reasonably be expected to form the basis of an Environmental Claim against such Loan Party or to result in Environmental Liability, in each case that could reasonably be expected to have a Material Adverse Effect (in such events as are listed in this subparagraph, the environmental site assessment shall be focused upon the noncompliance or other circumstances as applicable). If any Loan Party fails to provide the same within 90 days after such request was made and the circumstances described in clause (i) or (ii) still exist, the Administrative Agent may order the same, and such Loan Party shall grant and hereby grants to the Administrative Agent and the Requisite Lenders and their agents access to such Mortgaged Property and specifically grants the Administrative Agent and the Requisite Lenders an irrevocable non-exclusive license, subject to the rights of tenants, to perform such an assessment, all at such Loan Party’s sole cost and expense; and

(e)provide such information and certifications which the Administrative Agent may reasonably request from time to time to evidence compliance with this Section 5.06.

SECTION 5.07.Information Regarding Collateral. (a)  Each Loan Party will furnish to the Administrative Agent and the Collateral Agent prompt written notice of any change (i) in such Loan Party’s corporate name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) in the location of any Loan Party’s chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility), (iii) in any Loan Party’s identity or corporate structure, (iv) in any Loan Party’s Federal Taxpayer Identification Number or organizational identification number or (v) in any Loan Party’s jurisdiction of organization. Each Loan Party agrees not to effect or permit any change referred to in the preceding sentence unless (i) it shall have given the Administrative Agent and the Collateral Agent thirty (30) days’ prior written notice and (ii) all filings have been made under the UCC or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral. Each Loan Party also agrees promptly to notify the Administrative Agent if any material portion of the Collateral is damaged or destroyed.

(b)Each year, at the time of delivery of annual financial statements with respect to the preceding Fiscal Year pursuant to clause (b) of Section 5.01, the Borrower shall deliver to the Administrative

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Agent a certificate of a Financial Officer and the chief legal officer of the Borrower (i) setting forth the information required pursuant to Sections 1, 2, 7, 8, 11, 12, 13, 14, 15, 16, 17 and 18 of the Perfection Certificate or confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Effective Date or the date of the most recent certificate delivered pursuant to this Section and (ii) certifying that all UCC financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period).

SECTION 5.08.Existence; Conduct of Business. Each Loan Party will, and will cause each of its respective Subsidiaries to, do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03.

SECTION 5.09.Performance of Obligations. Each Loan Party and its respective Subsidiaries will perform all of their respective obligations under the terms of each mortgage, indenture, security agreement, other debt instrument and material contract by which they are bound or to which they are a party except for such noncompliance as in the aggregate would not have a Material Adverse Effect.

SECTION 5.10.Casualty and Condemnation. Each Loan Party (a) will furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any Collateral in an amount in excess of $2.5 million or the commencement of any action or proceeding for the Taking of any Collateral or any part thereof or interest therein under power of eminent domain or by condemnation or similar proceeding and (b) will ensure that the Net Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are collected and applied in accordance with the applicable provisions of this Agreement and the Security Documents.

SECTION 5.11.Pledge of Additional Collateral. Within 30 days after the acquisition of assets of the type that would have on the Effective Date constituted Collateral under the Security Documents (the “Additional Collateral”), each appropriate Loan Party will, and will cause its respective Subsidiaries to, take all necessary action, including the filing of appropriate financing statements under the provisions of the UCC, applicable domestic or local laws, rules or regulations in each of the offices where such filing is necessary or appropriate, or entering into or amending the Guarantee Agreement and the Security Documents, or in the case of the Equity Interests of a “first tier” Non-U.S. Subsidiary, entering into a Non-U.S. Pledge Agreement providing for the Collateral Agent to have an enforceable and perfected security interest in 65% of the Equity Interests in such Subsidiary, to grant to each Collateral Agent for its benefit and the benefit of the respective Secured Parties perfected Liens in such Collateral pursuant to and to the full extent required by the Security Documents and this Agreement (including, without limitation, delivery of an opinion substantially in the form of Exhibit K and otherwise reasonably acceptable in form and substance to the Collateral Agent and satisfaction of the conditions set forth in subsections (v) and (w) of Section 4.01). In the event that any Loan Party acquires or leases additional Real Property or renews any lease of Real Property (whether or not the subject of a leasehold Mortgage under the Security Documents) and (x) the fair market value of such acquired Real Property is in excess of $1.0 million as determined in good faith by the Borrower or (y) the average annual rent payments under any such lease is greater than $400,000, the Borrower or the appropriate Loan Party, as the case may be, using its commercially

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reasonable efforts in respect of any such leases, will take such actions and execute such documents as the Collateral Agent shall require to confirm the Liens of a Mortgage, if applicable, or to create a new Mortgage (including, without limitation, satisfaction of the conditions set forth in subsections (f), (v) and (w) of Section 4.01) (unless, with respect to any such Real Property, (x) such Real Property is already mortgaged to a third party to the extent permitted by Section 6.02 or (y) the Administrative Agent determines, in its reasonable discretion, that the fees and expenses of obtaining a Mortgage with respect to such Real Property and the other related deliveries required by this Section 5.11 would be disproportionate to the expected benefits to be received by the Secured Parties). All actions taken by the parties in connection with the pledge of Additional Collateral, including, without limitation, reasonable costs of counsel for the Administrative Agent and the Collateral Agent, shall be for the account of the Borrower, which shall pay all sums due on demand.

SECTION 5.12.Further Assurances. The Loan Parties will, and will cause each Subsidiary of a Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and the delivery of appropriate opinions of counsel), which may be required under any applicable law, or which the Administrative Agent or the Requisite Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. The Loan Parties also agree to provide to the Collateral Agent, from time to time upon reasonable request, evidence reasonably satisfactory to the Collateral Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents.

SECTION 5.13.Use of Proceeds. The Borrower covenants and agrees that (i) the proceeds of the Term Borrowings and Revolving Credit Borrowings on the Effective Date will be used to finance the Transactions and to pay fees and expenses payable hereunder and (ii) all other Revolving Credit Borrowings after the Effective Date will be used for general corporate purposes, including Permitted Acquisitions.

SECTION 5.14.Payment of Taxes. Each Loan Party and its respective Subsidiaries will pay and discharge all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any Properties belonging to it, prior to the date on which material penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any Properties of such Loan Party or any of its respective Subsidiaries or cause a failure or forfeiture of title thereto; provided that neither such Loan Party nor any of its respective Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim that is being contested in good faith and by proper proceedings diligently conducted, which proceedings have the effect of preventing the forfeiture or sale of the Property or asset that may become subject to such Lien, if it has maintained adequate reserves with respect thereto in accordance with and to the extent required under GAAP; provided, further, that any such contest of any tax, assessment, charge, levy or claim with respect to Collateral shall satisfy the Contested Collateral Lien Conditions.

SECTION 5.15.Equal Security for Loans and Notes. If any Loan Party shall create or assume any Lien upon any of its Property which does not constitute Collateral, whether now owned or hereafter acquired, other than Permitted Liens (unless prior written consent to the creation or assumption thereof shall have been obtained from the Administrative Agent and the Requisite Lenders), it shall make or cause to be made effective provisions whereby the Obligations will be secured by such Lien equally and ratably by such Property with any and all other obligations thereby secured as long as any such obligations shall be secured; provided that this covenant shall not be construed as consent by the Administrative

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Agent and the Requisite Lenders to any violation by any Loan Party of the provisions of Section 6.02.

SECTION 5.16.Guarantees. In the event that any Domestic Subsidiary of the Borrower existing on the Effective Date has not previously executed the Guarantee Agreement or in the event that any Person becomes a Domestic Subsidiary of the Borrower after the Effective Date (including as a result of the Permitted Reorganization), the Borrower will promptly notify the Administrative Agent of that fact and cause such Subsidiary to, within 30 days of becoming a Domestic Subsidiary, execute and deliver to the Administrative Agent a counterpart of the Guarantee Agreement and deliver to the Collateral Agent a counterpart of the Security Agreement and the Pledge Agreement and to take all such further actions and execute all such further documents and instruments (including actions, documents and certificates comparable to those described in Sections 4.01(t) and (u)) as may be necessary or, in the reasonable opinion of the Administrative Agent, desirable to create in favor of the Collateral Agent, for its benefit and of the other Secured Parties, valid and perfected Liens on all of the Property of such Subsidiary described in the applicable forms of the Security Documents, subject to Liens permitted by the applicable Loan Documents.

SECTION 5.17.Subordination of Intercompany Loans. Each Loan Party covenants and agrees that any existing and future debt obligation of the Borrower or any Subsidiary Loan Party to any Non-U.S. Subsidiary shall be subordinated to the Loans to at least the same extent as such existing obligations were subordinated to the obligations under the Existing Credit Agreement.

SECTION 5.18.Interest Rate Protection. No later than the 30th day after the Effective Date, Borrower shall enter into (or otherwise be a party to), and for a minimum of 18 months thereafter maintain, Hedging Agreements with terms and conditions reasonably acceptable to the Administrative Agent that result in at least 50% of the aggregate principal amount of the Borrower’s and its Subsidiaries’ Indebtedness being effectively subject to a fixed or maximum interest rate reasonably acceptable to the Administrative Agent.

SECTION 5.19.Post-Closing Matters

(a)The applicable Loan Parties shall use their commercially reasonable efforts to obtain and deliver to the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion), within the time periods set forth below, to the extent such items have not provided as of the Closing Date, the following:

(i)within sixty (60) days after the Closing Date, Landlord Access Agreements or Bailee Letters, as applicable for the Real Properties listed on Schedule 5.19(b), each in form and substance reasonably acceptable to the Collateral Agent; and

(ii)within ten (10) days after the Closing Date, with respect to each Mortgaged Property, title policies meeting the requirements of Section 4.01(u).

(b)The applicable Loan Parties shall provide to the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion), within seven (7) Business Days of the Closing Date, evidence of the release of the lien under the Existing Credit Agreement on the Bonlam S.A. de C.V. stock (including the notation on the stock thereof), entry into the new Mexican pledge agreement and the related Mexican legal opinion with respect to the pledge of such Bonlam S.A. de C.V. stock.

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(c)The applicable Loan Parties shall use commercially reasonable efforts to provide the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion), within 30 days of the Closing Date, evidence of termination of lien or assignments recorded against any Loan Party in the U.S. Copyright Office.

(d)The applicable Loan Parties shall provide the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion), within two (2) Business Days of the Closing Date, originals copies of the stock certificates issued by Fabrene, Inc. (and accompanying stock powers) pledged pursuant to the terms of the Pledge Agreement.

(e)The applicable Loan Parties shall provide the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion) within ten(10) Business Days of the Closing Date a good standing certificate for Poly-Bond Inc. in the State of Virginia and an issuers’ acknowledgement for Chicopee Holdings B.V.

(f)The applicable Loan Parties shall provide to the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion) within 5 days of the Closing Date final updated intellectual property schedules to the Perfection Certificate.

(g)The applicable Loan Parties shall provide the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion) within 30 days of the Closing Date insurance certificates with respect to assets located in China and Europe.

(h)The applicable Loan Parties shall provide the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion) within 10 days of the Closing Date (i) an updated intercompany note schedule to the Pledge Agreement and Perfection Certificate and (ii) all intercompany notes (along with endorsements in blank) required to be delivered, but not previously delivered.

(i)The applicable Loan Parties shall provide the Collateral Agent (unless waived or extended by the Collateral Agent in its sole discretion) within 2 days of the Closing Date, an executed copy of the Dutch pledge Agreement relating to Chicopee Holding, B.V. and the related foreign counsel opinion.

ARTICLE VI

NEGATIVE COVENANTS

Until the Commitments have expired or terminated and the principal of and interest on each Loan and all Fees and other amounts payable hereunder or under any other Loan Document have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, each of the Loan Parties and their respective Subsidiaries agree with the Lenders that:

SECTION 6.01.Indebtedness; Certain Equity Securities. (a)  The Loan Parties will not, and will not permit any of their Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist (including by way of Guarantee) any Indebtedness, except:

(i)Indebtedness incurred and outstanding under the Loan Documents;

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(ii)Indebtedness (A) outstanding on the Effective Date and set forth on Schedule 6.01 and (B) any Permitted Refinancing thereof;

(iii)Indebtedness of the Borrower to any Subsidiary Loan Party and of any Subsidiary to the Borrower or any other Subsidiary;

(iv)Guarantees by (x) the Borrower of Indebtedness of any Subsidiary Loan Party, (y) any Subsidiary Loan Party of Indebtedness of the Borrower or any other Subsidiary Loan Party and (z) any Subsidiary that is not a Loan Party of Indebtedness of any other Subsidiary that is not a Loan Party, in each case (x), (y) or (z), to the extent such Indebtedness was permitted to be incurred hereunder, and if such Indebtedness is subordinated to the Obligations under the Loan Documents, such Guarantee is as subordinated in right of payment to the Obligations;

(v)Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within two Business Days of its incurrence;

(vi)Guarantees by the Borrower or any Subsidiary Loan Party of trade payables of Subsidiaries that are not Loan Parties; provided that (a) any such Guarantee is subordinated to the Obligations under the Loan Documents and (b) the aggregate amount of trade payables guaranteed by such Guarantees shall not exceed $10.0 million at any one time outstanding;

(vii)Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof or result in an earlier maturity date or decreased Weighted Average Life to Maturity thereof; provided that (A) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (B) the aggregate principal amount of Indebtedness permitted by this clause (vii) shall not exceed $30.0 million at any time outstanding;

(viii)Hedging Agreements entered into in the ordinary course of business and not for speculative purposes;

(ix)Indebtedness owed to (including obligations in respect of letters of credit for the benefit of) any Person providing worker’s compensation, health, disability or other employee benefits or property, casualty or liability insurance to Borrower or any Subsidiary, pursuant to reimbursement or indemnification obligations to such Person;

(x)Indebtedness of the Borrower and its Subsidiaries in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations and trade-related letters of credit, in each case provided in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business;

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(xi)Indebtedness arising from agreements of the Borrower or any Subsidiary of the Borrower providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition;

(xii)obligations in respect of performance and surety bonds and completion guarantees provided by the Borrower or any Subsidiary in the ordinary course of business;

(xiii)Indebtedness of a Person existing at the time such Person becomes a Subsidiary of the Borrower in connection with a Permitted Acquisition, but only if such Indebtedness was not created or incurred in contemplation of such Person becoming a Subsidiary and so long as the aggregate principal amount thereof does not exceed $5.0 million at any time outstanding; provided that (x) no Default or Event of Default shall have occurred or be continuing or would result therefrom and (y) after giving effect to the incurrence of such Indebtedness (and any other Indebtedness incurred since the last day of the immediately preceding Test Period) on a Pro Forma Basis as if it was incurred on the first day of the immediately preceding Test Period (but tested as if the applicable ratio were the ratio for the next succeeding Test Period), the Borrower would be in compliance with the Financial Covenants;

(xiv)other Indebtedness of the Borrower or any Subsidiary in an aggregate principal amount not exceeding $20.0 million at any time outstanding; and

(xv)Indebtedness of Non-U.S. Subsidiaries in an aggregate principal amount not exceeding $20.0 million at any time outstanding.

(b)The Loan Parties will not, nor will they permit any of their Subsidiaries to, directly or indirectly, issue any Preferred Stock or other preferred Equity Interest (“Disqualified Equity Interests”) which (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may become redeemable or repurchaseable at the option of the holder thereof, in whole or in part, or (iii) is convertible or exchangeable at the option of the holder thereof for Indebtedness or Preferred Stock or any other preferred Equity Interest described in this paragraph, in each case, prior to six months following the Term Loan Maturity Date.

SECTION 6.02.Liens. The Loan Parties will not, and will not permit any of their Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on any Property or asset now owned or hereafter acquired by them, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except the following (herein collectively referred to as “Permitted Liens”):

(i)Liens in favor of the Collateral Agent under the Security Documents;

(ii)Liens on assets acquired after the Effective Date existing at the time of acquisition thereof by the Borrower or any Subsidiary; provided that such Liens were not incurred in connection with, or in contemplation of, such acquisition and do not extend to any assets of the Borrower or any Subsidiary other than the specific assets so acquired;

(iii)Liens to secure the performance of statutory obligations, surety or appeal bonds or performance bonds, landlords’, carriers’, warehousemen’s, mechanics’, suppliers’,

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materialmen’s, attorney’s or other like liens, in any case incurred in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; provided that (A) a reserve or other appropriate provision, if any, as is required by GAAP shall have been made therefor, (B) if such Lien is on Collateral, the Contested Collateral Lien Conditions shall at all times be satisfied and (C) such Liens relating to statutory obligations, surety or appeal bonds or performance bonds shall only extend to or cover cash and Cash Equivalents not in the Collateral Account;

(iv)Liens existing on the Effective Date and identified on Schedule 6.02 to the extent permitted by the applicable Security Documents;

(v)Liens for taxes, assessments or governmental charges or claims or other like statutory Liens, in any case incurred in the ordinary course of business, that do not secure Indebtedness for borrowed money and (A) that are not yet delinquent or (B) that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that (1) any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor and (2) if such Lien is on Collateral, the Contested Collateral Lien Conditions shall at all times be satisfied;

(vi)Liens to secure Indebtedness (including Capital Lease Obligations) of the type described in Section 6.01(a)(vii) covering only the assets acquired or improved with such Indebtedness;

(vii)Liens securing Indebtedness incurred to refinance Indebtedness secured by the Liens of the type described in clause (ii) of this Section 6.02; provided that any such Lien shall not extend to or cover any assets not securing the Indebtedness so refinanced;

(viii)(A) Liens in the form of zoning restrictions, easements, licenses, reservations, covenants, conditions or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) that do not (1) secure Indebtedness or (2) individually or in the aggregate materially impair the value or marketability of the real property affected thereby or the occupation, use and enjoyment in the ordinary course of business of the Borrower and any Subsidiary at such real property and (B) with respect to leasehold interests in real property, mortgages, obligations, liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of such leased property encumbering the landlord’s or owner’s interest in such leased property;

(ix)Liens in the form of pledges or deposits securing bids, tenders, contracts (other than contracts for borrowed money) or leases to which the Borrower or any Subsidiary is a party, in each case, made in the ordinary course of business for amounts (A) not yet due and payable or (B) being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; provided that (1) a reserve or other appropriate provision, if any, as is required by GAAP shall have been made therefor, (2) if such Lien is on Collateral, the Contested Collateral Lien Conditions shall at all times be satisfied and (3) such Liens shall in no event encumber any Collateral other than cash and Cash Equivalents not in the Collateral Account;

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(x)Liens resulting from operation of law with respect to any judgments, awards or orders to the extent that such judgments, awards or orders do not cause or constitute a Default under this Agreement; provided that if any such Liens are on Collateral, the Contested Collateral Lien Conditions shall at all times be satisfied;

(xi)Liens in the form of licenses, leases or subleases granted or created by the Borrower or any Subsidiary, which licenses, leases or subleases do not interfere, individually or in the aggregate, in any material respect with the business of the Borrower or such Subsidiary or individually or in the aggregate materially impair the use (for its intended purpose) or the value of the property subject thereto, provided that (x) to the extent such licenses, leases or subleases relate to Mortgaged Property in existence as of the Effective Date, the Borrower or such Subsidiary shall use its commercially reasonable efforts to as soon as practicable cause such licenses, leases or subleases to be subordinated to the Lien granted and evidenced by the Security Documents in accordance with the provisions thereof and (y) to the extent entered into after the Effective Date, such licenses, leases or subleases shall be subordinate to the Lien granted and evidenced by the Security Documents in accordance with the provisions thereof; provided, further, that any such Lien shall not extend to or cover any assets of the Borrower or any Subsidiary that is not the subject of any such license, lease or sublease;

(xii)Liens on fixtures or personal property held by or granted to landlords pursuant to leases to the extent that such Liens are not yet due and payable; provided that (i) with respect to any such Liens on any material portion of the Collateral in existence on the Effective Date, the Borrower or any applicable Subsidiary has used its commercially reasonable efforts to obtain a landlord lien waiver reasonably satisfactory to the Collateral Agent and (ii) with respect to any leases entered into after the Effective Date, the Borrower or any applicable Subsidiary shall use its commercially reasonable efforts to (x) enter into a lease that does not grant a Lien on fixtures or personal property in favor of the landlord thereunder or (y) obtain a landlord lien waiver reasonably satisfactory to the Collateral Agent;

(xiii)Liens securing Indebtedness permitted by Section 6.01(a)(xiii); provided that such Liens existed prior to such Person becoming a Subsidiary, were not created in anticipation thereof and attach only to specific assets of such Person that is the subject of the Permitted Acquisition;

(xiv)Liens securing Indebtedness permitted by Section 6.01(a)(xiv) or 6.01(a)(xv); and

(xv)Liens on assets of Subsidiaries that are not Loan Parties securing Indebtedness of Subsidiaries that are not Loan Parties;

provided, however, that no Liens shall be permitted to exist, directly or indirectly, on any Securities Collateral (as defined in the Security Agreement) other than Liens in favor of the Collateral Agent and Liens permitted by clauses (v) and (x).

SECTION 6.03.Fundamental Changes; Line of Business. (a)  The Loan Parties will not, and will not permit any of their Subsidiaries to, directly or indirectly, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with them, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing, (i) any Subsidiary may merge into the Borrower in a transaction

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in which the Borrower is the surviving corporation, (ii) any Subsidiary of the Borrower may merge with or into any Subsidiary in a transaction in which the surviving entity is a Subsidiary of the Borrower and (if any party to such merger is a Subsidiary Loan Party) is a Subsidiary Loan Party, (iii) Permitted Acquisitions as permitted by Section 6.04 (vii) of this Agreement may be consummated and (iv) the Permitted Restructuring may be consummated; provided that in connection with the foregoing, the appropriate Loan Parties shall take all actions necessary or reasonably requested by the Collateral Agent to maintain the perfection of or perfect, as the case may be, protect and preserve the Liens on the Collateral granted to the Collateral Agent pursuant to the Security Documents and otherwise comply with the provisions of Sections 5.11 and 5.12, in each case, on the terms set forth therein and to the extent applicable.

(b)Notwithstanding the foregoing, (i) any Loan Party may dispose of any or all of its assets (upon voluntary liquidation or otherwise) to any other Loan Party and (ii) any Subsidiary which is not a Loan Party may dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any other Subsidiary; provided that in connection with each of the foregoing, the appropriate Loan Parties shall take all actions necessary or reasonably requested by the Collateral Agent to maintain the perfection of or perfect, as the case may be, protect and preserve the Liens on the Collateral granted to the Collateral Agent pursuant to the Security Documents and otherwise comply with the provisions of Sections 5.11 and 5.12, in each case, on the terms set forth therein and to the extent applicable).

(c)The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, engage in any business other than businesses of the type conducted by the Borrower and the Subsidiaries on the Effective Date and businesses reasonably related thereto.

SECTION 6.04.Investments, Loans, Advances, Guarantees and Acquisitions. The Loan Parties will not, and will not permit any Subsidiary to, directly or indirectly, purchase, hold or acquire (including pursuant to any merger with any Person that was not a Wholly Owned Subsidiary prior to such merger) any Equity Interests in or evidences of Indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or provide other credit support for any Person or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit (each of the foregoing, an “Investment” and collectively, “Investments”), except:

(i)Permitted Investments;

(ii)Investments existing on the Effective Date (or in respect of which a binding commitment to make such investment exists on the Effective Date) and set forth on Schedule 6.04;

(iii)Investments (A) by the Borrower or any Subsidiary of the Borrower in the Borrower or any Subsidiary Loan Party (whether made prior to or after the Effective Date), (B) by any Subsidiary that is not a Loan Party in Borrower or any Wholly Owned Subsidiary (whether made prior to or after the Effective Date) and (C) after the Effective Date by the Borrower or any Subsidiary in any Subsidiary that is not a Loan Party; provided that the aggregate amount of such Investments pursuant to this clause (C) shall not exceed $20.0 million (less the aggregate amount of Restricted Payments made pursuant to Section 6.07(iv)) at any one time outstanding; and provided, further, that any such Investment held by a Loan Party shall be pledged pursuant to a Pledge Agreement or a Non-U.S. Pledge Agreement in accordance with Section 5.11;

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(iv)Guarantees constituting Indebtedness permitted by Section 6.01(a)(iv) or Section 6.01(a)(vi);

(v)Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(vi)loans and advances to employees of the Borrower or its Subsidiaries in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses) not to exceed $1.0 million in the aggregate at any time outstanding; provided that (x) to the extent such loans or advances are evidenced by promissory notes, such promissory notes shall be endorsed in blank and delivered to the Collateral Agent pursuant to the Pledge Agreement and (y) the Borrower shall and shall cause its Subsidiaries to take all actions and execute all documents reasonably requested by the Collateral Agent to confirm the Collateral Agent’s security interest in such loans and advances and/or promissory notes pursuant to the applicable Security Documents;

(vii)Permitted Acquisitions for aggregate Acquisition Consideration since the Effective Date not to exceed $50.0 million (of which not more than $30.0 million may be used to consummate Permitted Acquisitions by Subsidiaries that are not Loan Parties);

(viii)Investments of the Borrower or any Subsidiary Loan Party not in excess of the QRTC Amount outstanding at any time less the aggregate amount of Capital Expenditures made pursuant to Section 6.14(c);

(ix)loans made by the Borrower or any of the Subsidiary Loan Parties to Subsidiaries that are not Loan Parties; provided that (a) the proceeds of such loans shall be used either to (x) fund Capital Expenditures permitted to be made pursuant to Section 6.14(a) or (y) purchase the Equity Interests in a non-wholly owned Subsidiary not owned by the Borrower or any of its Subsidiaries and (b) any such loan shall be pledged pursuant to a Pledge Agreement or a non-U.S. Pledge Agreement in accordance with Section 5.11; and

(x)the Permitted Restructuring.

The aggregate amount of an Investment at any one time outstanding for purposes of this Section 6.04 shall be deemed to be equal to (A) the aggregate amount of cash, together with the aggregate fair market value of Property, loaned, advanced, contributed, transferred or otherwise invested that gives rise to such Investment minus (B) the aggregate amount of dividends, distributions or other payments received in cash in respect of such Investment (including by way of a sale or other disposition of such Investment). The amount of an Investment shall not in any event be reduced by reason of any write-off of such Investment.

SECTION 6.05.Asset Sales. The Loan Parties will not, and will not permit any Subsidiary to, directly or indirectly, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by them, nor will the Borrower permit any of its Subsidiaries to, directly or indirectly, issue any additional Equity Interest in such Subsidiary, except:

(i)sales of inventory or used, surplus, obsolete, outdated, inefficient or worn out equipment and other property in the ordinary course of business;

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(ii)sales, transfers and dispositions to the Borrower or any Subsidiary Loan Party; provided that in connection with the foregoing, the appropriate Loan Parties shall take all actions necessary or reasonably requested by the Collateral Agent to maintain the perfection of or perfect, as the case may be, protect and preserve the Liens on the Collateral granted to the Collateral Agent pursuant to the Security Documents and otherwise comply with the provisions of Sections 5.11 and 5.12, in each case, on the terms set forth therein and to the extent applicable;

(iii)sales, transfers and dispositions by any Subsidiary that is not a Loan Party to any Wholly Owned Subsidiary of the Borrower;

(iv)the lease or sublease of Real Property in the ordinary course of business and not constituting a sale and leaseback transaction;

(v)sales of Permitted Investments on ordinary business terms;

(vi)Liens permitted by Section 6.02 and Investments permitted under Section 6.04;

(vii)the lease of certain facilities of Chicopee located in Little Rock, Arkansas;

(viii)the Permitted Restructuring;

(ix)sales, transfers and dispositions of assets (other than Equity Interests of a Subsidiary) not otherwise permitted under this Section; provided that the aggregate fair market value of all assets sold, transferred or otherwise disposed of in reliance upon this clause (ix) shall not exceed $35.0 million in the aggregate and the Net Proceeds thereof are applied as required by Section 2.05(c)(iii);

(x)(A) issuances of Equity Interests by any Subsidiary of the Borrower to the Borrower or any Wholly Owned Subsidiary of the Borrower and (B) capital contributions by the Borrower or any Wholly Owned Subsidiary of the Borrower to any Subsidiary of the Borrower; and

(xi)Permitted Factoring Transactions;

provided that all sales, transfers, leases and other dispositions permitted hereby shall be made for fair value and, in the case of sales, transfers, leases and other dispositions permitted by clauses (i), (v), (viii) and (ix), for consideration consisting of at least 75% cash and Cash Equivalents.

SECTION 6.06.Sale and Leaseback Transactions.  The Loan Parties will not, and will not permit any of their Subsidiaries to, directly or indirectly, enter into any arrangement, directly or indirectly, whereby they shall sell or transfer any Property, real or personal, used or useful in their business, whether now owned or hereafter acquired, and thereafter rent or lease such Property or other Property that they intend to use for substantially the same purpose or purposes as the Property sold or transferred (a “Sale and Leaseback Transaction”) unless (i) the sale of such Property is permitted by Section 6.05 and (ii) any Lien arising in connection with the use of such Property by any Loan Party or a Subsidiary is permitted by Section 6.02.

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SECTION 6.07.Restricted Payments. The Loan Parties will not, and will not permit any Subsidiary to, directly or indirectly, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except:

(i)Subsidiaries of the Borrower may declare and pay dividends to the Borrower, another Subsidiary or any other holder of its Equity Interests ratably with respect to their Equity Interests or additional shares of the same class of shares as the dividend being paid to the extent such payment complies with Section 6.01(b); provided that no such dividend or distribution shall be made by any such Subsidiary to any Person other than the Borrower or another Subsidiary unless ratable dividends or distributions are concurrently made to all holders of the applicable Equity Interests;

(ii)the Borrower may pay dividends consisting solely of shares of its common stock or additional shares of the same class of shares as the dividend being paid;

(iii)the Borrower and its Subsidiaries may make Restricted Payments not to exceed $5.0 million in the aggregate since the Effective Date;

(iv)Subsidiaries that are not Loan Parties may redeem their Equity Interests held by Persons other than the Borrower or any of its Subsidiaries; provided that the aggregate amount of such redemptions since the Effective Date shall not exceed $20.0 million (less the amount of Investments outstanding under Section 6.04(iii)(C)); and

(v)The Borrower may redeem up to $10,000,000 in the aggregate of the Borrower’s Class A, Class B, and Class C Common Stock from Persons other than the GOF Holders.

SECTION 6.08.Transactions with Affiliates. The Loan Parties will not, and will not permit any of their Subsidiaries to, directly or indirectly, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of their Affiliates, unless such transactions are in the ordinary course of the Borrower’s business and are at prices and on terms and conditions not less favorable to the Loan Party or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, except:

(i)transactions between or among the Borrower and the Subsidiaries not involving any other Affiliate;

(ii)any Restricted Payment permitted by Section 6.07;

(iii)fees and compensation, benefits and incentive arrangements paid or provided to, and any indemnity provided on behalf of, officers, directors or employees of the Borrower or any Subsidiary as determined in good faith by the board of directors of the Borrower;

(iv)loans and advances to employees of the Borrower or any Subsidiary Loan Party permitted by Section 6.04(vii);

(v)transactions for purchases of raw materials in the ordinary course of business on commercially reasonable terms and conditions from suppliers from which the Borrower or any of its Subsidiaries has made such purchases prior to the Effective Date; and

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(vi)the issuance or sale of any Equity Interests of the Borrower.

SECTION 6.09.Restrictive Agreements.  The Loan Parties will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of any Loan Party to create, incur or permit to exist any Lien upon any of its Property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary or to transfer property to the Borrower or any of its Subsidiaries; provided that the foregoing shall not apply to:

(i)conditions imposed by law or by any Loan Document;

(ii)clause (a) shall not apply to assets encumbered by Permitted Liens as long as such restriction applies only to the asset encumbered by such Permitted Lien;

(iii)restrictions and conditions existing on the Effective Date not otherwise excepted from this Section 6.09 identified on Schedule 6.09 (but shall not apply to any amendment or modification expanding the scope of any such restriction or condition);

(iv)in the case of clause (a) only, any agreement in effect at the time any Person becomes a Subsidiary of the Borrower; provided that such agreement was not entered into in contemplation of such Person becoming a Subsidiary;

(v)customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary (or the assets of a Subsidiary) pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold (or whose assets are to be sold) and such sale is permitted hereunder; and

(vi)clause (a) shall not apply to customary provisions in leases and service contracts in the ordinary course of business between the Borrower or any Subsidiary and its customers and other contracts restricting the assignment thereof.

SECTION 6.10.Amendments or Waivers of Certain Documents; Prepayments of Certain Indebtedness. (a)  The Loan Parties will not, and will not permit any Subsidiary to, directly or indirectly, amend or otherwise change (or waive) the terms of any Organic Document in a manner adverse to the Lenders.

(b)The Loan Parties will not, and will not permit any Subsidiary to, make (or give any notice or offer in respect of) any voluntary or optional payment or mandatory prepayment or redemption or acquisition for value of (including, without limitation, by way of depositing with any trustee with respect thereto money or securities before such Indebtedness is due for the purpose of paying such Indebtedness when due) or exchange of principal of any Subordinated Debt, other than pursuant to any customary registered exchange offer therefor after a private placement thereof, any Permitted Refinancing or (so long as no Default then exists) any exchange of Equity Interests of the Borrower for any such Indebtedness.

SECTION 6.11.No Other “Designated Senior Indebtedness.”  Neither the Borrower nor any other Loan Party shall designate, or permit the designation of, any Indebtedness (other than under

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this Agreement or the other Loan Documents) as “Designated Senior Indebtedness” (or any equivalent term) under any Subordinated Debt Documents.

SECTION 6.12.Interest Expense Coverage Ratio. The Borrower will not permit the Interest Expense Coverage Ratio for any Test Period to be less than the ratio set forth below opposite the date set forth below which is closest to the last day of such Test Period:

Date	Ratio
December 31, 2005	2.50:1.00
March 31, 2006	2.50:1.00
June 30, 2006	2.50:1.00
September 30, 2006	2.50:1.00
December 31, 2006	2.75:1.00
March 31, 2007	2.75:1.00
June 30, 2007	2.75:1.00
September 30, 2007	2.75:1.00
December 31, 2007	3.00:1.00
March 31, 2008	3.00:1.00
June 30, 2008	3.00:1.00
September 30, 2008	3.00:1.00
December 31, 2008	3.25:1.00
March 31, 2009	3.25:1.00
June 30, 2009	3.25:1.00
September 30, 2009	3.25:1.00
December 31, 2009	3.50:1.00
March 31, 2010	3.50:1.00
June 30, 2010	3.50:1.00
September 30, 2010	3.50:1.00
December 31, 2010	3.50:1.00
March 31, 2011	3.50:1.00
June 30, 2011	3.50:1.00
September 30, 2011	3.50:1.00
December 31, 2011	3.50:1.00
March 31, 2012	3.50:1.00
June 30, 2012	3.50:1.00

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Date	Ratio
September 30, 2012	3.50:1.00

SECTION 6.13.Total Leverage Ratio.  The Borrower will not permit the Total Leverage Ratio at the end of any Test Period to exceed the ratio set forth opposite the date set forth below which is closest to the last day of such Test Period:

Date	Ratio
December 31, 2005	4.50:1.00
March 31, 2006	4.50:1.00
June 30, 2006	4.50:1.00
September 30, 2006	4.50:1.00
December 31, 2006	4.00:1.00
March 31, 2007	4.00:1.00
June 30, 2007	4.00:1.00
September 30, 2007	4.00:1.00
December 31, 2007	3.50:1.00
March 31, 2008	3.50:1.00
June 30, 2008	3.50:1.00
September 30, 2008	3.50:1.00
December 31, 2008	3.00:1.00
March 31, 2009	3.00:1.00
June 30, 2009	3.00:1.00
September 30, 2009	3.00:1.00
December 31, 2009	3.00:1.00
March 31, 2010	3.00:1.00
June 30, 2010	3.00:1.00
September 30, 2010	3.00:1.00
December 31, 2010	3.00:1.00
March 31, 2011	3.00:1.00
June 30, 2011	3.00:1.00
September 30, 2011	3.00:1.00
December 31, 2011	3.00:1.00
March 31, 2012	3.00:1.00

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Date	Ratio
June 30, 2012	3.00:1.00
September 30, 2012	3.00:1.00

SECTION 6.14.Capital Expenditures.  The Borrower will not, and will not permit any of its Subsidiaries to, make or commit to make any Capital Expenditures, except that:

(a)the Borrower and its Subsidiaries may make or commit to make Capital Expenditures not exceeding the amount set forth below (the “Base Amount”) for each of the Fiscal Years of the Borrower set forth below:

Fiscal Year	Base Amount
2005	$	90.0 million
2006	$	65.0 million
2007	$	65.0 million
2008	$	50.0 million
2009	$	50.0 million
2010	$	50.0 million
2011	$	50.0 million
2012	$	50.0 million

provided that for any period set forth above, the Base Amount set forth above may be increased for any such period by carrying over to any such period any portion of the Base Amount (without giving effect to any increase) not spent in the immediately preceding period, and that Capital Expenditures in any period shall be deemed first made from the Base Amount applicable to such period in any given period; provided, further, that for avoidance of doubt, Capital Expenditures for the Fiscal Year beginning January 1, 2005 shall include Capital Expenditures made or committed to be made by the Borrower and its Subsidiaries prior to the Effective Date.

(b)the Borrower and its Subsidiaries may make additional Capital Expenditures (i) to the extent funded by the Net Proceeds from Equity Issuances (excluding issuances of Disqualified Equity Interests of the Borrower), subject to first complying with Section 2.05(c)(i), and (ii) at any time in an amount not to exceed the Cumulative Retained Excess Cash Flow Amount at such time.

(c)the Borrower and its Subsidiaries may make additional Capital Expenditures not to exceed the QRTC Amount in the aggregate; provided that the aggregate amount of Capital Expenditures made pursuant to this clause (c) plus the aggregate amount of Investments outstanding under Section 6.04(viii) shall not exceed the QRTC Amount at any one time.

SECTION 6.15.Anti-Terrorism Law. The Loan Parties shall not (i) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in Section 3.22 above, (ii) deal in, or otherwise engage in any transaction relating

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to, any property or interests in property blocked pursuant to the Executive Order or any other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law (and the Loan Parties shall deliver to the Lenders any certification or other evidence requested from time to time by any Lender in its reasonable discretion, confirming the Loan Parties’ compliance with this Section 6.15).

SECTION 6.16.Embargoed Person.  At all times throughout the term of the Loans, (a) none of the funds or assets of the Loan Parties that are used to repay the Loans shall constitute property of, or shall be beneficially owned directly or, to the knowledge of any Loan Party, indirectly by, any Person subject to sanctions or trade restrictions under United States law (“Embargoed Person” or “Embargoed Persons”) that is identified on (1) the “List of Specially Designated Nationals and Blocked Persons” (the “SDN List”) maintained by the Office of Foreign Assets Control (OFAC), U.S. Department of the Treasury, and/or to the knowledge of any Loan Party, as of the date thereof, based upon reasonable inquiry by such Loan Party, on any other similar list (“Other List”) maintained by OFAC pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by law, or the Loans made by the Lenders would be in violation of law, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders (collectively, “Executive Orders”), and (b) no Embargoed Person shall have any direct interest, and to the knowledge of any Loan Party, as of the date hereof, based upon reasonable inquiry by any Loan Party, indirect interest, of any nature whatsoever in the Loan Parties, with the result that the investment in the Loan Parties (whether directly or indirectly) is prohibited by law or the Loans are in violation of law.

SECTION 6.17.Anti-Money Laundering.  At all times throughout the term of the Loans, to the knowledge of any Loan Party, as of the date hereof, based upon reasonable inquiry by such Loan Party, none of the funds of such Loan Party that are used to repay the Loans shall be derived from any unlawful activity with the result that the investment in the Loan Parties (whether directly or indirectly), is prohibited by law or the Loans would be in violation of law.

ARTICLE VII

EVENTS OF DEFAULT

SECTION 7.01.Listing of Events of Default.  Each of the following events or occurrences described in this Section 7.01 shall constitute (i) an “Event of Default”, if any Loans, LC Disbursements or Letters of Credit are outstanding, and (ii) an “Event of Termination”, if no Loans, LC Disbursements or Letters of Credit are outstanding:

(a)The Borrower shall default (i) in the payment when due of any principal of any Loan (including, without limitation, on any Installment Payment Date) or any reimbursement obligation in respect of any LC Disbursement, (ii) in the payment when due of any interest on any Loan (and such default shall continue unremedied for a period of three Business Days), or (iii) in the payment when due of any Fee described in Section 2.10 or of any other previously invoiced amount (other than an amount described in clauses (i) and (ii)) payable under this Agreement or any other Loan Document (and such default shall continue unremedied for a period of three Business Days).

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(b)Any representation or warranty of the Borrower or any other Loan Party made or deemed to be made hereunder or in any other Loan Document or any other writing or certificate furnished by or on behalf of the Borrower or any other Loan Party to the Administrative Agent, the Issuing Bank or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document is or shall be incorrect in any material respect when made or deemed made.

(c)The Borrower or any other Loan Party shall default in the due performance and observance of any of its obligations under clause (e), (f) or (j) of Section 5.01, clause (a) of Section 5.02 (with respect to the maintenance and preservation of the Borrower’s corporate existence) or Article VI.

(d)The Borrower or any other Loan Party shall default in the due performance and observance of any agreement (other than those specified in paragraphs (a) through (c) above) contained herein or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after the date of such default.

(e)A default shall occur (i) in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Material Indebtedness or (ii) in the performance or observance of any obligation or condition with respect to any Material Indebtedness if the effect of such default referred to in this clause (ii) is to accelerate the maturity of any such Material Indebtedness or enable or permit (with or without the giving of notice, the lapse of time or both) the holder or holders of any such Material Indebtedness or any trustee or agent on its or their behalf to cause any such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity.

(f)Any judgment or order (or combination of judgments and orders) for the payment of money equal to or in excess of $10.0 million individually or in the aggregate shall be rendered against the Borrower or any of its Subsidiaries (or any combination thereof) and

(i)enforcement proceedings shall have been commenced by any creditor upon such judgment or order and not stayed;

(ii)such judgment has not been stayed, vacated or discharged within 60 days of entry; or

(iii)there shall be any period (after any applicable statutory grace period) of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect and such judgment is not fully insured against by a policy or policies of insurance (with reasonable or standard deductible provisions) issued by an insurer other than an Affiliate of the Borrower.

(g)Any of the following events shall occur:

(i)the taking of any specific actions by a Loan Party, any ERISA Affiliate or any other Person to terminate a Pension Plan if, as a result of such termination, a Loan Party or any ERISA Affiliate could reasonably expect to incur a liability or obligation to such Pension Plan which could reasonably be expected to have a Material Adverse Effect; or

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(ii)an ERISA Event, or termination, withdrawal or event of noncompliance with applicable law or plan terms with respect to Foreign Plans, shall have occurred that when taken together with all other ERISA Events and terminations, withdrawals and events of noncompliance with respect to Foreign Plans that have occurred, could reasonably be expected to have a Material Adverse Effect.

(h)Any Change in Control shall occur.

(i)Any Loan Party shall

(i)become insolvent or generally fail to pay debts as they become due;

(ii)apply for, consent to or acquiesce in the appointment of a trustee, receiver, sequestrator or other custodian for any Loan Party or substantially all of its property, or make a general assignment for the benefit of creditors;

(iii)in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for any Loan Party or for a substantial part of its property, and such trustee, receiver, sequestrator or other custodian shall not be discharged or stayed within 60 days, provided that each Loan Party hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents;

(iv)permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of any Loan Party and, if any such case or proceeding is not commenced by any Loan Party, such case or proceeding shall be consented to or acquiesced in by such Loan Party or shall result in the entry of an order for relief or shall remain for 60 days undismissed and unstayed; provided that each Loan Party hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or

(v)take any corporate or partnership action (or comparable action, in the case of any other form of legal entity) for the purpose of effecting any of the foregoing.

(j)The obligations of any Loan Party under the Guarantee Agreement shall cease to be in full force and effect (except in accordance with its terms) or any such Loan Party shall repudiate its obligations thereunder.

(k)Any Security Document shall cease to be in full force and effect (except in accordance with its terms) or any Lien purported to be created under any Security Document shall fail or cease to be, or shall be asserted by any Loan Party not to be, a valid and perfected Lien on any material portion of the Collateral, with the priority required by the applicable Security Document.

SECTION 7.02.Action if Bankruptcy.  If any Event of Default described in Section 7.01(i) shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be

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and become immediately due and payable, without notice or demand, all of which are hereby waived by the Borrower.

SECTION 7.03.Action if Other Event of Default.  If any Event of Default (other than any Event of Default described in Section 7.01(i)) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Requisite Lenders, shall by written notice to the Borrower and each Lender declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment and/or, as the case may be, the Commitments shall terminate.

SECTION 7.04.Action if Event of Termination.  Upon the occurrence and continuation of any Event of Termination, the Requisite Lenders may, by notice from the Administrative Agent to the Borrower and the Lenders (except if an Event of Termination described in Section 7.01(i) shall have occurred, in which case the Commitments (if not theretofore terminated) shall, without notice of any kind, automatically terminate) declare their Commitments terminated, and upon such declaration the Lenders shall have no further obligation to make any Loans hereunder. Upon such termination of the Commitments, all accrued fees and expenses shall be immediately due and payable.

ARTICLE VIII

THE AGENTS

SECTION 8.01.The Agents.  Citicorp North America, Inc. is hereby appointed to act as Administrative Agent on behalf of the Lenders. Each Lender that holds Loans or has Commitments and each holder of any Related Hedging Obligations and each person holding Overdraft Obligations (in each case, in its capacity as such) hereby irrevocably designates and appoints the Collateral Agent as an agent of such person under this Agreement and each other Loan Document to which the Collateral Agent is a party. Each of the Lenders and each assignee of any such Lender hereby irrevocably authorizes each of the Agents to take such actions on behalf of such Lender or assignee and to exercise such powers as are specifically delegated to such Agent by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. Each Agent is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans, all payments and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to any of the Loan Parties of any Default specified in this Agreement of which such Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by any of the Loan Parties pursuant to this Agreement as received by such Agent.

None of the Agents nor any of their Related Parties shall be liable to the Lenders as such for any action taken or omitted to be taken by any of them except to the extent finally judicially determined to have resulted from its or his or her own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by any Loan Party of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents or other instruments or agreements. Each Agent shall in all cases be fully protected in acting, or refraining from acting, in

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accordance with written instructions signed by the Requisite Lenders (or, when expressly required hereby, all the Lenders) and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of actual knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. None of the Agents nor any of their Related Parties shall have any responsibility to the Loan Parties on account of the failure of or delay in performance or breach by any Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Loan Parties of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each Agent may execute any and all duties hereunder by or through any of its Related Parties or any sub-agent appointed by it and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel.

The Lenders hereby acknowledge that no Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of any Loan Document unless it shall be requested in writing to do so by the Requisite Lenders.

Subject to the appointment and acceptance of a successor Agent as provided below, any Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the Requisite Lenders (with the consent of the Borrower, not to be unreasonably withheld) shall have the right to appoint a successor. If no successor shall have been so appointed by the Requisite Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may (with the consent of the Borrower, not to be unreasonably withheld), on behalf of the Lenders and the Issuing Bank, appoint a successor Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500.0 million or an Affiliate of any such bank. Upon the acceptance of any appointment as an Agent hereunder by such a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After an Agent’s resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as an Agent.

With respect to any Loans made by it hereunder, each Agent in its individual capacity and not as an Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent. In addition, Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if any were not Agents.

Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder.

Notwithstanding anything to the contrary in this Agreement, neither CGMI, as Sole Lead Arranger and Sole Bookrunner, nor Citicorp

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North America, Inc., as Syndication Agent, nor Citicorp North America, Inc., as Documentation Agent, in such respective capacities, shall have any obligations, duties or responsibilities, or shall incur any liabilities, under this Agreement or any other Loan Document.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01.Notices.  (a)  Except as set forth in Section 9.17, notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail, sent by telecopy or electronic mail, as follows:

(i)if to the Borrower, to it at Polymer Group, Inc., 4055 Faber Place, Suite 201, North Charleston, South Carolina 29405, attention:  Willis C. Moore III (telecopy:  843-329-0415) (e-mail:  mooreb@pginw.com), with a copy to Kirkland & Ellis LLP, 200 E. Randolph Drive, Chicago, IL 60601, attention:  H. Kurt von Moltke, P.C. (telecopy:  (312) 861-2200) (e-mail:  kvonmoltke@kirkland.com);

(ii)if to the Administrative Agent or the Collateral Agent, to it at Citicorp North America, Inc., 390 Greenwich St., New York, NY 10013, attention:  Christina Quezon (telecopy:  (212) 994-0961) (e-mail:  christina.m.quezon@citigroup.com), with a copy to Cahill Gordon & Reindel LLP, 80 Pine Street, New York, NY 10005, attention:  Michael E. Michetti, Esq. (telecopy:  (212) 269-5420) (e-mail:  mmichetti@cahill.com);

(iii)if to the Lead Arranger, to it at Citigroup Global Markets, Inc., 390 Greenwich St., New York, NY 10013, attention: Christina Quezon (telecopy:  (212) 994-0961) (e-mail:  christina.m.quezon@citigroup.com), with a copy to Cahill Gordon & Reindel LLP, 80 Pine Street, New York, NY 10005, attention:  Michael E. Michetti, Esq. (telecopy:  (212) 269-5420) (e-mail:  mmichetti@cahill.com);

(iv)if to the Issuing Bank, to it at Citibank, N.A., 390 Greenwich St., New York, NY 10013, attention: Suzanne Crymes (telecopy:  (646) 291-1621) (e-mail:  suzanne.crymes@citigroup.com), with a copy to Cahill Gordon & Reindel LLP, 80 Pine Street, New York, NY 10005, attention:  Michael E. Michetti, Esq. (telecopy:  (212) 269-5420) (e-mail:  mmichetti@cahill.com); and

(v)if to a Lender, to it at its address (or telecopy number) set forth in Schedule 2.01 or its Administrative Questionnaire or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto.

All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or electronic mail or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. Each Loan Party and Lender hereunder agrees to notify the Administrative Agent and the Collateral Agent in writing promptly of any change to the notice information provided above or in Schedule 2.01.

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(b)The Borrower shall forthwith on demand indemnify each Lender against any loss or liability which that Lender or Agent incurs (and that Lender shall not be liable to the Borrower in any respect) as a consequence of:

(i)any Person to whom any notice or communication under or in connection with this Agreement is sent by the Borrower by telecopy failing to receive that notice or communication (unless directly caused by that Person’s gross negligence or willful default); or

(ii)any telecopy communication which reasonably appears to that Lender or Agent to have been sent by the Borrower having in fact been sent by a Person other than the Borrower.

SECTION 9.02.Survival of Agreement.  All covenants, agreements, representations and warranties made by the Loan Parties herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by Lenders hereto and shall survive the making by the Lenders of the Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.14, 2.15, 2.16, 2.17, 9.05 and 9.16 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.

SECTION 9.03.Binding Effect.  Subject to Section 4.01, this Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns.

SECTION 9.04.Successors and Assigns.  (a)  Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party (including any Affiliate of the Issuing Bank that issues any Letter of Credit). All covenants, promises and agreements by or on behalf of the Borrower, the Agents or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in clause (f) below and, solely to the extent expressly contemplated hereby, the Related Parties of each of the Agents, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or a Lender Affiliate or in connection with the initial syndication of the Commitments and Loans, the Borrower and the Administrative Agent (and, in the case of any assignment of a Revolving Credit Commitment

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or any Lender’s obligations in respect of its LC Exposure or Swingline Exposure, the Issuing Bank and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender, a Lender Affiliate or a Federal Reserve Bank or in connection with the initial syndication of the Commitments and Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than, in the case of the Term Loans, $1.0 million and increments of $1.0 million in excess thereof and, in the case of the Revolving Loans, $5.0 million and increments of $1.0 million in excess thereof (or (A) if the aggregate amount of the Commitment or Loans of the assigning Lender is a lesser amount, the entire amount of such Commitment or Loans, or (B) in any other case, such lesser amount as the Borrower and the Administrative Agent otherwise agree), (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement, except that this clause (iii) shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender’s rights and obligations in respect of one Class of Commitments and Loans, (iv) except in the case of the assignment to an Affiliate of such Lender or an assignment required to be made pursuant to Section 2.20, the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (provided that only one such fee shall be payable in the event of contemporaneous assignments to two or more Lender Affiliates by a Lender or by two or more Lender Affiliates to a Lender) , and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided, further, that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default has occurred and is continuing. Subject to acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof (unless otherwise determined by the Administrative Agent), (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16, 2.17 and 9.05 with respect to facts and circumstances occurring prior to the effective date of such assignment, as well as to any Fees accrued for its account and not yet paid). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (f) of this Section.

(c)By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows:  (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balances of its Loans and participations in Swingline Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such

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assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements, if any, delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon either Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to such Agent by the terms hereof, together with such powers as are reasonably incidental thereto; (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender; and (viii) Schedule 2.01 shall be deemed to be amended to reflect the assigning Lender thereunder and the assignee thereunder after giving effect thereto.

(d)The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements, and participations in Swingline Loans, owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). Except to the extent inconsistent with Section 2.07(d), the entries in the Register shall be conclusive and the Borrower, the Agents, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(e)Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrower, the Issuing Bank, the Swingline Lender and the Administrative Agent to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Lenders. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e).

(f)Each Lender may without the consent of the Borrower, the Swingline Lender, the Issuing Bank or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) each Participant shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.15, 2.16 and 2.17 and the provisions of Section 5.01 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section 9.04 (provided that no participant shall be entitled to receive any greater amount pursuant to such Sections than the Lender would have been entitled to receive in respect of the interest transferred unless either (x) such transfer to such Participant is made with the Borrower’s prior written consent (not to be unreasonably withheld) or (y) a Default or an Event of Default has occurred and is continuing at the time of such participation), and (iv) the Borrower, the Agents, the Issuing Bank and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under

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this Agreement, and such Lender shall retain the sole right (which each Lender agrees will not be limited by the terms of any participation agreement or other agreement with a participant) to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents (other than, without the consent of the Participant, amendments, modifications or waivers described in clauses (i), (iv) and (v) of Section 9.08(c) that affect such Participant). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.06 as though it were a Lender, provided such Participant agrees to be subject to Section 2.20 as though it were a Lender.

(g)Any Lender or participant may, in connection with any assignment, pledge or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to Borrower and its Subsidiaries furnished to such Lender by or on behalf of any of the Loan Parties; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee, pledgee or participant or proposed assignee, pledgee or participant shall execute a confidentiality agreement in form and substance consistent with provisions of Section 9.16.

(h)Any Lender, without the consent of or notice to the Borrower or the Administrative Agent, may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank and this Section 9.04 shall not apply to any such pledge or assignment of a security interest; provided that (x) no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto and (y) any foreclosure or similar action shall be subject to the provisions of this Section 9.04(b) concerning assignments and shall not be effective to transfer any rights under this Agreement or in any Loan, Note or other instrument evidencing the rights of a Lender under this Agreement until the requirements of Section 9.04(b) concerning assignments are fully satisfied. In order to facilitate such a pledge or assignment, the Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made to the Borrower by the assigning Lender hereunder.

(i)The Borrower shall not assign or delegate any of its rights or duties hereunder without the prior written consent of the Administrative Agent and each Lender, and any attempted assignment without such consent shall be null and void.

SECTION 9.05.Expenses; Indemnity.  (a)  The Borrower agrees to pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent, CGMI and their Affiliates, including the reasonable fees, charges and disbursements of Cahill Gordon & Reindel LLP, counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby contemplated shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Lead Arranger, the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement (including its rights under this Section), the other Loan Documents or the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit, and, in connection with any such enforcement or protection, the fees, charges and disbursements of any other counsel for the Administrative Agent, the Collateral Agent, the Lead Arranger, the Issuing Bank or any Lender; provided, however, that the Borrower

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shall not be obligated to pay for expenses incurred by a Lender in connection with the assignment of Loans to an assignee Lender (except pursuant to Section 2.20) or the sale of Loans to a participant pursuant to Section 9.04.

(b)The Borrower agrees to indemnify the Administrative Agent, the Collateral Agent, the Syndication Agent, the Documentation Agent, the Lead Arranger, the Issuing Bank, each Lender, each Affiliate of any of the foregoing Persons and each of their respective Related Parties (each such Person being called an “Indemnitee”) against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related reasonable expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties hereto or thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans or Letters of Credit (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged presence or Release of Hazardous Materials at, on, under or from any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Liability or Environmental Claim related in any way to the Borrower or the Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related reasonable expenses are finally judicially determined to have arisen by reason of the Indemnitee’s gross negligence or willful misconduct.

(c)To the extent that the Borrower fails to promptly pay any amount to be paid by it to any Agent, the Lead Arranger, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to such Agent, the Lead Arranger, the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (other than syndication expenses); provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the applicable Agent, the Lead Arranger, the Issuing Bank or the Swingline Lender in its capacity as such; provided further, however, that to the extent any Issuing Bank or Swingline Lender is entitled to indemnification under this Section 9.05, to the extent such indemnification relates solely to such Issuing Bank’s or such Swingline Lender’s acting in such capacity the indemnification provided for in this Section 9.05 will be the obligation solely of the Revolving Lenders. For purposes hereof, a Lender’s “pro rata share” shall be determined based upon its share of the sum of the total Revolving Credit Exposures, outstanding Term Loans and unused Commitments at the time.

(d)To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any other agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.

(e)The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any

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investigation made by or on behalf of the Administrative Agent or any Lender. All amounts due under this Section 9.05 shall be payable on written demand therefor.

SECTION 9.06.Right of Setoff.  If an Event of Default or Event of Termination shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Loan Party against any of and all the obligations of such Loan Party now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. In connection with exercising its rights pursuant to the previous sentence, a Lender may at any time use any Loan Party’s credit balances with the Lender to purchase at the Lender’s applicable spot rate of exchange any other currency or currencies which the Lender considers necessary to reduce or discharge any amount due by such Loan Party to the Lender, and may apply that currency or those currencies in or towards payment of those amounts. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after making any such setoff.

SECTION 9.07.Applicable Law.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

SECTION 9.08.Waivers; Amendment.  (a)  No failure or delay of any Agent, the Issuing Bank or any Lender in exercising any power or right hereunder or under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agents, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default regardless of whether an Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default or Event of Default at the time. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances.

(b)Subject to Sections 9.08(c) and 9.08(d) no amendment, modification, termination or waiver of any provision of any Loan Document, or consent to any departure by any Loan Party therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders.

(c)Without the written consent of each Lender that would be directly adversely affected thereby (whose consent shall be sufficient therefor without the consent of the Requisite Lenders), no amendment, modification, termination, waiver or consent shall be effective if the effect thereof would:

(i)extend the scheduled final maturity of any Loan or Note;

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(ii)extend the stated expiration date of any Letter of Credit beyond the Revolving Credit Maturity Date;

(iii)reduce or forgive the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.08) or any fee payable hereunder, it being understood that any amendment or modification to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest for purposes of this clause (iii);

(iv)extend the time for payment of any such interest or fees;

(v)reduce or forgive the principal amount of any Loan or any reimbursement obligation in respect of any Letter of Credit or waive, reduce or postpone any scheduled repayment pursuant to Section 2.05(d);

(vi)amend, modify, terminate or waive any provision of Section 9.08 (except for technical amendments with respect to additional extensions of credit pursuant to this Agreement consented to by the Requisite Lenders which afford the protections to such additional extensions of credit of the type provided to the Revolving Credit Commitments and/or the relevant Class of Term Loans on the Effective Date);

(vii)amend the definition of “Requisite Lenders” or “Pro Rata Percentage”; provided, with the consent of the Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of “Requisite Lenders” or “Pro Rata Percentage” on substantially the same basis as the Revolving Credit Commitments, Revolving Loans, Term Commitments and/or Term Loans are included on the Effective Date;

(viii)except as expressly provided in the Loan Documents, release all or substantially all of the Collateral or all or substantially all of the Subsidiary Loan Parties from the Guarantee or subordinate the Liens under any Security Document;

(ix)consent to the assignment or transfer by any Loan Party of any of its rights and obligations under any Loan Document;

(x)waive, amend or modify the provisions of Section 9.08(g); or

(xi)amend the indemnification obligations of the Lenders set forth in Section 9.05(c) or amend Sections 2.02(c), 2.02(d), 2.13(a) or 2.19 (only to the extent relating to pro rata treatment of Lenders).

(d)Subject to Section 9.08(e), no amendment, modification, termination, waiver or consent with respect to any provision of the Loan Documents, or consent to any departure by any Loan Party therefrom, shall:

(i)increase any Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; provided no amendment, modification, termination, waiver or consent with respect to any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Commitment of any Lender;

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(ii)amend, modify, terminate or waive any provision hereof relating to the Swingline Sublimit or the Swingline Loans without the consent of Swingline Lender;

(iii)amend the definition of “Requisite Class Lenders” without the consent of Requisite Class Lenders of each Class; provided, with the consent of the Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of such “Requisite Class Lenders” on substantially the same basis as the Revolving Credit Commitments, Revolving Loans, Term Commitments and/or Term Loans are included on the Effective Date;

(iv)alter the required application of any repayments or prepayments as between Classes pursuant to Section 2.05 or Section 2.11 without the consent of Requisite Class Lenders of each Class, in any case which is being allocated a different repayment or prepayment as a result thereof; provided the Requisite Lenders may waive, in whole or in part, any prepayment so long as the application, as between Classes, of any portion of such prepayment is still required to be made is not altered and, if additional extensions of term credit under this Agreement consented to by the Requisite Lenders are made, such new term loans may be included on a pro rata basis in the various prepayments required pursuant to Section 2.05 subject to the ordering of prepayments set forth in 2.05(e);

(v)amend, modify, terminate or waive any obligation of the Revolving Lenders relating to the issuance of or purchase of participations in Letters of Credit without the written consent of Administrative Agent and of Issuing Bank;

(vi)amend, modify, terminate or waive any provision of Section 8 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent;

(vii)amend, modify, terminate or waive any provision of any Loan Document specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination to grant any consent thereunder without the written consent of each Lender (or each Lender of such Class, as the case may be);

(viii)expressly amend, modify, supplement or waive any condition precedent in Section 4.02 to any Revolving Credit Borrowing without the written consent of the Requisite Revolving Lenders; or

(ix)increase the maximum duration of Interest Periods hereunder without the consent of all Lenders.

(e)If, in connection with any proposed change, waiver, discharge or termination of or to any of the provisions of this Agreement (other than as contemplated by Section 9.08(c)(i), (iv) and (v) above), the consent of the Requisite Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all Non-Consenting Lenders whose individual consent is required are treated as described in either clause (i) or (ii) below, to either (i) replace each such Non-Consenting Lender or Lenders (or, at the option of the Borrower if the respective Lender’s consent is required with respect to less than all Classes of Loans (or related Commitments), to replace only the Commitments and/or Loans of the respective Non-Consenting Lender that gave rise to the need to obtain such Lender’s individual consent) with one or more assignees

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pursuant to, and with the effect of an assignment under, Section 2.20 so long as at the time of such replacement, each such assignee consents to the proposed change, waiver, discharge or termination or (ii) terminate such Non-Consenting Lender’s Commitment (if such Lender’s consent is required as a result of its Commitment) and/or repay each Class of outstanding Loans of such Lender that gave rise to the need to obtain such Lender’s consent and/or cash collateralize its LC Exposure in accordance with this Agreement; provided that, unless the Commitments that are terminated and Loans that are repaid pursuant to the preceding clause (ii) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to the preceding clause (ii), the Requisite Lenders (determined after giving effect to the proposed action) shall specifically consent thereto. In addition, any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of any Class of Lenders (but not any other Class of Lenders) may be effected by an agreement or agreements in writing entered into by the Borrower and the requisite percentage in interest of the affected Class of Lenders that would be required to consent thereto under this Section 9.08 if such Class of Lenders were the only Class of Lenders hereunder at the time.

(f)Without the consent of any other Person, the Loan Parties and the Administrative Agent and/or Collateral Agent may (in their respective sole discretion, or shall, to the extent required by any Loan Document) enter into any amendment, modification or waiver of any Loan Document, or enter into any new agreement or instrument, to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Secured Parties, or as required by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply with applicable law.

(g)Notwithstanding anything in Section 9.08 to the contrary, this Agreement and the other Loan Documents may be amended at any time, and from time to time, after the Closing Date to increase the aggregate Revolving Credit Commitments and/or to establish additional Term Loans under this Agreement, at the discretion of the Borrower and the Lead Arranger (the “Greenshoe Option”), by an agreement in writing entered into by the Borrower, the Administrative Agent, the Collateral Agent, the Lead Arranger and each Person (including any Lender) that shall agree to provide such Commitment and/or make a Term Loan (and each such Person that shall not already be a Lender shall, at the time such agreement becomes effective, become a Lender with the same effect as if it had originally been a Lender under this Agreement with the Commitment and/or Term Loans set forth in such agreement); provided that (i) the aggregate principal amount of the additional Term Loans and the new Revolving Credit Commitments established pursuant to this paragraph shall not exceed $100,000,000 in the aggregate or a lesser amount in integral multiples of $10.0 million, (ii) no Default or Event of Default shall have occurred and be continuing at the time of such increase, (iii) after giving effect to such increase, the Borrower shall be in compliance with the Financial Covenants, (iv) no Commitment of any Lender shall be increased without the consent of such Lender and (v) if the Term Loans are increased pursuant to the Greenshoe Option, the remaining scheduled payments set forth in Section 2.05(d) shall be increased pro rata and the maturity of such additional Term Loans shall not be any earlier than the then existing Term Loans and (vi) any such additional Term Loans shall be entitled to share in any mandatory or optional prepayments ratably (and not more than ratably) with then existing Term Loans (although any additional Term Loans may be created as a separate tranche). The Loans and Commitments established pursuant to this paragraph shall constitute Loans and Commitments under, and shall be entitled to all the benefits afforded by, this Agreement and the other Loan Documents, and shall, without limiting the foregoing, benefit equally and ratably from the Guarantees and security interests created by the Security Documents.

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SECTION 9.09.Interest Rate Limitation.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively, the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

SECTION 9.10.Entire Agreement.  This Agreement and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents; provided that any letter agreement relating to the subject matter hereof between the Borrower and a Lender shall remain effective in accordance with its terms. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents.

SECTION 9.11.WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (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 WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.

SECTION 9.12.Severability.  In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 9.13.Counterparts.  This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

SECTION 9.14.Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

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SECTION 9.15.Jurisdiction; Consent to Service of Process.  (a)  The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower or its properties in the courts of any jurisdiction.

(b)The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.16.Confidentiality.  No Agent or any Lender may disclose to any Person any confidential, proprietary or non-public information of the Loan Parties furnished to the Agents or the Lenders by the Loan Parties (such information being referred to collectively herein as the “Loan Party Information”), except that each of the Agents and the Lenders may disclose Loan Party Information (i) to its and its Affiliates’ employees, officers, directors, agents, accountants, attorneys, trustees and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Loan Party Information and instructed to keep such Loan Party Information confidential on substantially the same terms as provided herein), (ii) to the extent requested by any regulatory authority, (iii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iv) to any other party to this Agreement, (v) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section 9.16, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (vii) to the extent such Loan Party Information (A) is or becomes generally available to the public on a nonconfidential basis other than as a result of a breach of this Section 9.16 by such Agent or such Lender, or (B) is or becomes available to such Agent or such Lender on a nonconfidential basis from a source other than the Loan Parties and (viii) with the consent of the Loan Parties. Nothing in this provision shall imply that any party has waived any privilege it may have with respect to advice it has received.

SECTION 9.17.Citigroup Direct Website Communications.

(a)Delivery. (i)  Each Loan Party hereby agrees that it will provide to the Administrative Agent all information, documents and other materials that it is obligated to furnish to the Administrative Agent pursuant to this Agreement and any other Loan Document, including, without limitation, all

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notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (A) relates to a request for a new, or a conversion of an existing, Borrowing or other extension of credit (including any election of an interest rate or interest period relating thereto), (B) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (C) provides notice of any Default or Event of Default under this Agreement or (D) is required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any borrowing or other extension of credit hereunder (all such non-excluded communications collectively, the “Communications”), by transmitting the Communications in an electronic/soft medium in a format reasonably acceptable to the Administrative Agent to oploanswebadmin@citigroup.com. In addition, each Loan Party agrees to continue to provide the Communications to the Administrative Agent in the manner specified in this Agreement or any other Loan Document but only to the extent reasonably requested by the Administrative Agent. Nothing in this Section 9.17 shall prejudice the right of the Agents, Syndication Agent, the Documentation Agent, the Lead Arranger or any Lender or any Loan Party to give any notice or other communication pursuant to this Agreement or any other Loan Document in any other manner specified in this Agreement or any other Loan Document.

(ii)The Administrative Agent agrees that receipt of the Communications by the Administrative Agent at its e-mail address set forth above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of the Loan Documents. Each Lender agrees that notice to it (as provided in the next sentence) specifying that the Communications have been posted to the Platform (as defined below) shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender agrees (A) to notify the Administrative Agent in writing (including by electronic communication) from time to time of such Lender’s e-mail address to which the foregoing notice may be sent by electronic transmission and (B) that the foregoing notice may be sent to such e-mail address.

(b)Posting. Each Loan Party further agrees that the Administrative Agent may make the Communications available to the Lenders by posting the Communications on Intralinks or a substantially similar electronic transmission system (the “Platform”).

(c)The Platform is provided “as is” and “as available.”  The Agent Parties (as defined below) do not warrant the accuracy or completeness of the Communications, or the adequacy of the Platform and expressly disclaim liability for errors or omissions in the communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by any Agent Party (as defined below) in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its affiliates or any of their respective officers, directors, employees, agents advisors or representatives (collectively, “Agent Parties”) have any liability to the Loan Parties, any Lender or any other person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any Loan Party’s or the Administrative Agent’s transmission of communications through the internet, except to the extent the liability of any Agent Party is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Agent Party’s gross negligence or willful misconduct.

[Signature Pages Follow]

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

POLYMER GROUP, INC.,
as Borrower
By:
	Name:
	Title:

S-1

CITICORP NORTH AMERICA, INC.,
as Administrative Agent, Documentation Agent,
Collateral Agent and Syndication Agent
By:
	Name:
	Title:

S-2

CITIGROUP GLOBAL MARKETS INC.,
as Lead Arranger
By:
	Name:
	Title

S-3

[LENDER], as Lender
By:
	Name:
	Title:

S-4

EX-10.10

Exhibit 10.10

SECURITY AGREEMENT

By

POLYMER GROUP, INC.

and

THE DOMESTIC SUBSIDIARIES PARTY HERETO,
as Grantors,

and

CITICORP NORTH AMERICA, INC.,
as Collateral Agent

Dated as of November 22, 2005

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
SECTION 1.01.	Uniform Commercial Code Defined Terms	2
SECTION 1.02.	Credit Agreement Defined Terms	2
SECTION 1.03.	Definition of Certain Terms Used Herein	2
SECTION 1.04.	Rules of Construction	8
ARTICLE II
SECURITY INTERESTS
SECTION 2.01.	Security Interests	8
SECTION 2.02.	No Assumption of Liability	8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01.	Title and Authority	8
SECTION 3.02.	Filings	8
SECTION 3.03.	Validity of Security Interests	9
SECTION 3.04.	Limitations on and Absence of Other Liens	9
SECTION 3.05.	Other Actions	10
SECTION 3.06.	Condition and Maintenance of Equipment.	13
SECTION 3.07.	No Conflicts, Consents, etc.	13
ARTICLE IV
COVENANTS
SECTION 4.01.	Change of Name; Location of Collateral; Records; Place of Business	13
SECTION 4.02.	Protection of Security	13
SECTION 4.03.	Further Assurances	14
SECTION 4.04.	Inspection and Verification	14
SECTION 4.05.	Taxes; Encumbrances	14
SECTION 4.06.	Assignment of Security Interest	14
SECTION 4.07.	Continuing Obligations of the Grantors	14
SECTION 4.08.	Use and Disposition of Collateral	14
SECTION 4.09.	Limitation on Modification of Accounts	14
SECTION 4.10.	Insurance	15
SECTION 4.11.	Certain Covenants and Provisions Regarding Patent, Trademark and Copyright Collateral	15

i

ARTICLE V
REMEDIES
SECTION 5.01.	Remedies upon Default	17
SECTION 5.02.	Application of Proceeds	18
SECTION 5.03.	Collateral Agent’s Calculations	19
SECTION 5.04.	Grant of License to Use Intellectual Property	19
ARTICLE VI
COLLATERAL ACCOUNT
SECTION 6.01.	Establishment of Collateral Account	20
SECTION 6.02.	Proceeds of Destruction, Taking and Excluded Asset Sale	20
ARTICLE VII
The Collateral Agent
SECTION 7.01.	General Authority of the Collateral Agent over the Collateral	21
SECTION 7.02.	Exercise of Powers	21
SECTION 7.03.	Remedies Not Exclusive	21
SECTION 7.04.	Waiver and Estoppel	22
SECTION 7.05.	Limitation on Collateral Agent’s Duty in Respect of Collateral	22
SECTION 7.06.	Limitation by Law	22
SECTION 7.07.	Rights of Secured Parties in Respect of Obligations	22
SECTION 7.08.	Compensation and Expenses	23
SECTION 7.09.	Stamp and Other Similar Taxes	23
SECTION 7.10.	Filing Fees, Excise Taxes, etc.	23
SECTION 7.11.	Indemnification	23
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01.	Notices	24
SECTION 8.02.	Survival of Agreement	24
SECTION 8.03.	Binding Effect	24
SECTION 8.04.	Successors and Assigns	24
SECTION 8.05.	GOVERNING LAW	24
SECTION 8.06.	Waivers; Amendment; Several Agreement	24
SECTION 8.07.	WAIVER OF JURY TRIAL	25
SECTION 8.08.	Severability	25
SECTION 8.09.	Counterparts	25
SECTION 8.10.	Headings	25
SECTION 8.11.	Jurisdiction; Consent to Service of Process	25
SECTION 8.12.	Termination	26
SECTION 8.13.	Additional Grantors	26
SECTION 8.14.	Financing Statements	27
SECTION 8.15.	No Deemed Dividend.	27

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SECTION 8.16.	Collateral Agent Appointed Attorney-in-Fact	27
SCHEDULES
Schedule I	Domestic Subsidiaries
ANNEXES
Annex I	Form of Joinder Agreement
Annex II	Form of Perfection Certificate
Annex III	Form of Bailee Letter

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SECURITY AGREEMENT

SECURITY AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) dated as of November 22, 2005 among POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), each Domestic Subsidiary of the Borrower listed on Schedule I hereto (collectively, together with each Domestic Subsidiary that becomes a party hereto pursuant to Section 8.13 of this Agreement, the “Subsidiary Guarantors” and, together with the Borrower, the “Grantors”), and CITICORP NORTH AMERICA, INC. (in such capacity, the “Collateral Agent”) on behalf of the Secured Parties (as defined in the Credit Agreement) pursuant to the Credit Agreement (as hereinafter defined), as pledgee, assignee and secured party.

RECITALS

A.The Borrower, the Collateral Agent, Citicorp North America, Inc., as administrative agent  (in such capacity and together with any successors in such capacity, the “Administrative Agent”) for the Lenders (as defined herein), as documentation agent (in such capacity, the “Documentation Agent”) and as syndication agent (in such capacity, the “Syndication Agent”), and Citigroup Global Markets Inc. (“CGMI”), as sole lead arranger and sole bookrunner (in such capacity, the “Lead Arranger”), and the lending institutions from time to time party thereto (the “Lenders”) have, in connection with the execution and delivery of this Agreement, entered into that certain credit agreement, dated as of the date hereof (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), providing for the making of Loans to the Borrower and the issuance of and participations in Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement.

B.Each Subsidiary Guarantor has, pursuant to the Guarantee Agreement, dated as of the date hereof, among other things, unconditionally guaranteed the obligations of the Borrower under the Credit Agreement.

C.The Borrower and each Subsidiary Guarantor will receive substantial benefits from the execution, delivery and performance of the obligations under the Credit Agreement and is, therefore, willing to enter into this Agreement.

D.It is contemplated that, to the extent permitted by the Credit Agreement, one or more of the Grantors may enter into one or more Hedging Agreements with one or more Persons that were Lenders or Affiliates of a Lender at the time such Hedging Agreements were entered into  (collectively, the “Hedging Exchangers”) fixing interest rates relating to the Loans.

E.Contemporaneously with the execution and delivery of this Agreement, the Borrower and certain Subsidiary Guarantors have executed and delivered to the Collateral Agent a Pledge Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Pledge Agreement”).

F.This Agreement is given by each Grantor in favor of the Collateral Agent for the benefit of the Secured Parties (as hereinafter defined) to secure the payment and performance of all of the Obligations (as hereinafter defined).

NOW THEREFORE, in consideration of the foregoing and other benefits accruing each Grantor, the receipt and sufficiency of which are hereby acknowledged, each Grantor hereby makes the following

representations and warranties to the Collateral Agent for the benefit of the Secured Parties (and each of their respective successors and assigns), as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01.Uniform Commercial Code Defined Terms. Unless otherwise defined herein, terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC, including the following which are capitalized herein:

“Accounts”; “Bank”; “Certificates of Title”; “Chattel Paper”; “Commercial Tort Claim”; “Commodity Account”; “Commodity Contract”; “Commodity Intermediary”; “Deposit Accounts”; “Documents”; “Electronic Chattel Paper”; “Entitlement Order”; “Equipment”; “Fixtures”; “Goods”; “Instruments” (as defined in Article 9 rather than Article 3); “Inventory”; “Investment Property”; “Letter-of-Credit Rights”; “Letters of Credit”; “Securities Account”; “Securities Intermediary”; “Security Entitlement”; “Supporting Obligations”; and “Tangible Chattel Paper”.

SECTION 1.02.Credit Agreement Defined Terms. Capitalized terms used but not otherwise defined herein that are defined in the Credit Agreement shall have the meanings given to them in the Credit Agreement.

SECTION 1.03.Definition of Certain Terms Used Herein. As used herein, the following terms shall have the following meanings:

“Account Debtor” shall mean any Person who is or who may become obligated to any Grantor under, with respect to or on account of an Account.

“Accounts Receivable” shall mean all Accounts and all right, title and interest in any returned goods, together with all rights, titles, securities and guarantees with respect thereto, including any rights to stoppage in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary, in each case whether now existing or owned or hereafter arising or acquired.

“Bailee Letter” shall mean an agreement in form substantially similar to Annex III hereto.

“Books and Records” shall mean all instruments, files, records, ledger sheets and documents evidencing, covering or relating to any of the Collateral.

“Borrower” shall have the meaning assigned to such term in the preamble of this Agreement.

“Charges” shall mean any and all property and other taxes, assessments and special assessments, levies, fees and all governmental charges imposed upon or assessed against, and all claims (including, without limitation, landlords’, carriers’, mechanics’, maritime, workmen’s, repairmen’s, laborers’, materialmen’s, suppliers’ and warehousemen’s Liens and other claims arising by operation of law) against, all or any portion of the Collateral.

“Collateral” shall mean with respect to each of the Grantors all of the following, in each case, whether now owned or hereafter acquired:

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(a)Accounts Receivable;

(b)Books and Records;

(c)cash and Deposit Accounts;

(d)Chattel Paper;

(e)Collateral Account and Collateral Account Funds;

(f)Commercial Tort Claims described on Schedule 15 to the Perfection Certificate;

(g)Documents;

(h)Equipment;

(i)Fixtures;

(j)General Intangibles;

(k)Goods;

(l)Instruments;

(m)Inventory;

(n)Investment Property;

(o)Letter-of-Credit Rights;

(p)Letters of Credit;

(q)Supporting Obligations;

(r)Intellectual Property;

(s)to the extent not covered by clauses (a) through (r) of this definition, all other personal property, whether tangible or intangible; and

(s)Proceeds of any and all of the foregoing;

provided that, for purposes of this Agreement, “Collateral” shall not include any Excluded Property.

“Collateral Account” shall mean that collateral account established pursuant to Section 6.01 of this Agreement.

“Collateral Account Funds” shall mean, collectively, the following from time to time on deposit in the Collateral Account:  all funds, investments (including, without limitation, all Permitted Investments) and all certificates and instruments from time to time representing or evidencing such investments; all notes, certificates of deposit, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Collateral Agent for or on behalf of any Grantor in substitution for, or in addition to, any or all of the Collateral; and all interest, dividends, cash, instruments and other property from

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time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the items constituting Collateral.

“Collateral Agent” shall have the meaning assigned to such term in the preamble of this Agreement.

“Collateral Agent Fees” shall mean all fees, costs and expenses of the Collateral Agent of thetypes described inSections 7.08, 7.09, 7.10 and 7.11.

“Collateral Estate” shall have the meaning assigned in Section 7.01(c).

“Control” shall mean (i) in the case of each Deposit Account, “control,” as such term is defined in Section 9-104 of the UCC, (ii) in the case of any Security Entitlement, “control,” as such term is defined in Section 8-106(d) of the UCC, and (iii) in the case of any Commodity Contract, “control,” as such term is defined in Section 9-106(b) of the UCC.

“Control Agreement” shall mean an agreement in form and substance reasonably acceptable to the Collateral Agent for the purpose of effecting Control with respect to any Deposit Account, Securities Account or Commodity Account.

“Copyright License” shall mean each written agreement, now or hereafter in effect, granting any right to any third party under any Copyright now or hereafter owned by any Grantor or which such Grantor otherwise has the right to license, or granting any right to such Grantor under any Copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement.

“Copyrights” shall mean, collectively, with respect to each Grantor, all copyrights (whether statutory or common law, whether established or registered in the United States by a Grantor or established or registered in any other country or any political subdivision thereof by a Grantor if the beneficial interest is owned by such Grantor, whether registered or unregistered and whether published or unpublished) and all copyright registrations and applications made by such Grantor, in each case, whether now owned or hereafter created or acquired by or assigned to such Grantor, including, without limitation, the copyrights, registrations and applications listed in Schedule 14(b) of the Perfection Certificate, together with any and all (i) rights and privileges arising under applicable law with respect to such Grantor’s use of such copyrights, (ii) reissues, renewals, continuations and extensions thereof, (iii) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable with respect thereto, including, without limitation, damages and payments for past, present or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v) rights to sue for past, present or future infringements thereof.

“Credit Agreement” shall have the meaning assigned to such term in the Recitals of this Agreement.

“Distribution Date” shall mean each date fixed by the Collateral Agent in its sole discretion for a distribution to the Secured Parties of funds held in the Collateral Account.

“Exchange Rate” shall mean,at any date of determination thereof with respect to any currency, the spot rate of exchange for the conversion of such currency into dollars determined by reference to such rate publishing service as is customarily utilized by the Collateral Agent for such purpose; provided that, to the extent that “Exchange Rate” is used herein to refer to an actual exchange by the Collateral Agent of one currency for another, “Exchange Rate” shall be deemed to refer to the rate at which such exchange actually occurs so long as such exchange is effected under customary market conditions. Any such determination of the Exchange Rate shall be conclusive absent manifest error.

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“Excluded Account” shall mean (i) any petty cash Deposit Account, opened by any Grantor; provided that average daily balance during any ten day period of any such excluded petty cash Deposit Account, when aggregated with the average daily balance during any ten day period of all other excluded petty cash Deposit Accounts shall not exceed $100,000 and (ii) any Deposit Account used solely for payroll taxes or employee related benefit accounts.

“Excluded Property” shall mean:

(a)any permit, lease or license, or the assets (owned by a Person other than a Loan Party) subject thereto or covered thereby, held by any Grantor that validly prohibits the creation by such Grantor of a security interest therein or thereon (other than to the extent that any such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity);

(b)any permit, lease or license, or the assets (owned by a Person other than a Loan Party) subject thereto or covered thereby, held by any Grantor to the extent that any Requirement of Law applicable thereto prohibits the creation of a security interest therein or thereon (other than to the extent that any such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity);

(c)goods owned by any Grantor on the date hereof or hereafter acquired that are subject to a Lien securing a purchase money obligation or Capital Lease Obligation permitted to be incurred pursuant to the provisions of Section 6.01(vii) of the Credit Agreement if the contract or other agreement in which such Lien is granted (or the documentation providing for such purchase money obligation or Capital Lease Obligation) validly prohibits the creation of any other Lien on such Goods;

(d)any Intellectual Property Collateral, including without limitation, intent-to-use trademark applications, for which the creation by a Grantor of a security interest therein is prohibited (i) without the consent of third party, (ii) by Requirement of Law, or (iii) would otherwise result in the loss by any Loan Party of any material rights therein (other than to the extent that any such prohibition would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity);

(e)Securities Collateral (as defined in the Pledge Agreement);

(f)any Equity Interests pledged pursuant to any Non-U.S. Pledge Agreement; and

(g)Equity Interests in PGI Nonwovens, B.V. held by Chicopee Holdings, B.V. on the date hereof;

provided that the term “Excluded Property” shall not include any Proceeds, substitutions or replacements of any Excluded Property (unless such Proceeds, substitutions or replacements would constitute Excluded Property).

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“General Intangibles” shall mean, collectively, all “general intangibles,” as such term is defined in the UCC, and in any event shall include, without limitation, all choses in action and causes of action and all other intangible personal property of any Grantor of every kind and nature now owned or hereafter acquired by any Grantor, including all rights and interests in partnerships, limited partnerships, limited liability companies and other unincorporated entities, corporate or other business records, indemnification claims, contract rights (including rights under leases, whether entered into as lessor or lessee, Hedging Agreements and other agreements), Intellectual Property, goodwill, registrations, franchises and tax refund claims.

“Grantors” shall have the meaning assigned to such term in the preamble of this Agreement.

“Hedging Exchangers” shall have the meaning assigned to such term in the Recitals of this Agreement.

“Intellectual Property” shall mean all intellectual and similar property of any Grantor of every kind and nature now owned in the United States by a Grantor, or with respect to any country other than the United States, established, registered or recorded by a Grantor and beneficially owned by such Grantor, or hereafter acquired by any Grantor, including inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof and related documentation, registrations and franchises, and all additions, improvements and accessions to, and books and records describing or used in connection with, any of the foregoing.

“Lenders” shall have the meaning assigned to such term in the Recitals of this Agreement.

“License” shall mean any Patent License, Trademark License, Copyright License or other license or sublicense to which any Grantor is a party, including, without limitation, those listed on Schedules 14(a) and 14(b) of the Perfection Certificate (other than those license agreements in existence on the date hereof and listed on Schedules 14(a) and 14(b) of the Perfection Certificate).

“Patent License” shall mean any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a Patent, now or hereafter owned by any Grantor or which any Grantor otherwise has the right to license, is in existence, or granting to any Grantor any right to make, use or sell any invention on which a Patent, now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement.

“Patents” shall mean all of the following now owned in the United States by a Grantor, or with respect to any country other than the United States, registered or recorded by a Grantor and beneficially owned by such Grantor, or hereafter acquired by any Grantor:  (a) all patents and all applications for patent of the United States or any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any other country, including those listed on Schedule 14(a) of the Perfection Certificate, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein.

“Perfection Certificate” shall mean a certificate substantially in the form of Annex II hereto, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by the Grantors.

“Pledge Agreement” shall have the meaning assigned to such term in the Recitals of this Agreement.

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“Pledged Securities” shall have the meaning assigned to such term in the Pledge Agreement and shall include Equity Interests pledged pursuant to Non-U.S. Pledge Agreements; provided, however, that Pledged Securities shall not include the pledge of Equity Interests in PGI Nonwovens B.V. held by Chicopee Holdings, B.V. on the date hereof.

“Proceeds” shall mean, collectively, all “proceeds,” as such term is defined in the UCC, and in any event shall include, without limitation, any consideration received from the sale, exchange, license, lease or other disposition of any asset or property that constitutes Collateral, any payment received from any insurer or other Person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property that constitutes Collateral, and shall include (a) all cash and negotiable instruments received by or held on behalf of the Collateral Agent, (b) any claim of any Grantor against any third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (i) past, present or future infringement of any Patent now or hereafter owned by any Grantor, or licensed under a Patent License, (ii) past, present or future infringement or dilution of any Trademark now or hereafter owned by any Grantor or licensed under a Trademark License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter owned by any Grantor, (iii) past, present or future breach of any License and (iv) past, present or future infringement of any Copyright now or hereafter owned by any Grantor or licensed under a Copyright License and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

“Security Interests” shall have the meaning assigned to such term in Section 2.01.

“Subsidiary Guarantors” shall have the meaning assigned to such term in the preamble of this Agreement.

“Trademark License” shall mean any written agreement, now or hereafter in effect, granting to any third party any right to use any Trademark now or hereafter owned by any Grantor or that any Grantor otherwise has the right to license, or granting to any Grantor any right to use any Trademark now or hereafter owned by any third party, and all rights of any Grantor under any such agreement.

“Trademarks” shall mean all of the following now owned in the United States by a Grantor, or with respect to any country other than the United States, registered or recorded by a Grantor and beneficially owned by such Grantor, or hereafter acquired by any Grantor:  (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office, any State of the United States or any similar offices in any other country or any political subdivision thereof, and all extensions or renewals thereof, including those listed on Schedule 14(a) of the Perfection Certificate, (b) all goodwill associated therewith or symbolized thereby and (c) all other assets, rights and interests that uniquely reflect or embody such goodwill.

“UCC” shall mean the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided, however, that if by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of either Collateral Agent’s and the Secured Parties’ security interest in any item or portion of the Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect on the date hereof in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions relating to such provisions.

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SECTION 1.04Rules of Construction. Unless the context otherwise requires:

(1)a term has the meaning assigned to it;

(2)an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

(3)“or” is not exclusive;

(4)words in the singular include the plural, and in the plural include the singular; or

(5)provisions apply to successive events and transactions.

ARTICLE II

SECURITY INTERESTS

SECTION 2.01.Security Interests. It being expressly understood and agreed that the security interests granted herein for the benefit of the Collateral Agent on behalf of the Secured Parties shall be subject to the terms of the Credit Agreement, as collateral security for the payment and performance in full of all the Obligations, each Grantor hereby pledges and grants to the Collateral Agent, for the benefit of the Secured Parties, a lien on and security interest in and to all of the right, title and interest of such Grantor in, to and under the Collateral.

The Liens granted hereunder to secure the Obligations are collectively referred to herein as the “Security Interests”.

SECTION 2.02.No Assumption of Liability. The Security Interests are granted as security only and shall not subject the Collateral Agent or any other Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Collateral.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Grantors jointly and severally represent and warrant to the Collateral Agent and the Secured Parties that:

SECTION 3.01.Title and Authority. Each Grantor has good and valid rights in and title to the Collateral with respect to which it has purported to grant a Security Interest hereunder and has full power and authority to grant to the Collateral Agent the Security Interest in such Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other Person other than any consent or approval which has been obtained.

SECTION 3.02.Filings. (a)  All information set forth herein as of the date hereof and in the Perfection Certificate (as of the latest date such document is required to be updated), including the Schedules annexed hereto and thereto, has been duly prepared, completed and executed and the information set forth herein and therein is correct and complete in all material respects. Except with regard to foreign Intellectual Property, the Collateral described on the Schedules annexed to the Perfection Certificate constitutes all of the property of such type of Collateral owned or held by the Grantors to the extent required to be scheduled thereon. Fully completed UCC financing statements (including fixture filings, as applicable)

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or other appropriate filings, recordings or registrations containing a description of the Collateral have been delivered to the Collateral Agent for filing in each governmental, municipal or other office specified in Schedule 7 to the Perfection Certificate, which, except with regard to (i) foreign Intellectual Property and (ii) collateral located outside the United States, are all the filings, recordings and registrations that are necessary to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the benefit of the Secured Parties) in respect of all Collateral in which a security interest may be perfected by filing, recording or registration under Article 9 of the UCC in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration under Article 9 of the UCC is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements.

(b)Each Grantor represents and warrants that fully executed security agreements in the form hereof (or short form security agreements) containing a description of all Collateral consisting of Intellectual Property with respect to United States Patents, United States registered Trademarks (and Trademarks for which United States registration applications are pending) have been delivered to the Collateral Agent for registration with the United States Patent and Trademark Office pursuant to 35 U.S.C. § 261 or 17 U.S.C. § 205 and the regulations thereunder, as applicable, and otherwise as may be required pursuant to the laws of any other necessary jurisdiction to protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent for the benefit of the Secured Parties in respect of all Collateral consisting of Patents and Trademarks in which a security interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and, except with regard to foreign Intellectual Property, no further or subsequent filing, refiling, recording, prerecording, registration or preregistration is necessary (other than such actions as are necessary to perfect the Security Interest with respect to any Collateral consisting of Patents, Trademarks and Copyrights (or registration or application for registration thereof) acquired or developed after the date hereof).

SECTION 3.03.Validity of Security Interests. The Security Interests constitute (a)  legal and valid security interests under New York law in all the Collateral securing the payment and performance of the Obligations, (b) subject to the filings described in Section 3.02 above, perfected security interests in all Collateral in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the UCC in such jurisdictions, (c)  security interests that shall be perfected in all Collateral in which a security interest may be perfected upon the receipt and registering and recording of this Agreement or a short form security agreement with the United States Patent and Trademark Office, and (d)  perfected security interests in all Collateral in which a security interest may be perfected by possession or control by the Collateral Agent, in each case, to the extent required pursuant to the provisions hereof. The Security Interests are and shall be prior to any other Lien on any of the Collateral, other than Permitted Liens.

SECTION 3.04.Limitations on and Absence of Other Liens. The Collateral is owned by the Grantors or the Grantors have rights therein, free and clear of any Lien, except for Permitted Liens. The Grantors have not filed or consented to the filing of (a) any financing statement or analogous document under the UCC or any other applicable laws covering any Collateral, (b) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with the United States Patent and Trademark Office and the United States Copyright Office or (c) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, for Permitted Liens or dispositions permitted by the Credit Agreement.

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SECTION 3.05.Other Actions. In order to further ensure the attachment, perfection and priority of, and the ability of the Collateral Agent to enforce, the Collateral Agent’s security interests in the Collateral, each Grantor agrees, in each case at such Grantor’s own expense, to take the following actions with respect to the following Collateral:

(a)Instruments and Tangible Chattel Paper. As of the date hereof, each Instrument and each item of Tangible Chattel Paper specified in Schedule 13 to the Perfection Certificate valued in excess of $500,000 has been properly endorsed, assigned and delivered to the Collateral Agent, and, if necessary, accompanied by instruments of transfer or assignment duly executed in blank. If any amount individually or in the aggregate in excess of $500,000 payable under or in connection with any of the Collateral shall be evidenced by any Instrument or Tangible Chattel Paper, the Grantor acquiring such Instrument or Tangible Chattel Paper shall, on a quarterly basis, notify the Collateral Agent and promptly endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time reasonably request; provided, however, that so long as no Event of Default shall have occurred and be continuing, the Collateral Agent shall return such Instrument or Tangible Chattel Paper to such Grantor from time to time, to the extent necessary for collection in the ordinary course of such Grantor’s business.

(b)Deposit Accounts. Each Grantor hereby represents and warrants that (i) it has neither opened nor maintains any Deposit Accounts other than the accounts listed in Schedule 16 of the Perfection Certificate as supplemented from time to time and (ii) the Collateral Agent has a perfected security interest in each Deposit Account, other than any Excluded Accounts, by Control. No Grantor shall hereafter establish and maintain any Deposit Account, other than an Excluded Account, unless (1) the applicable Grantor shall have given the Collateral Agent 10 days’ prior written notice (or such shorter period as the Collateral Agent shall agree to) of its intention to establish such new Deposit Account with a Bank, and (2) such Bank and such Grantor shall have duly executed and delivered to the Collateral Agent a Control Agreement with respect to such Deposit Account. The Collateral Agent agrees with each Grantor that the Collateral Agent shall not give any instructions directing the disposition of funds from time to time credited to any Deposit Account or withhold any withdrawal rights from such Grantor with respect to funds from time to time credited to any Deposit Account unless an Event of Default of the type specified in Section 7.01(a) of the Credit Agreement has occurred and is continuing or upon the occurrence of the Loans or other Obligations becoming declared immediately due and payable and/or the Commitments being declared terminated. Upon cure or waiver of all Events of Default, the Collateral Agent shall promptly notify the relevant Bank(s) that the applicable Loan Party may withdraw funds from the relevant Deposit Account(s). No Grantor shall grant Control of any Deposit Account to any Person other than the Collateral Agent.

Notwithstanding the provisions of the immediately preceding paragraph, each Grantor will not be required to enter into Control Agreements, subject to the conditions set forth in this paragraph, with respect to the following Deposit Accounts:  (i) any Deposit Accounts used to fund petty cash expenditures to the extent such accounts do not hold greater than $30,000 at any time; (ii) any Deposit Accounts used solely to fund payroll disbursements to employees; (iii) the Deposit Account held at Wachovia (Acct no: 2000003339970) to the extent such account does not hold over $30,000 at any one time; (iv) the Deposit Account held at Wachovia (Acct no: 6728001483) to the extent such account does not hold over $30,000 for any consecutive five Business Days; (v) the Deposit Accounts held at JP Morgan Chase Bank - - Hong Kong Branch and identified on the Perfection Certificate on the date hereof, to the extent that these accounts do not hold over $2,000,000 (or the U.S. dollar equivalent thereof at the then prevailing rates of foreign exchange), in the aggregate, at any time; (vi) the Deposit Account held at The Fuji Bank, Ltd.

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and identified on the Perfection Certificate on the date hereof, to the extent that this account does not hold over $30,000 (or the U.S. dollar equivalent thereof at the then prevailing rates of foreign exchange) at any time; (vii) the Deposit Accounts held at Bank of Nova Scotia and identified on the Perfection Certificate as amended on the Amendment Effectiveness Date, to the extent that all funds held in these accounts are deposited bi-weekly pursuant to an agreement which is reasonably satisfactory to the Collateral Agent into a Deposit Account subject to a Control Agreement in favor of the Collateral Agent; and (viii) any Deposit Account held at the Collateral Agent. The Grantors shall use their Deposit Accounts in accordance with past practices and shall not manipulate the balances in any of their Deposit Accounts solely to ensure that the balances in the Deposit Accounts meet the limits set forth in the foregoing clauses (i), (iii), (iv) and (vi).

(c)Investment Property. (i)  Each Grantor hereby represents and warrants that (1) it has neither opened nor maintains any Securities Accounts or Commodity Accounts other than those listed in Schedule 16 of the Perfection Certificate and the Collateral Agent has a perfected first priority security interest in such Securities Accounts and Commodity Accounts by Control and (2) it does not hold, own or have any interest in any certificated securities or uncertificated securities other than those constituting Securities Collateral under the Pledge Agreement and those maintained in Securities Accounts or Commodity Accounts listed in Schedule 16 of the Perfection Certificate. If any Grantor shall at any time hold or acquire any certificated securities constituting Investment Property valued in excess of $500,000 that are not Pledged Securities under the Pledge Agreement, such Grantor shall immediately endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank, all in form and substance reasonably satisfactory to the Collateral Agent; provided that in no event shall such Grantor be required to pledge more than 65% of the voting stock of any non-U.S. Subsidiary. If any securities now or hereafter acquired by any Grantor constituting Investment Property that are not Pledged Securities are uncertificated, such Grantor shall promptly notify each Collateral Agent thereof and use its commercially reasonable efforts to, within five (5) Business Days and in any event no later than 30 days (except where legally prohibited therefrom), pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent, either (at such Grantor’s option) (a) cause the issuer to agree to comply with instructions from the Collateral Agent as to such securities, without further consent of any Grantor, or (b) arrange for the Collateral Agent to become the registered owner of the securities. No Grantor shall hereafter establish and maintain any Securities Account or Commodity Account with any Securities Intermediary or Commodity Intermediary unless (1) the applicable Grantor shall have given the Collateral Agent 10 days’ prior written notice of its intention to establish such new Securities Account or Commodity Account with such Securities Intermediary or Commodity Intermediary and (2) such Securities Intermediary or Commodity Intermediary, as the case may be, and such Grantor shall have duly executed and delivered to the Collateral Agent a Control Agreement with respect to such Securities Account or Commodity Account, as the case may be. Each Grantor shall accept any cash and Investment Property (not subject to the Pledge Agreement or Non-U.S. Pledge Agreements) in trust for the benefit of the Collateral Agent and within five (5) Business Days of actual receipt thereof, deposit such Investment Property and any new securities, instruments, documents or other Investment Property by reason of ownership of such Investment Property received by it into a Securities Account or Commodity Account subject to a Control Agreement in favor of the Collateral Agent. The Collateral Agent agrees with each Grantor that the Collateral Agent shall not give any Entitlement Orders or instructions or directions to any issuer of uncertificated securities, Securities Intermediary or Commodity Intermediary, and shall not withhold its consent to the exercise of any withdrawal or dealing rights by such Grantor, unless an Event of Default has occurred and is continuing. Upon cure or waiver of all Events of Default, the Collateral Agent shall promptly notify the relevant Securities Intermediary or Commodities Intermediary that the applicable Grantor may withdraw funds from the relevant Securities

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Accounts or Commodities Accounts. No Grantor shall grant control over any Investment Property to any Person other than the Collateral Agent. Notwithstanding the foregoing, the “Collateral Investment Account” as identified on Schedule 16 of the Perfection Certificate need not be subject to a Control Agreement for a period not to exceed thirty days from the date hereof.

(ii)Each Grantor shall promptly pay all Charges and fees with respect to the Investment Property pledged by it under this Agreement, other than any Charges and fees constituting Liens permitted by Section 6.02(iii) of the Credit Agreement. In the event any Grantor shall fail to make such payment contemplated in the immediately preceding sentence, the Collateral Agent may upon notice to such Grantor, do so for the account of such Grantor and the Grantors shall promptly reimburse and indemnify the Collateral Agent from all reasonable costs and expenses incurred by the Collateral Agent under this Section 3.05(c).

(d)Electronic Chattel Paper and Transferable Records. If any amount individually or in the aggregate in excess of $500,000 payable under or in connection with any of the Collateral shall be evidenced by any Electronic Chattel Paper or any “transferable record,” as that term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, the Grantor acquiring such Electronic Chattel Paper or transferable record shall, on a quarterly basis, notify the Collateral Agent and shall, promptly, take such action as the Collateral Agent may reasonably request to vest in the Collateral Agent control under UCC Section 9-105 of such Electronic Chattel Paper or control under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The Collateral Agent agrees with such Grantor that the Collateral Agent will arrange, pursuant to procedures reasonably satisfactory to the Collateral Agent and so long as such procedures will not result in the Collateral Agent’s loss of control, for the Grantor to make alterations to the Electronic Chattel Paper or transferable record permitted under UCC Section 9-105 or, as the case may be, Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in control to allow without loss of control, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Grantor with respect to such Electronic Chattel Paper or transferable record.

(e)Letter-of-Credit Rights. If any Grantor is at any time a beneficiary under a Letter of Credit now or hereafter issued in favor of such Grantor in an amount individually in excess of $100,000 or in the aggregate in excess of $500,000, such Grantor shall notify the Collateral Agent on a quarterly basis thereof and such Grantor shall promptly, use commercially reasonable efforts to either (at the option of such Grantor) (i) arrange for the issuer and any confirmer of such Letter of Credit to consent to an assignment to the Collateral Agent of the proceeds of any drawing under the Letter of Credit or (ii) arrange for the Collateral Agent to become the transferee beneficiary of such Letter of Credit in each case, pursuant to an agreement in form and substance reasonably satisfactory to the Collateral Agent.

(f)Commercial Tort Claims. As of the date hereof each Grantor hereby represents and warrants that it holds no Commercial Tort Claims other than those listed in Schedule 15 to the Perfection Certificate (as supplemented from time to time). If any Grantor shall at any time hold or acquire a Commercial Tort Claim having a value individually or in the aggregate in excess of $500,000, such Grantor shall promptly notify the Collateral Agent in writing signed by such Grantor of the brief details thereof and grant to the Collateral Agent in such writing a security

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interest therein and in the Proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Collateral Agent.

(g)Motor Vehicles. Upon the reasonable request of the Collateral Agent, each Grantor shall deliver to the Collateral Agent originals of the certificates of title or ownership for the motor vehicles (and any other Equipment covered by Certificates of Title or ownership) owned by it with the Collateral Agent listed as a lienholder therein. Such requirement shall apply to the Grantors if any such motor vehicle (or any such other Equipment) is valued over $50,000, provided that the value of all such motor vehicles (and such Equipment) as to which any Grantor has not delivered a Certificate of Title or ownership is over $500,000.

(h)Landlord’s Access Agreements/Bailee Letters. Each Grantor shall use its commercially reasonable efforts to obtain a Bailee Letter or a Landlord Access Agreement, as applicable, from all such bailees and landlords, as applicable, who from time to time have possession of Collateral in excess of $100,000.

SECTION 3.06.Condition and Maintenance of Equipment.The Equipment of such Grantor is in good repair, working order and condition, reasonable wear and tear, casualty and condemnation excepted. Except as determined by such Grantor’s commercially reasonable business judgment, each Grantor shall cause the Equipment to be maintained and preserved in good repair, working order and condition, reasonable wear and tear excepted, and shall as quickly as commercially reasonably practicable make or cause to be made all repairs, replacements and other improvements which are necessary or appropriate in the conduct of such Grantor’s business.

SECTION 3.07.No Conflicts, Consents, etc.In the event that the Collateral Agent desires to exercise any remedies, voting or consensual rights or attorney-in-fact powers set forth in this Agreement and determines it necessary to obtain any approvals or consents of any Governmental Authority or any other Person therefor, then, upon the reasonable request of the Collateral Agent, such Grantor agrees to use its commercially reasonable efforts to assist and aid the Collateral Agent to obtain as soon as practicable any necessary approvals or consents for the exercise of any such remedies, rights and powers.

ARTICLE IV

COVENANTS

SECTION 4.01.Change of Name; Location of Collateral; Records; Place of Business. (a)  Each Grantor shall comply with the provisions of Section 5.07 of the Credit Agreement.

(b)Each Grantor agrees to maintain, at its own cost and expense, records which are complete and accurate in all material respects with respect to the Collateral owned by it as is consistent with its current practices and, at such time or times as the Collateral Agent may reasonably request, promptly to prepare and deliver to the Collateral Agent a duly certified schedule or schedules in form and detail reasonably satisfactory to the Collateral Agent showing the identity, amount and location of any and all Collateral.

SECTION 4.02.Protection of Security. Except as determined by such Grantor’s commercially reasonable business judgment, each Grantor shall, at its own cost and expense, take any and all actions necessary and reasonable to defend title to the Collateral against all Persons and to defend the Security Interests of the Collateral Agent in the Collateral and the priority thereof against any Lien other than Permitted Liens.

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SECTION 4.03.Further Assurances. Each Grantor agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Collateral Agent may from time to time reasonably request to preserve, protect and perfect the Security Interests and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the Security Interests and the filing of any financing statements (including fixture filings) or other documents in connection herewith or therewith.

SECTION 4.04.Inspection and Verification. The Collateral Agent and its representatives as the Collateral Agent may reasonably designate shall have the right, at the Grantors’ own cost and expense, to at all reasonable times and intervals and upon reasonable prior notice inspect the Collateral, all records related thereto (and to make extracts and copies from such records) and the premises upon which any of the Collateral is located in each case during business hours. The Collateral Agent shall have the absolute right to share any information it gains from such inspection or verification with any Secured Party (subject to Section 9.16 of the Credit Agreement).

SECTION 4.05.Taxes; Encumbrances. At its option, the Collateral Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Collateral except to the extent the same constitute Permitted Liens, and may pay for the maintenance and preservation of the Collateral to the extent any Grantor fails to do so as required by this Agreement (in each case with reasonable prior written notice to such Grantor), and each Grantor jointly and severally agrees to reimburse the Collateral Agent within 15 days of written demand for any payment made or any expense incurred by the Collateral Agent pursuant to the foregoing authorization; provided, however, that nothing in this Section 4.05 shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents.

SECTION 4.06.Assignment of Security Interest. If at any time any Grantor shall take a security interest in any property of an Account Debtor or any other Person to secure payment and performance of an Account valued in excess of $500,000, such Grantor shall promptly assign such security interest to the Collateral Agent. Such assignment need not be filed of public record unless necessary to continue the perfected status of the security interest against creditors of and transferees from the Account Debtor or other Person granting the security interest.

SECTION 4.07.Continuing Obligations of the Grantors. Each Grantor shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each contract, agreement or instrument relating to the Collateral, all in accordance with the terms and conditions thereof, and each Grantor jointly and severally agrees to indemnify and hold harmless the Collateral Agent and the Secured Parties from and against any and all liability for such performance unless finally judicially determined to have arisen from the gross negligence, bad faith or willful misconduct of the indemnified party.

SECTION 4.08.Use and Disposition of Collateral. None of the Grantors shall make or permit to be made an assignment for security, pledge or hypothecation of the Collateral or shall grant any other Lien in respect of the Collateral other than Liens securing the Obligations and Permitted Liens.

SECTION 4.09.Limitation on Modification of Accounts. None of the Grantors will, without the Collateral Agent’s prior written consent, grant any extension of the time of payment of any of the Accounts Receivable, compromise, compound or settle the same for less than the full amount thereof, release,

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wholly or partly, any Person liable for the payment thereof or allow any credit or discount whatsoever thereon, other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business and consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which such Grantor is engaged.

SECTION 4.10.Insurance. The Grantors, at their own expense, shall maintain or cause to be maintained insurance covering physical loss or damage to the Inventory and Equipment in accordance with Section 5.04 of the Credit Agreement. Each Grantor irrevocably makes, constitutes and appoints the Collateral Agent (and all officers, employees or agents designated by the Collateral Agent) as such Grantor’s true and lawful agent (and attorney-in-fact) for the purpose, during the continuance of an Event of Default, of making, settling and adjusting claims in respect of Collateral under policies of insurance, endorsing the name of such Grantor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect thereto. In the event that any Grantor at any time or times shall fail to obtain or maintain any of the policies of insurance required hereby or to pay any premium in whole or part relating thereto, the Collateral Agent may, without waiving or releasing any obligation or liability of the Grantors hereunder or any Event of Default, in its reasonable discretion and upon prior notice to the Grantors obtain and maintain such policies of insurance and pay such premium and take any other actions with respect thereto as the Collateral Agent deems reasonably advisable. All sums disbursed by the Collateral Agent in connection with this Section 4.10, including reasonable attorneys’ fees, court costs, out-of-pocket expenses and other charges relating thereto, shall be payable, upon written demand, by the Grantors to the Collateral Agent and shall be additional Obligations secured hereby in the same priority as the original Obligations. So long as no Event of Default has occurred and is continuing, all actions to be taken with respect to the making, settling and adjusting of claims under insurance policies may be taken by the Grantors without any requirement of participation or consent from the Collateral Agent and all proceeds received from any insurance with respect to any claim may be paid directly to the applicable Grantor to be applied in accordance with the provisions of Section 6.02 hereof.

SECTION 4.11.Certain Covenants and Provisions Regarding Patent, Trademark and Copyright Collateral. (a)  Except as determined by such Grantor’s reasonable business judgment, each Grantor agrees that it will not, nor will it permit any of its licensees to, do any act, or omit to do any act, whereby any Patent which is material to the conduct of such Grantor’s business may become invalidated or dedicated to the public, and agrees that it shall continue to mark any products covered by a Patent with the relevant patent number as necessary and sufficient to establish and preserve its maximum rights under applicable patent laws.

(b)Except as determined by such Grantor’s reasonable business judgment, each Grantor (either itself or through its licensees or its sublicenses) will, for each Trademark material to the conduct of such Grantor’s business, use its commercially reasonable efforts to (i) maintain such Trademark in full force free from any claim of abandonment or invalidity for nonuse, (ii) maintain the quality of products and services offered under such Trademark, (iii) display such Trademark with notice of Federal or foreign registration to the extent necessary and sufficient to establish and preserve its rights under applicable law and (iv) not knowingly use or knowingly permit the use of such Trademark in violation of any third party rights.

(c)Except as determined by such Grantor’s reasonable business judgment, each Grantor (either itself or through licensees) will, for each work covered by a material registered Copyright, publish, reproduce, display, adopt and distribute such work with such appropriate copyright notice as necessary and sufficient to establish and preserve its rights under applicable copyright laws.

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(d)Each Grantor shall notify the Collateral Agent as soon as practicable if it knows that any Patent, Trademark or Copyright material to the conduct of its business may become abandoned, lost or dedicated to the public, or of any materially adverse determination or development including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or United States Copyright Office (or any court or similar office of any country) regarding such Grantor’s ownership of any Patent, Trademark or Copyright, or its right to register the same, or to keep and maintain the same.

(e)In the event that any Grantor, either itself or through any agent, employee, licensee or designee, files an application for any Patent, Trademark or Copyright (or for the registration of any Trademark or Copyright) with the United States Patent and Trademark Office or United States Copyright Office, or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, such Grantor shall notify the Collateral Agent (within at least three months of the initial filing thereof) and execute and deliver any and all agreements, instruments, documents and papers as the Collateral Agent may reasonably request to evidence the Collateral Agent’s security interests in such Patent, Trademark or Copyright or application therefor, and pursuant to Section 8.16 of this Agreement, each Grantor hereby appoints the Collateral Agent as its attorney-in-fact to execute and file such writings with prior written notice to such Grantor solely for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable.

(f)Each Grantor will take all necessary steps that are consistent with its reasonable business judgment in any proceeding before the United States Patent and Trademark Office or United States Copyright Office, or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, to maintain and pursue each material application relating to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant or registration) and to maintain each issued Patent and each registration of the Trademarks or Copyrights that is material to the conduct of any Grantor’s business, including timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if consistent with commercially reasonable business judgment, to initiate opposition, interference and cancellation proceedings against third parties.

(g)In the event that any Grantor has reason to believe that any Collateral consisting of a material Patent, Trademark or Copyright has been or is about to be infringed, misappropriated or diluted by a third party, such Grantor promptly shall notify the Collateral Agent and shall, if consistent with commercially reasonable business judgment, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as are reasonably appropriate under the circumstances to protect such Collateral.

(h)To each Grantor’s actual knowledge, on and as of the date hereof, such Grantor is not infringing upon any Patent, Trademark or Copyright of any other Person other than such infringement that, individually or in the aggregate, would not (or would not reasonably be expected to) result in a material adverse effect on the value or utility of the Collateral consisting of Intellectual Property or any portion thereof material to the use and operation of the Collateral and no proceedings have been instituted or are pending against such Grantor or, to such Grantor’s knowledge, threatened, and no claim against such Grantor has been received by such Grantor, alleging any such violation.

(i)Upon and during the continuance of an Event of Default, each Grantor shall upon the written request of the Collateral Agent use its commercially reasonable efforts to obtain all requisite consents or approvals by the licensor of each Copyright License, Patent License or Trademark License to effect the assignment of all of such Grantor’s right, title and interest thereunder to the Collateral Agent or its designees.

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Notwithstanding anything herein to the contrary, any Grantor may, for commercially reasonable cause, abandon or allow to become lost or dedicated to the public any Patent, Trademark or Copyright.

ARTICLE V

REMEDIES

SECTION 5.01.Remedies upon Default. Upon the occurrence and during the continuance of an Event of Default, each Grantor agrees upon written request to deliver each item of Collateral to the Collateral Agent, and it is agreed that the Collateral Agent shall have the right to take any of or all the following actions at the same or different times:  (a) with respect to any Collateral consisting of Intellectual Property, on demand, to cause the Security Interest to become an assignment, transfer and conveyance of any of or all such Collateral by the applicable Grantors to the Collateral Agent, or to license or sublicense, whether general, special or otherwise, and whether on an exclusive or nonexclusive basis, any such Collateral throughout the world on such terms and conditions and in such manner as the Collateral Agent shall determine (other than in violation of applicable law or any then existing licensing arrangements to the extent that waivers cannot be obtained), and (b) with or without legal process and with or without prior notice or demand for performance, to take possession of the Collateral and without liability for trespass to enter peaceably any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral and, generally, to exercise any and all rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, each Grantor agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law, to sell or otherwise dispose of all or any part of the Collateral, at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem reasonably appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which such Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

The Collateral Agent shall give a Grantor ten (10) Business Days’ prior written notice (which each Grantor agrees is reasonable notice within the meaning of Section 9-611 of the UCC) of the Collateral Agent’s intention to make any sale or other disposition of such Grantor’s Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability

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in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by law, private) sale made pursuant to this Section, any Secured Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any Obligation then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Grantor therefor. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section shall be deemed to conform to the commercially reasonable standards as provided in Section 9-611 of the UCC.

SECTION 5.02.Application of Proceeds. All Proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral pursuant to the exercise by the Collateral Agent of its remedies, together with any other moneys then held by the Collateral Agent in the Collateral Account shall, to the extent available for distribution (it being understood that the Collateral Agent may liquidate investments prior to maturity in order to make a distribution pursuant to this Section 5.02), be distributed (subject to the provisions of Section 5.03) by the Collateral Agent on each Distribution Date in the following order of priority:

First:  to the Collateral Agent for any unpaid Collateral Agent Fees;

Second:  without duplication of amounts applied pursuant to clause First above, to any other Secured Party which has theretofore advanced or paid any Collateral Agent Fees constituting administrative expenses allowable under Section 503(b) of the Bankruptcy Code, an amount equal to the amount thereof so advanced or paid by such Secured Party and for which such Secured Party has not been reimbursed prior to such Distribution Date, and, if such moneys shall be insufficient to pay such amounts in full, then ratably (without priority of any one over any other) to such Secured Parties in proportion to the amounts of such Collateral Agent Fees advanced by the respective Secured Parties and remaining unpaid on such Distribution Date;

Third:  without duplication of the amounts applied pursuant to clause First and Second above, to any Secured Party which has theretofore advanced or paid any Collateral Agent Fees other than such administrative expenses, an amount equal to the amount thereof so advanced or paid by such Secured Party and for which such Secured Party has not been reimbursed prior to such Distribution Date, and, if such moneys shall be insufficient to pay such amounts in full, then ratably (without priority of any one over any other) to such Secured Parties in proportion to the amounts of such Collateral Agent Fees advanced by the respective Secured Parties and remaining unpaid on such Distribution Date;

Fourth:  without duplication of the amounts applied pursuant to clauses First, Second and Third above, subject to the provisions of Section 2.06(j) of the Credit Agreement, to the Secured Parties, in an amount equal to all Obligations, whether or not then due and payable (but other than

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contingent indemnification obligations not then claimed or due), and, if such moneys shall be insufficient to pay such amounts in full, then ratably (without priority of any one over any other) to such Secured Parties in proportion to the unpaid amounts thereof on such Distribution Date;

Fifth, without duplication of the amounts applied pursuant to clauses First, Second, Third and Fourth above, any surplus then remaining shall be paid to the Grantors or their successors or assigns or to whomever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

In the event that any such proceeds are insufficient to pay in full the items described in clauses First through Fourth of this Section 5.02, the Grantors shall remain liable for any deficiency.

The term “unpaid” as used in this Section 5.02 refers:

(i)in the absence of a bankruptcy proceeding with respect to the relevant Grantor(s), to all amounts of the relevant Obligations outstanding as of a Distribution Date, and

(ii)during the pendency of a bankruptcy proceeding with respect to the relevant Grantor(s), to all amounts allowed by the bankruptcy court in respect of the relevant Obligations as a basis for distribution (including estimated amounts, if any, allowed in respect of contingent claims), to the extent that prior distributions have not been made in respect thereof.

SECTION 5.03.Collateral Agent’s Calculations. In making the determinations and allocations required by Section 5.02, the Collateral Agent may conclusively rely upon information supplied by the Administrative Agent as to the amounts of unpaid principal and interest and other amounts outstanding with respect to any Obligations, and the Collateral Agent shall have no liability to any of the Secured Parties for actions taken in reliance on such information; provided that nothing in this sentence shall prevent any Grantor from contesting any amounts claimed by any Secured Party in any information so supplied. In addition, for purposes of making the allocations required by Section 5.02 with respect to any amount that is denominated in any currency other than Dollars, the Collateral Agent shall, on the applicable Distribution Date, convert such amount into an amount of Dollars based upon the relevant Exchange Rate as of a recent date specified by the Collateral Agent in its reasonable discretion. All distributions made by the Collateral Agent pursuant to Section 5.02 shall be (subject to any decree of any court of competent jurisdiction) final (absent manifest error), and the Collateral Agent shall have no duty to inquire as to the application by the Administrative Agent of any amounts distributed to it for distribution to any Lenders.

SECTION 5.04.Grant of License to Use Intellectual Property. For the purpose of enabling the Collateral Agent to exercise rights and remedies under this Article at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Grantors) to use, license or sublicense any of the Collateral, except to the extent that such license may not be granted as a result of a pre-existing exclusive license arrangement, consisting of Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Collateral Agent may only be exercised, at the option of the Collateral Agent, upon the occurrence and during the continuation of an Event of Default.

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ARTICLE VI

COLLATERAL ACCOUNT

SECTION 6.01.Establishment of Collateral Account. (a)  The Collateral Agent is hereby authorized to establish and maintain, in the name of the Collateral Agent and pursuant to a Control Agreement, a restricted deposit account designated “Polymer Group, Inc. Collateral Account.”  Each Grantor shall deposit into the Collateral Account from time to time all amounts required to be deposited in the Collateral Account by the Credit Agreement and any amounts specifically required to be deposited therein by any other Loan Documents.

(b)The balance from time to time in the Collateral Account shall constitute part of the Collateral and shall not constitute payment of the Obligations until applied as hereinafter provided. So long as no Event of Default has occurred and is continuing or will result therefrom and to the extent Grantor is not required to repay debt under any Loan Documents, the Collateral Agent shall within two Business Days of receiving a request of the applicable Grantor for release of cash proceeds constituting (A) Net Proceeds from any Destruction or Taking from the Collateral Account remit such cash proceeds on deposit in the Collateral Account to or upon the order of such Grantor, so long as such Grantor has satisfied the conditions relating thereto set forth in Section 6.02 hereof and, (B) Net Proceeds from any Asset Sale from the Collateral Account, remit such cash proceeds on deposit in the Collateral Account, so long as such Guarantor has satisfied the conditions relating thereto set forth in Section 6.02 hereof. At any time following the occurrence and during the continuance of an Event of Default, the Collateral Agent may in its reasonable discretion apply or cause to be applied (subject to collection) the balance from time to time outstanding to the credit of the Collateral Account to the payment of the Obligations in the manner specified in Section 5.02; provided, however, notwithstanding the foregoing, moneys deposited in the Collateral Account pursuant to Section 2.06(j) of the Credit Agreement shall be held and applied as set forth therein.

(c)Amounts on deposit in the Collateral Account shall be invested from time to time in Permitted Investments as the applicable Grantor (or, after the occurrence and during the continuance of an Event of Default, the Collateral Agent) shall determine, which Permitted Investments shall be held in the name and be under the control of the Collateral Agent (or any subagent); provided that at any time after the occurrence and during the continuance of an Event of Default, the Collateral Agent may in its reasonable discretion at any time and from time to time elect to liquidate any such Permitted Investments and to apply or cause to be applied the proceeds thereof to the payment of the Obligations in the manner specified in Section 5.02.

SECTION 6.02.Proceeds of Destruction, Taking and Excluded Asset Sale. (a)  So long as no Default or Event of Default shall have occurred and be continuing, and to the extent the applicable Grantor is permitted by Section 2.05(c)(iii) or (iv) of the Credit Agreement to apply any Net Proceeds as contemplated therein, in the event there shall be any Net Proceeds in respect of any Taking or any Destruction or from any Asset Sale, the applicable Grantor shall have the right, at such Grantor’s option, to apply such Net Proceeds within the time periods provided in Section 2.05(c)(iii) or (iv) of the Credit Agreement for purposes permitted thereby and the Collateral Agent shall release such Net Proceeds to such Grantor in accordance with the provisions of Section 6.01(b) hereof.

(b)Notwithstanding Section 6.02(a), the Collateral Agent shall not release any amounts in the Collateral Account constituting Net Proceeds of a Taking or Destruction or from an Asset Sale, until the applicable Grantor has furnished to the Collateral Agent an Officers’ Certificate, at least five (5) days’ prior to the proposed date of release, setting forth:  (1) a brief description of the application to be made (including the dollar amount thereof), (2) to the extent the application is a reinvestment in properties or

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assets, such reinvestment properties or assets will be Collateral to the extent required by the Credit Agreement and all security agreements and mortgages and other items required to subject such reinvestment properties or assets to the Lien of this Agreement in favor of the Collateral Agent, for its benefit and for the benefit of the other Secured Parties, shall be accomplished at the times required hereby and by Section 5.11 of the Credit Agreement and (3)  the reinvestment otherwise complies with the terms of the Credit Agreement.

ARTICLE VII

The Collateral Agent

SECTION 7.01.General Authority of the Collateral Agent over the Collateral. (a)  Subject to the provisions herein, each Grantor hereby appoints the Collateral Agent as its true and lawful attorney-in-fact for the purpose, during the continuance of an Event of Default, of taking any action and executing any and all documents and instruments that the Collateral Agent may deem necessary to carry out the terms of this Agreement and accomplish the purposes hereof and, without limiting the generality of the foregoing, each Grantor hereby acknowledges that the Collateral Agent shall have all powers and remedies set forth in the Security Documents. The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term hereof.

(b)By acceptance of the benefits of this Agreement and the Security Documents:  each Secured Party shall be deemed irrevocably (1) to consent to the appointment of the Collateral Agent as its agent hereunder and under the Security Documents, (2) to confirm that the Collateral Agent shall have the authority to act as the exclusive agent of such Secured Party for enforcement of any provisions of this Agreement and the Security Documents against any Grantor or the exercise of remedies hereunder or thereunder, (3) to agree that such Secured Party shall not take any action to enforce any provisions of this Agreement or any Security Document against any Grantor or to exercise any remedy hereunder or thereunder and (4) to agree to be bound by the terms of this Agreement and the Security Documents.

(c)The Collateral Agent hereby agrees that it holds and will hold all of its right, title and interest in, to and under the Security Documents and the Collateral granted to the Collateral Agent thereunder whether now existing or hereafter arising (all such right, title and interest being hereinafter referred to as the “Collateral Estate”) under and subject to the conditions set forth in this Agreement; and the Collateral Agent further agrees that it will hold such Collateral Estate for the benefit of the Secured Parties, for the enforcement of the payment of all Obligations (subject to the limitations and priorities set forth herein and in the respective Security Documents) and as security for the performance of and compliance with the covenants and conditions of this Agreement and each of the Security Documents.

SECTION 7.02.Exercise of Powers. All of the powers, remedies and rights of the Collateral Agent as set forth in this Agreement may be exercised by the Collateral Agent in respect of any Security Document as though set forth in full therein and all of the powers, remedies and rights of the Collateral Agent as set forth in any Security Document may be exercised from time to time as herein and therein provided.

SECTION 7.03.Remedies Not Exclusive. (a)  No remedy conferred upon or reserved to the Collateral Agent herein or in the Security Documents is intended to be exclusive of any other remedy or remedies, but every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or in any Security Document or now or hereafter existing at law or in equity or by statute.

(b)No undue delay or omission by the Collateral Agent to exercise any right, remedy or power hereunder or under any Security Document shall impair any such right, remedy or power or shall

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be construed to be a waiver thereof, and every right, power and remedy given by this Agreement or any Security Document to the Collateral Agent may be exercised from time to time and as often as may be deemed expedient by the Collateral Agent.

(c)If the Collateral Agent shall have proceeded to enforce any right, remedy or power under this Agreement or any Security Document and the proceeding for the enforcement thereof shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then the Grantors, the Collateral Agent and the other Secured Parties shall, subject to any determination in such proceeding, severally and respectively be restored to their former positions and rights hereunder or thereunder with respect to the Collateral Estate and in all other respects, and thereafter all rights, remedies and powers of the Collateral Agent shall continue as though no such proceeding had been taken.

SECTION 7.04.Waiver and Estoppel.

(a)Each Grantor, to the extent it may lawfully do so, on behalf of itself and all who may claim through or under it, including without limitation any and all subsequent creditors, vendees, assignees and licensors, waives and releases all rights to demand or to have any marshaling of the Collateral upon any sale, whether made under any power of sale granted herein or in any Security Document or pursuant to judicial proceedings or upon any foreclosure or any enforcement of this Agreement or any Security Document and consents and agrees that all the Collateral may at any such sale be offered and sold as an entirety.

(b)Each Grantor waives, to the extent permitted by applicable law, presentment, demand, protest and any notice of any kind (except notices explicitly required hereunder or under any Security Document) in connection with this Agreement and the Security Documents and any action taken by the Collateral Agent with respect to the Collateral.

SECTION 7.05.Limitation on Collateral Agent’s Duty in Respect of Collateral. Except as required by applicable law, beyond its duties as to the custody thereof expressly provided herein or in any Security Document and to account to the Secured Parties and the Grantors for moneys and other property received by it hereunder or under any Security Document and any other express duties specified in the Security Documents, the Collateral Agent shall not have any duty to the Grantors or to the Secured Parties as to any Collateral in its possession or control or in the possession or control of any of its agents or nominees, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

SECTION 7.06.Limitation by Law. All rights, remedies and powers provided in this Agreement or any Security Document may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions hereof are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered or filed under the provisions of any applicable law.

SECTION 7.07.Rights of Secured Parties in Respect of Obligations. Notwithstanding any other provision of this Agreement or any Security Document, the right of each Secured Party to receive payment of the Obligations held by such Secured Party when due (whether at the stated maturity thereof, by acceleration or otherwise), as expressed in the instruments evidencing or agreements governing such Obligations, or to institute suit for the enforcement of such payment on or after such due date, shall not be impaired or affected without the consent of such Secured Party given in the manner prescribed by the instruments evidencing or agreements governing such Obligations.

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SECTION 7.08.Compensation and Expenses. Each Grantor agrees to pay to the Collateral Agent, from time to time upon written demand, (a) reasonable compensation for its services hereunder and under the Security Documents and for administering the Collateral Estate, as agreed by the Grantors and the Collateral Agent, and (b) all of the reasonable out-of-pocket costs and expenses of the Collateral Agent (including, without limitation, the reasonable fees and disbursements of its counsel, advisors and agents) (i) arising in connection with the preparation, execution, delivery, modification and termination of this Agreement and each Security Document or the enforcement of any of the provisions hereof or thereof or (ii) incurred or required to be advanced in connection with the sale or other disposition of Collateral pursuant to any Security Document and the preservation, protection or defense of the Collateral Agent’s rights under this Agreement and the Security Documents and in and to the Collateral and the Collateral Estate. Such fees, costs and expenses are intended to constitute expenses of administration under any bankruptcy law relating to creditors’ rights generally. The obligations of each Grantor under this Section 7.08 shall survive the termination of the other provisions of this Agreement and the resignation or removal of the Collateral Agent hereunder.

SECTION 7.09.Stamp and Other Similar Taxes. Each Grantor agrees to indemnify and hold harmless the Collateral Agent, the Administrative Agent and each other Secured Party from any present or future claim for liability for any stamp or any other similar tax, and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement, any Security Document, the Collateral Estate or any Collateral. The obligations of each Grantor under this Section 7.09 shall survive the termination of the other provisions of this Agreement and the resignation or removal of the Collateral Agent hereunder.

SECTION 7.10.Filing Fees, Excise Taxes, etc.Each Grantor agrees to pay or to reimburse the Collateral Agent for any and all payments made by the Collateral Agent in respect of all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution and delivery of this Agreement and each Security Document. The obligations of each Grantor under this Section 7.10 shall survive the termination of the other provisions of this Agreement and the resignation or removal of the Collateral Agent hereunder.

SECTION 7.11.Indemnification. Each Grantor agrees to pay, indemnify and hold the Collateral Agent, the Administrative Agent and the other Secured Parties (and their respective directors, officers, agents and employees) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, the reasonable fees and out-of-pocket expenses of counsel and agents) or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the Security Documents, unless finally judicially determined to have arisen from the gross negligence, bad faith or willful misconduct of the indemnified party, including for taxes in any jurisdiction in which the Collateral Agent is subject to tax by reason of actions hereunder or under the Security Documents, unless such taxes are imposed on or measured by compensation paid to the Collateral Agent under Section 7.08. To the extent permitted by applicable law, in any suit, proceeding or action brought by the Collateral Agent under or with respect to any contract, agreement, interest or obligation constituting part of the Collateral for any sum owing thereunder, or to enforce any provisions thereof, each Grantor will save, indemnify and keep the Collateral Agent, the Administrative Agent and the other Secured Parties harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by any Grantor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such obligor or its successors from any Grantor, and all such obligations of each Grantor shall be and remain enforceable against and only against each Grantor and shall not be enforceable against the Collateral Agent, the Administrative Agent or any other Secured Party.

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The agreements in this Section 7.11 shall survive the termination of the other provisions of this Agreement and the resignation or removal of the Collateral Agent hereunder.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.01.Notices. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Subsidiary Guarantor shall be given to it c/o the Borrower at the Borrower’s address as provided in Section 9.01 of the Credit Agreement, with a copy to the Borrower.

SECTION 8.02.Survival of Agreement. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans and the Lenders’ issuance of and participations in Letters of Credit, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect until this Agreement shall terminate.

SECTION 8.03.Binding Effect. This Agreement shall become effective as to any Grantor when a counterpart hereof executed on behalf of such Grantor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Grantor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Grantor, the Collateral Agent and the other Secured Parties and their respective permitted successors and assigns, except that no Grantor shall have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly permitted by each of the other Loan Documents.

SECTION 8.04.Successors and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Grantor or the Collateral Agent that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns.

SECTION 8.05.GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

SECTION 8.06.Waivers; Amendment; Several Agreement. (a)  No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or any other Loan Document or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Grantor in any case

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shall entitle such Grantor or any other Grantor to any other or further notice or demand in similar or other circumstances.

(b)Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into among the Borrower, the Collateral Agent and the Grantors with respect to which such waiver, amendment or modification is to apply, subject to any consents required in accordance with Section 9.08 of the Credit Agreement.

(c)This Agreement shall be construed as a separate agreement with respect to each Grantor and may be amended, modified, supplemented, waived or released with respect to any Grantor without the approval of any other Grantor and without affecting the obligations of any other Grantor hereunder.

SECTION 8.07.WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (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 WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.07.

SECTION 8.08.Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. It is understood and agreed among the parties that this Agreement shall create separate security interests in the Collateral securing the Obligations as provided in Section 2.01, and that any determination by any court with jurisdiction that the security interest securing any Obligation or class of Obligations is invalid for any reason shall not in and of itself invalidate the Security Interests securing any other Obligations hereunder.

SECTION 8.09.Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract and shall become effective as provided in Section 8.03. Delivery of an executed signature page to this Agreement by facsimile transmission or .pdf Adobe file shall be effective as delivery of a manually executed counterpart hereof.

SECTION 8.10.Headings. Article and Section headings used herein are for the purpose of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 8.11.Jurisdiction; Consent to Service of Process. (a)  Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any

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appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Grantor or its properties in the courts of any jurisdiction.

(b)Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court referred to in paragraph (c) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.15 of the Credit Agreement. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 8.12.Termination. (a)  This Agreement and the Security Interests (i) shall automatically terminate when (a) all the Obligations (other than contingent indemnification obligations not then claimed or due) have been paid in full, (b) the Lenders have no further commitment to lend under the Credit Agreement or to issue or participate in Letters of Credit and (c) the LC Exposure has been reduced to zero (at which time the Collateral Agent shall execute and deliver to the Grantors, at the Grantors’ expense, all UCC termination statements and other documents which the Grantors shall reasonably request to evidence such termination) and (ii) shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment in respect of any Obligation is rescinded or must otherwise be restored by any Secured Party upon any bankruptcy or reorganization of any Grantor or otherwise. Any execution and delivery of termination statements or documents pursuant to this Section 8.12(a) shall be without recourse to or warranty by the Collateral Agent. A Subsidiary Guarantor shall automatically be released from its obligations hereunder and the Security Interests in the Collateral of such Subsidiary Guarantor shall be automatically released in the event that the Equity Interests of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of to a Person that is not an Affiliate of Borrower such that such Person is no longer a Subsidiary of Borrower in accordance with the terms of each Loan Document.

(b)Upon any sale or other transfer by any Grantor of any Collateral that is permitted under the Credit Agreement or, upon the effectiveness of any written consent to the release of the security interests granted hereby in any Collateral pursuant to Section 9.08 of the Credit Agreement, security interests in such Collateral shall be automatically released. In connection with such release, the Collateral Agent shall execute and deliver to any Grantor, at such Grantor’s expense, all UCC termination statements and other documents that such Grantor shall reasonably request to evidence such termination or release. Any execution and delivery of UCC termination statements and similar documents pursuant to this Section 8.12(b) shall be without recourse to or warranty by the Collateral Agent.

SECTION 8.13.Additional Grantors. To the extent any Domestic Subsidiary shall be required to become a Grantor pursuant to any Loan Document, upon execution and delivery by the Collateral Agent and such Domestic Subsidiary of an instrument in the form of Annex I hereto, such Domestic Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. Each such Domestic Subsidiary shall at such time deliver to the Collateral Agent a completed

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Perfection Certificate. The execution and delivery of any such instrument shall not require the consent of any other Grantor hereunder. The rights and obligations of each Grantor thereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement.

SECTION 8.14.Financing Statements. Each Grantor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any relevant jurisdiction (a) any filing with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country), (b) any initial financing statements (including fixture filings) and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Collateral, including (i) whether such Grantor is an organization, the type of organization and any organizational identification number issued to such Grantor, (ii) any financing or continuation statements or other documents without the signature of such Grantor where permitted by law, including the filing of a financing statement describing the Collateral as “all assets in which the Grantor now owns or hereafter acquires rights, and the proceeds thereof” and (iii) in the case of a financing statement filed as a fixture filing or covering Collateral constituting minerals or the like to be extracted or timber to be cut, a sufficient description of the real property to which such Collateral relates, and (c) any other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interests granted by each Grantor without the signature of any Grantor. Each Grantor agrees to provide all information described in the immediately preceding sentence to the Collateral Agent promptly upon request. Copies of such financing statements, as filed, should be sent promptly to the Borrower at its address provided in Section 9.01 of the Credit Agreement.

SECTION 8.15.No Deemed Dividend. Notwithstanding the foregoing, no Loan Party shall be required to take any action pursuant to this Agreement that the Borrower has reasonably determined would either result in adverse tax consequences under Section 956 of the Code or would contravene any applicable law, rule or regulation.

SECTION 8.16.Collateral Agent Appointed Attorney-in-Fact. Each Grantor hereby appoints the Collateral Agent the attorney-in-fact of such Grantor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that the Collateral Agent may deem necessary to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of such Grantor, (a) to receive, endorse, assign or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral; (c) to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral; (d) to sign the name of any Grantor on any invoice or bill of lading relating to any of the Collateral; (e) to send verifications of Accounts to any Account Debtor; (f) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral; (g) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Collateral; (h) with 2 days prior notice to the Grantor to notify, or to require any Grantor to notify Account Debtors to make payment directly to the Collateral Agent; and (i) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry

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as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Collateral Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence, willful misconduct or bad faith.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

POLYMER GROUP, INC.
By:
	Name:
	Title:
BONLAM (S.C.), INC.
CHICOPEE, INC.
DOMINION TEXTILE (USA) INC.
FABPRO ORIENTED POLYMERS, INC.
FABRENE CORP.
FABRENE GROUP L.L.C.
FIBERGOL CORPORATION
FIBERTECH GROUP, INC.
FNA ACQUISITION, INC.
FNA POLYMER CORP.
LORETEX CORPORATION
PGI EUROPE, INC.
PGI POLYMER, INC.
PNA CORP.
POLY-BOND INC.
POLYIONIX SEPARATION TECHNOLOGIES, INC.
PRISTINE BRANDS CORPORATION
TECHNETICS GROUP, INC., as Subsidiary Guarantors
By:
	Name:
	Title:

CITICORP NORTH AMERICA, INC.,
	as Collateral Agent
By:
	Name:
	Title:

2

SCHEDULE I

Security Agreement

DOMESTIC SUBSIDIARIES

Name

BONLAM (S.C.), INC.

CHICOPEE, INC.

DOMINION TEXTILE (USA) INC.

FABPRO ORIENTED POLYMERS, INC.

FABRENE CORP.

FABRENE GROUP L.L.C.

FIBERGOL CORPORATION

FIBERTECH GROUP, INC.

FNA ACQUISITION, INC.

FNA POLYMER CORP.

LORETEX CORPORATION

PGI EUROPE, INC.

PGI POLYMER, INC.

PNA CORP.

POLY-BOND INC.

POLYIONIX SEPARATION TECHNOLOGIES, INC.

PRISTINE BRANDS CORPORATION

TECHNETICS GROUP, INC.

Annex I to the

Security Agreement

Form of Joinder Agreement

SUPPLEMENT NO.        dated as of [               ], to the Security Agreement (the “Security Agreement”) dated as of [            ], 2005, among POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), each Domestic Subsidiary of the Borrower listed on Schedule I thereto (collectively, together with each Domestic Subsidiary that becomes a party thereto, the “Subsidiary Guarantors” and, together with Borrower, the “Grantors”), and CITICORP NORTH AMERICA, INC., as collateral agent (the “Collateral Agent”) on behalf of the Secured Parties (as defined in the Credit Agreement).

A.Reference is made to (a) the Credit Agreement dated as of [               ], 2005 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Collateral Agent, Citicorp North America, Inc., as administrative agent  (in such capacity and together with any successors in such capacity, the “Administrative Agent”) for the Lenders (as defined herein), as documentation agent (in such capacity, the “Documentation Agent”) and as syndication agent (in such capacity, the “Syndication Agent”), and Citigroup Global Markets Inc. (“CGMI”), as sole lead arranger and sole bookrunner (in such capacity, the “Lead Arranger”), and the lending institutions from time to time party thereto (the “Lenders”), (b) the Guarantee Agreement dated as of [               ], 2005 (as amended, supplemented or otherwise modified from time to time, the “Guarantee Agreement”), among the Domestic Subsidiaries and the Collateral Agent, and (c) the Pledge Agreement dated [               ], 2005 among certain Grantors and the Collateral Agent (as amended, supplemented or otherwise modified from time to time, the “Pledge Agreement” and, together with the Security Agreement and the Guarantee Agreement, the “Collateral Documents”).

B.Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement.

C.Pursuant to Section 5.16 of the Credit Agreement, each Domestic Subsidiary of the Borrower that was not in existence or not a Domestic Subsidiary on the date of the Credit Agreement is required to enter into the Collateral Documents upon becoming a Domestic Subsidiary. Each of the Collateral Documents provides that such Domestic Subsidiary may become a party to the Collateral Documents by execution and delivery of an instrument in the form of this Supplement. The undersigned Domestic Subsidiary (the “New Domestic Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement to become a party to the Collateral Documents.

Accordingly, the Collateral Agent and the New Domestic Subsidiary agree as follows:

SECTION 1.In accordance with Section 5.16 of the Credit Agreement, the New Domestic Subsidiary by its signature below becomes a Grantor and Pledgor under each of the Collateral Documents with the same force and effect as if originally named therein as a party thereto and hereby (a) agrees to all terms and provisions of the Collateral Documents applicable to it as a Grantor and Pledgor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor and Pledgor thereunder are true and correct in all material respects on and as of the date hereof (except to the extent such representations and warranties relate to an earlier date and in such case they shall be true and correct in all material respects as of such date). In furtherance of the foregoing, the New Domestic Subsidiary, as security for the payment and performance in full of the Obligations (as defined in the Security Agreement), does hereby create and grant to the Collateral Agent, its permitted successors

and assigns, for the benefit of the Secured Parties and their permitted successors and assigns, a security interest in and lien on all of the New Domestic Subsidiary’s right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Domestic Subsidiary. Each of the Collateral Documents is hereby incorporated herein by reference.

SECTION 2.The New Domestic Subsidiary represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights generally.

SECTION 3.This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Domestic Subsidiary and the Collateral Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement.

SECTION 4.The New Domestic Subsidiary hereby represents and warrants that (a) all information set forth in the Perfection Certificate, including the schedules annexed thereto, has been duly prepared, completed and executed and the information set forth therein is correct and complete in all material respects and (b) set forth on Schedule II attached hereto is a true and correct schedule describing the securities of the New Domestic Subsidiary being pledged hereunder.

SECTION 5.Except as expressly supplemented thereby, each of the Collateral Documents shall remain in full force and effect.

SECTION 6.THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7.In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Collateral Documents shall not in any way be affected or impaired thereby (it being understood that the invalidity a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 8.All communications and notices hereunder shall be in writing and given as provided in Section 8.01 of the Security Agreement. All communications and notices hereunder of the New Domestic Subsidiary shall be given to it at the address set forth under its signature below.

SECTION 9.The New Domestic Subsidiary agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including

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the reasonable fees, other charges and disbursements of counsel for the Collateral Agent in each case in accordance with the terms of the Credit Agreement.

IN WITNESS WHEREOF, the New Domestic Subsidiary and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.

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[Name of New Subsidiary]
By:
	Name:
	Title:
	Address:
CITICORP NORTH AMERICA, INC., as Collateral Agent
By:
	Name:
	Title:

S-1

SCHEDULE I

to the Joinder Agreement

Guarantors

SCHEDULE II

to the Joinder Agreement

Pledged Securities of the New Grantor

PLEDGED STOCK

Issuer Number of
Certificate
Registered Owner Number and
Class of Shares Percentage
of Shares

DEBT SECURITIES

Issuer Principal Amount Date of Note Maturity Date

Annex II to the

Security Agreement

Form of Perfection Certificate

Annex III to the Security Agreement

FORM OF NOTICE TO BAILEE OF SECURITY INTEREST IN COLLATERAL

CERTIFIED MAIL — RETURN RECEIPT REQUESTED

[                    ], 200[  ]

TO:[Bailee’s Name]

[Bailee’s Address]

Re:[Borrower]

Ladies and Gentlemen:

In connection with that certain Security Agreement, dated as of  [               ], 2005 (the “Security Agreement”), made by Borrower, the Grantors party thereto and Citicorp North America, Inc. (“Citicorp”), as Collateral Agent, we have granted to the Collateral Agent a security interest in substantially all of our personal property, including our inventory.

This letter constitutes notice to you, and your signature below will constitute your acknowledgment, of the Collateral Agent’s continuing security interests in all goods with respect to which you are acting as bailee. Until you are notified in writing to the contrary by the Collateral Agent, however, you may continue to accept instructions from us regarding the delivery of goods stored by you.

Your acknowledgment also constitutes a waiver and release, for the Collateral Agent’s benefit, of any and all claims, liens, including bailee’s liens, and demands of every kind which you have or may later have against such property (including any right to include such property in any secured financing to which you may become party).

In order to complete our records, kindly have a duplicate of this letter signed by an officer of your company and return same to us at your earliest convenience.

		Very truly yours,
Receipt acknowledged, confirmed and approved:
[BAILEE]		[APPLICABLE GRANTOR]
By:		By:
	Name:		Name:
	Title:		Title:

cc:Citicorp North America, Inc.

EX-10.11

Exhibit 10.11

PLEDGE AGREEMENT

By

POLYMER GROUP, INC.,

and

THE DOMESTIC SUBSIDIARIES PARTY HERETO,
as Pledgors,

and

CITICORP NORTH AMERICA, INC.,
as Collateral Agent

Dated as of November 22, 2005

TABLE OF CONTENTS

		Page
SECTION 1.	Pledge	2
SECTION 2.	Delivery of the Securities Collateral	2
SECTION 3.	Representations, Warranties and Covenants	3
SECTION 4.	Registration in Nominee Name; Denominations	4
SECTION 5.	Voting Rights; Dividends and Interest, etc.	4
SECTION 6.	Remedies upon Event of Default	6
SECTION 7.	Application of Proceeds of Sale	7
SECTION 8.	Collateral Agent Appointed Attorney-in-Fact	7
SECTION 9.	Waivers; Amendment	7
SECTION 10.	Securities Act, etc.	8
SECTION 11.	Registration, etc.	8
SECTION 12.	Termination or Release	9
SECTION 13.	Notices	10
SECTION 14.	Further Assurances	10
SECTION 15.	Binding Effect; Several Agreement; Assignment	10
SECTION 16.	Survival of Agreement; Severability	10
SECTION 17.	GOVERNING LAW	11
SECTION 18.	Counterparts	11
SECTION 19.	Rules of Interpretation	11
SECTION 20.	Jurisdiction; Consent to Service of Process	11
SECTION 21.	WAIVER OF JURY TRIAL	11
SECTION 22.	Additional Pledgors	12
SECTION 23.	Financing Statements	12

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		Page
SECTION 24.	No Deemed Dividend.	12
SCHEDULES
Schedule I	Domestic Subsidiaries
Schedule II	Pledged Stock and Debt Securities

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PLEDGE AGREEMENT

PLEDGE AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) dated as of [         ], 2005, among POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), each Domestic Subsidiary of the Borrower listed on Schedule I hereto (collectively, together with each Domestic Subsidiary that becomes a party hereto pursuant to Section 22 of this Agreement, the “Subsidiary Guarantors” and, together with the Borrower, the “Pledgors”), CITICORP NORTH AMERICA, INC., as collateral agent (in such capacity, the “Collateral Agent”) on behalf of the Secured Parties (as defined in the Credit Agreement) pursuant to the Credit Agreement (as hereinafter defined), as pledgee, assignee and secured party.

R E C I T A L S

A.            The Borrower, the Collateral Agent, Citicorp North America, Inc., as administrative agent (in such capacity, and together with any successors in such capacity, the “Administrative Agent”) for the Lenders (as hereinafter defined), as documentation agent (in such capacity, the “Documentation Agent”), and as syndication agent (in such capacity, the “Syndication Agent”) and Citicorp Global Markets Inc. (“CGMI”), as sole lead arranger and sole bookrunner (in such capacity, the “Lead Arranger”), and the lending institutions from time to time party thereto (the “Lenders”) have, in connection with the execution and delivery of this Agreement, entered into that certain credit agreement, dated as of the date hereof (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), providing for the making of Loans to the Borrower and the issuance of and participations in Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement.

B.            Each Subsidiary Guarantor has, pursuant to the Guarantee Agreement, dated as of the date hereof, among other things, agreed to unconditionally guarantee the obligations of the Borrower under the Credit Agreement.

C.            The Borrower and each Subsidiary Guarantor will receive substantial benefits from the execution, delivery and performance of the obligations of the Borrower under the Credit Agreement and are, therefore, willing to enter into this Agreement.

D.            Contemporaneously with the execution and delivery of this Agreement, the Borrower and the Subsidiary Guarantors have executed and delivered to the Collateral Agent a Security Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”).

E.             This Agreement is given by each Pledgor in favor of the Collateral Agent for the benefit of the Secured Parties (as defined in the Security Agreement) to secure the payment and performance of the obligations (whether or not constituting future advances, obligatory or otherwise) of the Borrower and any and all of the Subsidiary Guarantors from time to time arising under or in respect of this Agreement, the Credit Agreement, the other Loan Documents and the other Obligations (as defined in the Security Agreement).

Capitalized terms used herein and not defined herein shall have meanings assigned to such terms in the Credit Agreement.

NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes

the following representations and warranties to the Collateral Agent for the benefit of the Secured Parties (and each of their respective successors and assigns), and agrees as follows:

SECTION 1.           Pledge. (a)  The following liens are hereby granted:

(i)As collateral security for the payment and performance, in full of all the Obligations, each Pledgor hereby pledges and grants to the Collateral Agent, for the ratable benefit of Secured Parties, a lien on and security interest in and to all of the right, title and interest of such Pledgor in, to and under (a) all the shares of capital stock and other Equity Interests owned by it listed on Schedule II hereto and any shares of capital stock and other Equity Interests obtained in the future by such Pledgor and not deposited into a Securities Account pursuant to the Security Agreement and the certificates, if any, representing all such shares or interests (collectively, the “Pledged Stock”); provided that the Pledged Stock shall not include (i) more than 65% of the issued and outstanding shares of voting stock of any first tier Non-U.S. Subsidiary, (ii) the issued and outstanding shares of any second tier Non-U.S. Subsidiary or (iii) to the extent that applicable law requires that a Subsidiary of the Pledgor issue directors’ qualifying shares, such qualifying shares; (b)(i) all debt securities owned by it listed opposite the name of the Pledgor on Schedule II hereto, (ii) all debt securities in the future issued to the Pledgor and not deposited into a Securities Account (as defined in the Security Agreement) pursuant to the Security Agreement and (iii) all promissory notes and any other instruments evidencing such debt securities (collectively, the “Pledged Debt Securities” and together with the Pledged Stock, the “Pledged Securities”); (c) subject to Section 5, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of the securities referred to in clauses (a) and (b) above; (d) subject to Section 5, all rights and privileges of the Pledgor with respect to the securities and other property referred to in clauses (a), (b) and (c) above; and (e) all proceeds of any and all of the foregoing (all the foregoing, collectively, the “Securities Collateral”).

(b)           Upon delivery to the Collateral Agent, (a) any certificated Pledged Securities now or hereafter included in the Securities Collateral shall be accompanied by stock or bond powers duly executed in blank or other instruments of transfer reasonably satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request and (b) all other property comprising part of the Securities Collateral shall be accompanied by proper instruments of assignment duly executed by the applicable Pledgor and such other instruments or documents as the Collateral Agent may reasonably request. Each subsequent delivery of Pledged Securities shall be accompanied by a schedule describing the securities then being pledged hereunder, which schedule shall be attached hereto as a supplement to Schedule II and made a part hereof. Each schedule so delivered shall supplement any prior schedules so delivered.

TO HAVE AND TO HOLD the Securities Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent for the benefit of the Secured Parties; subject, however, to the terms, covenants and conditions hereinafter set forth.

SECTION 2.           Delivery of the Securities Collateral. (a)  Each Pledgor agrees to promptly deliver or cause to be delivered to the Collateral Agent any and all Pledged Securities, and any and all certificates or other instruments or documents representing the Securities Collateral, other than those Pledged Securities to be held in a Securities Account which Securities Account will be subject to a

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Control Agreement (as defined in the Security Agreement) pursuant to the terms of the Security Agreement.

(b)           Each Pledgor will cause any Indebtedness for borrowed money owed to such Pledgor by any Person to be evidenced by a duly executed promissory note that is pledged to the Collateral Agent for the benefit of the respective Secured Parties and delivered to the Collateral Agent pursuant to the terms hereof (provided that this clause (b) shall not apply to any such Indebtedness in an aggregate principal amount less than $500,000 of any Person that is not a Subsidiary).

(c)           If any Equity Interests now or hereafter acquired by any Pledgor constituting Pledged Stock are uncertificated, such Pledgor shall use commercially reasonable efforts to cause such Equity Interests to be certificated. If, after using commercially reasonable efforts, such Pledgor is not able to have such Equity Interests certificated, such Pledgor shall comply with its obligations under Section 3.05(c) of the Security Agreement.

SECTION 3.           Representations, Warranties and Covenants. Each Pledgor hereby represents, warrants and covenants, as to itself and the Securities Collateral pledged by it hereunder, to and with each Collateral Agent that:

(a)           as of the date hereof the Pledged Stock represents that percentage as set forth on Schedule II of the issued and outstanding shares of each class of the capital stock or other Equity Interests of the issuer with respect thereto;

(b)           except for the security interests granted hereunder, such Pledgor (i) is as of the date hereof the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule II, (ii) holds the Pledged Securities free and clear of all Liens, other than the Liens created hereunder, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Securities Collateral, other than pursuant hereto or in accordance with the Credit Agreement, and (iv) subject to Section 2 and Section 5, will cause any and all Securities Collateral, whether for value paid by such Pledgor or otherwise, to be forthwith deposited with the Collateral Agent and pledged or assigned hereunder;

(c)           except as set forth in the proviso to Section 1(a)(i), the Pledged Stock and Pledged Securities set forth on Schedule II constitute all of the securities owned by such Pledgor that are not included in the definition of Collateral under the Security Agreement;

(d)           such Pledgor (i) has the power and authority to pledge the Securities Collateral in the manner hereby done or contemplated and (ii) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Agreement), however arising, of all Persons whomsoever;

(e)           by virtue of (i) the execution and delivery by the Pledgors of this Agreement, when the Pledged Securities, certificates or other documents representing or evidencing the Securities Collateral are delivered to the Collateral Agent in accordance with this Agreement or (ii) in the case of uncertificated Equity Interests, the filing of a UCC financing statement or its equivalent in other jurisdictions, each Collateral Agent will obtain a valid and perfected lien upon and security interest in such Pledged Securities under New York law and/or any other applicable jurisdiction as security for the payment and performance of the Obligations, subject to no Liens other than the liens created hereunder or Permitted Liens which arise by operation of law;

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(f)            all of the Pledged Stock issued by any Pledgor has been duly authorized and validly issued and is fully paid and to the extent applicable, nonassessable;

(g)           all of the Pledged Debt Securities issued by any Pledgor have been duly authorized, executed and delivered and are the enforceable obligations of the issuer thereof; and

(h)           all information set forth herein relating to the Pledged Securities is accurate and complete in all material respects as of the date hereof.

SECTION 4.           Registration in Nominee Name; Denominations. The Collateral Agent, on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) to hold the Pledged Securities in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent; provided that the Collateral Agent shall only exercise such right to hold the Pledged Securities in its own name as pledge or the name of its nominee (as pledgee or as sub-agent) if (a) an Event of Default has occurred and is continuing and (b) it has provided Borrower with prior written notice of its intent to exercise such right. During the continuance of any Event of Default, each Pledgor will promptly give to the Collateral Agent copies of any written notices or other written communications received by it with respect to Pledged Securities registered in the name of such Pledgor. During the continuance of any Event of Default, the Collateral Agent shall at all times have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Agreement.

SECTION 5.           Voting Rights; Dividends and Interest, etc. (a)  Unless and until an Event of Default shall have occurred and be continuing and until prior notice shall have been given to the Pledgor:

(i)            Each Pledgor shall have the right to exercise any and all voting and/or other consensual rights and powers enuring to an owner of Pledged Securities or any part thereof for any purpose consistent with the terms of this Agreement, the Credit Agreement and the other Loan Documents; provided, however, that such Pledgor will not be entitled to exercise any such right if the result thereof would reasonably be expected to materially and adversely affect the rights and remedies of any of the Secured Parties under this Agreement, the Credit Agreement or any other Loan Document or the ability of the Secured Parties to exercise the same;

(ii)           Each Collateral Agent shall execute and deliver to each Pledgor, or cause to be executed and delivered to each Pledgor, all such proxies, powers of attorney and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above and to receive the cash dividends it is entitled to receive pursuant to subparagraph (iii) below; and

(iii)          Subject to the next sentence, each Pledgor shall be entitled to receive and retain any and all cash dividends, interest, principal and other amounts paid on the Pledged Securities to the extent and only to the extent that such cash dividends, interest, principal and other amounts are permitted by or not prohibited by, and otherwise paid in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable laws. All noncash dividends, interest, principal and other amounts, and all dividends, interest, principal and other amounts paid or payable in cash or otherwise in connection with a partial or total liquidation or

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dissolution, return of capital, capital surplus or paid-in surplus, and all other distributions (other than distributions referred to in the preceding sentence) made on or in respect of the Pledged Securities, whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Securities Collateral, and, if received by any Pledgor, shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).

(b)           Upon the occurrence and during the continuance of an Event of Default and following notice to the Pledgor, all rights of any Pledgor to dividends, interest, principal or other amounts that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) above shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest, principal or other amounts. All dividends, interest, principal or other amounts received by the Pledgor contrary to the provisions of this Section 5 shall be held for the benefit of the Collateral Agent, shall be segregated from other property or funds of such Pledgor and shall be forthwith delivered to the Collateral Agent upon prior written demand in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in the Collateral Account established pursuant to the Security Agreement and shall be applied in accordance with the provisions of Section 7. Within five (5) Business Days after all such Events of Default have been cured or waived, the Collateral Agent shall repay to each Pledgor all cash dividends, interest or principal (including interest earned thereon) that such Pledgor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) above and which remain in such account; provided, however, the Collateral Agent shall be under no obligation with respect to the investment of such cash dividends, interest or principal, including, for the avoidance of doubt, any requirement to invest such cash dividends, interest or principal in any class of investment, interest-bearing or otherwise.

(c)           Upon the occurrence and during the continuance of an Event of Default and following notice to the Pledgor, all rights of any Pledgor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 5, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 5, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting, managerial and consensual rights and powers. After all Events of Default have been cured or waived, such Pledgor will have the right to exercise the voting and consensual rights and powers that it would otherwise be entitled to exercise pursuant to the terms of paragraph (a)(i) above.

After any and all Events of Default have been cured or waived, (i) Pledgor shall have the right to exercise the voting, managerial and other consensual rights and powers that it would otherwise be entitled to pursuant to this Agreement and to receive the payments, proceeds, dividends, distributions, monies, compensation, property, assets, instruments or rights that it would be authorized to receive and retain pursuant to this Agreement; and (ii) promptly after such cure or waiver, the Agent shall repay and deliver to Pledgor all cash and monies that such Pledgor is entitled to retain pursuant to this Agreement which have not been applied to the repayment of the Obligations pursuant to the Security Agreement or the Credit Agreement.

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SECTION 6.           Remedies upon Event of Default. Upon the occurrence and during the continuance of an Event of Default, subject to applicable regulatory and legal requirements, the Collateral Agent may sell or otherwise dispose of the Securities Collateral, or any part thereof, at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate; provided that any disposition of Securities Collateral by private sale be deemed to have been made in a commercially reasonable manner. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Pledgor, and, to the extent permitted by applicable law, the Pledgors hereby waive all rights of redemption, stay, valuation and appraisal any Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

The Collateral Agent shall give a Pledgor ten (10) Business Days’ prior written notice (which each Pledgor agrees is reasonable notice within the meaning of Section 9-611 of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions (the “UCC”)) of the Collateral Agent’s intention to make any sale or other disposition of such Pledgor’s Securities Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Securities Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice of such sale. At any such sale, the Securities Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Securities Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Securities Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Securities Collateral is made on credit or for future delivery, the Securities Collateral so sold may be retained by the Collateral Agent until the sale price is paid in full by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Securities Collateral so sold and, in case of any such failure, such Securities Collateral may be sold again upon like notice. At any public (or, to the extent permitted by applicable law, private) sale made pursuant to this Section 6, any Secured Party may bid for or purchase, free from any right of redemption, stay, valuation or appraisal on the part of any Pledgor (all said rights being also hereby waived and released), the Securities Collateral or any part thereof offered for sale and may make payment on account thereof by using any Obligation then due and payable to such Secured Party from any Pledgor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Pledgor therefor. For purposes hereof, (a) a written agreement to purchase the Securities Collateral or any portion thereof shall be treated as a sale thereof, (b) the Collateral Agent shall be free to carry out such sale pursuant to such agreement and (c) no Pledgor shall be entitled to the return of the Securities Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose upon the Securities Collateral and to sell the Securities Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section shall be deemed to conform

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to the commercially reasonable standards as provided in Section 9-611 of the UCC or its equivalent in other jurisdictions, as applicable.

SECTION 7.           Application of Proceeds of Sale. The proceeds of any sale of Securities Collateral pursuant to Section 6, as well as any Securities Collateral consisting of cash, shall be applied by the Collateral Agent as provided in the Security Agreement.

SECTION 8.           Collateral Agent Appointed Attorney-in-Fact. Subject to Section 25, each Pledgor hereby appoints each Collateral Agent the attorney-in-fact of such Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that either Collateral Agent may deem reasonably necessary to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest, provided that the Collateral Agent shall only take any action pursuant to such appointment upon the occurrence and during the continuation of an Event of Default. Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of such Pledgor, to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due under and by virtue of any Securities Collateral, to endorse checks, drafts, orders and other instruments for the payment of money payable to the Pledgor representing any interest or dividend or other distribution payable in respect of the Securities Collateral or any part thereof or on account thereof and to give full discharge for the same, to settle, compromise, prosecute or defend any action, claim or proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer and to make any agreement respecting, or otherwise deal with, the same; provided, however, that nothing herein contained shall be construed as requiring or obligating either Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by such Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Securities Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Collateral Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Pledgor for any act or failure to act hereunder, except for their own gross negligence, willful misconduct or bad faith.

SECTION 9.           Waivers; Amendment. (a)  No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or any other Loan Document or consent to any departure by any Pledgor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Pledgor in any case shall entitle such Pledgor or any other Pledgor to any other or further notice or demand in similar or other circumstances.

(b)           Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into among the Borrower, the Collateral Agent

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and the Pledgors with respect to which such waiver, amendment or modification is to apply subject to any consents required in accordance with Section 9.08 of the Credit Agreement.

SECTION 10.         Securities Act, etc. In view of the position of the Pledgors in relation to the Pledged Securities, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “Federal Securities Laws”) or equivalent legislation in any other jurisdiction with respect to any disposition of the Pledged Securities permitted hereunder. Each Pledgor understands that compliance with the Federal Securities Laws or equivalent legislation in any other jurisdiction might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent was to attempt to dispose of all or any part of the Pledged Securities, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Securities could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Securities under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Each Pledgor recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Securities, limit the purchasers to those who will represent and agree, among other things, to acquire such Pledged Securities for their own account for investment, and not with a view to the distribution or resale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each Pledgor acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion (but subject to the other provisions of this Agreement), (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under the Federal Securities Laws or equivalent legislation in any other jurisdiction and (b) may approach and negotiate with a single potential purchaser to effect such sale. Each Pledgor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section 10 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.

SECTION 11.         Registration, etc. Each Pledgor agrees that, upon the occurrence and during the continuance of an Event of Default hereunder, if for any reason the Collateral Agent desires to sell any of the Pledged Securities of the Borrower at a public sale, it will, at any time and from time to time, upon the reasonable written request of the Collateral Agent, use its commercially reasonable efforts to take or to cause the issuer of such Pledged Securities to take such action and prepare, distribute, file and/or cause to become effective such documents as are required or advisable in the reasonable opinion of counsel for the Collateral Agent to permit the public sale of such Pledged Securities. Each Pledgor further agrees to indemnify, defend and hold harmless the Collateral Agent, each other Secured Party, any underwriter and their respective officers, directors, affiliates and controlling Persons (collectively, “indemnitees”) from and against all loss, liability, expenses, costs of counsel (including, without limitation, reasonable fees and out-of-pocket expenses to the Collateral Agent of legal counsel) and claims (including the reasonable costs of investigation) that they may incur insofar as such loss, liability, expense or

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claim arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus (or any amendment or supplement thereto) or in any notification or offering circular, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to such Pledgor or the issuer of such Pledged Securities by the Collateral Agent or any other Secured Party expressly for use therein. Each Pledgor further agrees, upon such written request referred to above, to use its reasonable best efforts to qualify, file or register, or cause the issuer of such Pledged Securities to qualify, file or register, any of the Pledged Securities under the Blue Sky or other securities laws of such states as may be requested by the Collateral Agent and keep effective, or cause to be kept effective, all such qualifications, filings or registrations. Each Pledgor will bear all reasonable costs and expenses of carrying out its obligations under this Section 11. Each Pledgor acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of this Section 11 and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Section 11 may be specifically enforced.

SECTION 12.         Termination or Release. (a)  This Agreement and the security interests granted hereby (i) shall automatically terminate when all the Obligations have been paid in full (except for contingent indemnity obligations not then due), the Lenders have no further commitment to lend under the Credit Agreement or to issue or participate in Letters of Credit and the LC Exposure has been reduced to zero (at which time the Collateral Agent shall execute and deliver to each Pledgor, at such Pledgor’s expense, all UCC termination statements or their equivalent in any other jurisdiction and other documents which such Pledgor shall reasonably request to evidence such termination) and (ii) to the extent permitted by applicable law shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment in respect of any Obligation is rescinded or must otherwise be restored by any Secured Party upon any bankruptcy or reorganization of any Pledgor or otherwise. Any execution and delivery of termination statements or documents pursuant to this Section 12(a) shall be without recourse to or warranty by the Collateral Agent. A Subsidiary Guarantor shall automatically be released from its obligations hereunder and the Security Interests in the Collateral of such Subsidiary Guarantor shall be automatically released in the event that the Equity Interests of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of to a Person that is not an Affiliate of Borrower such that such Person is no longer a Subsidiary of Borrower in accordance with the terms of each Loan Document.

(b)           Upon any sale or other transfer by any Pledgor of any Securities Collateral that is permitted under each Loan Document to any Person that is not a Pledgor, or upon the effectiveness of any written consent to the release of the security interests granted hereby in any Securities Collateral pursuant to Section 9.08 of the Credit Agreement, the security interests in such Securities Collateral shall be automatically released. If the capital stock of a Pledgor is sold, transferred or otherwise disposed of to a Person that is not an Affiliate of the Borrower so that such Pledgor is no longer a Subsidiary of the Borrower pursuant to a transaction permitted by the Credit Agreement, such Pledgor shall be released from its obligations under this Agreement without further action.

(c)           In connection with any termination or release pursuant to paragraph (a) or (b), the Collateral Agent shall execute and deliver to any Pledgor, at such Pledgor’s expense, all documents that such Pledgor shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 12 shall be without recourse to or warranty by the Collateral Agent.

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SECTION 13.         Notices. All communications and notices hereunder shall be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Pledgor that is a Domestic Subsidiary shall be given to it at the Borrower at the Borrower’s address as provided in Section 9.01 of the Credit Agreement, with a copy to the Borrower.

SECTION 14.         Further Assurances. Each Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Collateral Agent may at any time reasonably request in writing in connection with the administration and enforcement of this Agreement or with respect to the Securities Collateral or any part thereof or in order to assure and confirm unto the Collateral Agent, its rights and remedies hereunder.

SECTION 15.         Binding Effect; Several Agreement; Assignment. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Pledgor that are contained in this Agreement shall bind and inure to the benefit of its permitted successors and assigns. This Agreement shall become effective as to any Pledgor when a counterpart (including a facsimile copy) hereof executed on behalf of such Pledgor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Pledgor and the Collateral Agent and their respective successors and assigns, and shall enure to the benefit of such Pledgor, the Collateral Agent and the other Secured Parties, and their respective successors and assigns, except that no Pledgor shall have the right to assign its rights hereunder or any interest herein or in the Securities Collateral (and any such attempted assignment shall be void), except as expressly contemplated by this Agreement or the other Loan Documents. This Agreement shall be construed as a separate agreement with respect to each Pledgor and may be amended, modified, supplemented, waived or released with respect to any Pledgor without the approval of any other Pledgor and without affecting the obligations of any other Pledgor hereunder.

SECTION 16.         Survival of Agreement; Severability. (a)  All covenants, agreements, representations and warranties made by any Pledgor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans, and the Lenders’ issuance of and participations in Letters of Credit, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect until this Agreement shall terminate.

(b)           In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. It is understood and agreed that this Agreement shall create separate security interests in the Securities Collateral securing the Obligations, as provided in Section 1, and that any determination by any court with jurisdiction that the security interests securing any Obligation or class of Obligations is invalid for any reason shall not in and of itself invalidate the security interests securing any other Obligations hereunder.

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SECTION 17.         GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 18.         Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute a single contract, and shall become effective as provided in Section 15. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement.

SECTION 19.         Rules of Interpretation. The rules of interpretation specified in Section 1.03 of the Credit Agreement shall be applicable to this Agreement. Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 20.         Jurisdiction; Consent to Service of Process. (a)  Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by applicable law, in such Federal court referred to above. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Pledgor or its properties in the courts of any jurisdiction.

(b)           Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c)           Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 13. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 21.         WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,

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EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 22.         Additional Pledgors. Pursuant to Section 5.16 of the Credit Agreement, each Domestic Subsidiary of the Borrower that was not in existence or not a Domestic Subsidiary on the date of the Credit Agreement is required to enter into this Agreement as a Pledgor upon becoming a Domestic Subsidiary. Upon execution and delivery by the Collateral Agent and such Domestic Subsidiary of an instrument in the form of Annex I attached to the Security Agreement, such Domestic Subsidiary shall become a Pledgor hereunder with the same force and effect as if originally named as a Pledgor herein. The execution and delivery of such instrument shall not require the consent of any Pledgor hereunder. The rights and obligations of each Pledgor hereunder shall remain in full force and effect notwithstanding the addition of any new Pledgor as a party to this Agreement.

SECTION 23.         Financing Statements. Each Pledgor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any relevant jurisdiction any initial financing statements (including fixture filings) and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Securities Collateral, including (i) whether such Pledgor is an organization, the type of organization and any organizational identification number issued to such Pledgor, (ii) any financing or continuation statements or other documents without the signature of such Pledgor where permitted by law, including the filing of a financing statement describing the Securities Collateral as “all assets in which the Pledgor now owns or hereafter acquires rights” and (iii) in the case of a financing statement filed as a fixture filing or covering Securities Collateral constituting minerals or the like to be extracted or timber to be cut, a sufficient description of the real property to which such Securities Collateral relates. Each Pledgor agrees to provide all information described in the immediately preceding sentence to the Collateral Agent promptly upon request. Copies of such financing statements, as filed, should be sent promptly to the Borrower at the address provided in Section 9.01 of the Credit Agreement.

SECTION 24.         No Deemed Dividend.Notwithstanding the foregoing, no Pledgor shall be required to take any action pursuant to this Agreement that the Borrower has reasonably determined would either result in adverse tax consequences under Section 956 of the Code or would contravene any applicable law, rule or regulation.

[SIGNATURE PAGES FOLLOW]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

POLYMER GROUP, INC.
By:
	Name:
	Title:

S-1

BONLAM (S.C.), INC.
CHICOPEE, INC.
DOMINION TEXTILE (USA) INC.
FABPRO ORIENTED POLYMERS, INC.
FABRENE CORP.
FABRENE GROUP L.L.C.
FIBERGOL CORPORATION
FIBERTECH GROUP, INC.
FNA ACQUISITION, INC.
FNA POLYMER CORP.
LORETEX CORPORATION
PGI EUROPE, INC.
PGI POLYMER, INC.
PNA CORP.
POLY-BOND INC.
POLYIONIX SEPARATION TECHNOLOGIES, INC.
PRISTINE BRANDS CORPORATION
TECHNETICS GROUP, INC.
By:
	Name:
	Title:

S-14

CITICORP NORTH AMERICA, INC.,
as Collateral Agent
By:
	Name:
	Title:

S-15

Schedule I to the
Pledge Agreement

DOMESTIC SUBSIDIARIES

Bonlam (S.C.), Inc.

Chicopee, Inc.

Dominion Textile (USA) Inc.

FabPro Oriented Polymers, Inc.

Fabrene Corp.

Fabrene Group L.L.C.

FiberGol Corporation

FiberTech Group, Inc.

FNA Acquisition, Inc.

FNA Polymer Corp.

Loretex Corporation

PGI Europe, Inc.

PGI Polymer, Inc.

PNA Corp.

Poly-Bond Inc.

PolyIonix Separation Technologies, Inc.

Pristine Brands Corporation

Technetics Group, Inc.

Schedule II to the
Pledge Agreement

PLEDGED STOCK

Issuer Number
of
Certificate

Registered Owner Number and
Class of Shares/
Type of Interest
Percentage
of Shares/Interests

PLEDGED DEBT SECURITIES

Issuer Payee Principal Amount Date of Note Maturity Date

EX-10.12

Exhibit 10.12

GUARANTEE AGREEMENT

GUARANTEE AGREEMENT dated as of November 22, 2005, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a “Guarantor” and collectively, the “Guarantors”) of POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), and CITICORP NORTH AMERICA, INC., as Collateral Agent and Administrative Agent (the “Agent”) for the Secured Parties (as defined in the Credit Agreement referred to below).

Reference is made to the Credit Agreement dated as of November 22, 2005 (the “Credit Agreement”), among POLYMER GROUP, INC., a Delaware corporation (the “Borrower”), the guarantors from time to time a party thereto, the financial institutions listed on Schedule 2.01 thereto, as such Schedule may from time to time be supplemented and amended (the “Lenders”), CITICORP NORTH AMERICA, INC., as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders, as documentation agent (in such capacity, the “Documentation Agent”), as syndication agent (in such capacity, the “Syndication Agent”), as collateral agent for the Secured Parties (in such capacity, the “Collateral Agent”), and CITIGROUP GLOBAL MARKETS INC. (“CGMI”), as sole lead arranger and sole bookrunner (in such capacity, the “Lead Arranger”). Terms used herein without definition shall have the meanings assigned to such terms in the Credit Agreement.

The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank has agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Guarantors is a direct or indirect wholly owned Subsidiary of the Borrower and acknowledges that it will derive substantial benefit from the making of the Loans by the Lenders, and the issuance of the Letters of Credit by the Issuing Bank. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are conditioned on, among other things, the execution and delivery by the Guarantors of a Guarantee Agreement in the form hereof. As consideration therefor and in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit, the Guarantors are willing to execute this Agreement.

Accordingly, the parties hereto agree as follows:

SECTION 1.           Guarantee. Each Guarantor unconditionally guarantees, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, (a) the due and punctual payment of the Obligations and (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties under or pursuant to the Credit Agreement and the other Loan Documents (all the monetary and other obligations referred to in thepreceding clauses (a) and (b) being collectively called the “Guaranteed Obligations”). Each Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Obligation. By execution of this Agreement, each Guarantor agrees to be bound by the terms of the Credit Agreement as a Subsidiary Loan Party as if it were a party to the Credit Agreement.

SECTION 2.           Guaranteed Obligations Not Waived. To the fullest extent permitted by applicable law, each Guarantor waives presentment to, demand of payment from and protest to the Loan Parties of any of the Guaranteed Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of each Guarantor hereunder shall not be affected by (a) the failure of the Agents or any other Secured Party to assert any claim or demand or to enforce or exercise any right or remedy against the Loan Parties under the provisions of the Credit Agreement, any other Loan Document or otherwise, (b) any rescission, waiver, amendment or modification of, or any release from any of theterms or provisions of, this

Agreement, any other Loan Document, any Guarantee or any other agreement, including with respect to any other Guarantor under this Agreement, or (c) the failure to perfect any security interest in or lien on, or the release of, any of the security held by or on behalf of the Agents or any other Secured Party.

SECTION 3.           Guarantee of Payment. Each Guarantor further agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Agents or any other Secured Party to any of the security held for payment of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of the Agents or any other Secured Party in favor of the Borrower or any other Person.

SECTION 4.           No Discharge or Diminishment of Guarantee. The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Guaranteed Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Guaranteed Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Agents or any other Secured Party to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Guaranteed Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or that would otherwise operate as a discharge of each Guarantor as a matter of law or equity (other than the payment in full in cash or Cash Equivalents of all the Guaranteed Obligations).

SECTION 5.           Defenses of Borrower Waived. To the fullest extent permitted by applicable law, each of the Guarantors waives any defense based on or arising out of any defense of any Loan Party or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any Loan Party, other than the final payment in full in cash or Cash Equivalents of the Guaranteed Obligations. The Agents and the other Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with any Loan Party or any other guarantor or exercise any other right or remedy available to them against any Loan Party or any other guarantor, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Guaranteed Obligations have been fully and finally paid in cash or Cash Equivalents. Pursuant to applicable law, each of the Guarantors waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against any Loan Party or any other Guarantor or guarantor, as the case may be, or any security.

SECTION 6.           Agreement to Pay; Subordination. In furtherance of the foregoing and not in limitation of any other right that the Agents or any other Secured Party has at law or in equity against any Guarantor by virtue hereof, upon the failure of any Loan Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, promptly upon notice from the Agent each Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Agents or such other Secured Party as designated thereby in cash or Cash Equivalents the amount of such unpaid Guaranteed Obligations. Upon payment by any Guarantor of any sums to the Agents or any Secured Party as provided above, all rights of such Guarantor against any Loan Party

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arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all the Guaranteed Obligations. In addition, any indebtedness of any Loan Party now or hereafter held by any Guarantor is hereby subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of the Guaranteed Obligations. If any amount shall erroneously be paid to any Guarantor on account of (i)  such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of any Loan Party, such amount shall be held for the benefit of the Secured Parties and shall forthwith be paid to the Agents to be credited against the payment of the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents.

SECTION 7.           Information. Each of the Guarantors assumes all responsibility for being and keeping itself informed of each other Loan Party’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that such Guarantors and incurs hereunder, and agrees that none of the Agents or the other Secured Parties will have any duty to advise any of the Guarantors of information known to it or any of them regarding such circumstances or risks.

SECTION 8.           Representations and Warranties. Each of the Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Credit Agreement are true and correct.

SECTION 9.           Termination. (a)  The Guarantees made hereunder (i) shall terminate when all the Guaranteed Obligations (other than contingent indemnification provisions not then claimed or due) have been paid in full in cash or Cash Equivalents and the Lenders have no further commitment to lend under the Credit Agreement or to issue or participate in Letters of Credit and the LC Exposure has been reduced to zero and (ii) shall continue to be effective or be reinstated, as the case may be, if at any time any payment in respect thereof, of any Obligation is rescinded or must otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy or reorganization of the Borrower, any Guarantor or otherwise. In connection with the foregoing, the Agents shall execute and deliver to such Guarantor or Guarantor’s designee, at such Guarantor’s expense, any documents or instruments which such Guarantor shall reasonably request from time to time in writing to evidence such termination and release.

(b)           If the Equity Interests of a Guarantor are sold, transferred or otherwise disposed of to a Person that is not an Affiliate pursuant to a transaction permitted by Section 6.05 of the Credit Agreement that results in such Guarantor ceasing to be a Subsidiary, or upon the effectiveness of any written consent pursuant to Section 9.08 of the Credit Agreement to the release of the guarantee granted by such Guarantor hereby, such Guarantor shall be released from its obligations under this Agreement without further action. In connection with such release, the Agents shall execute and deliver to such Guarantor, at such Guarantor’s expense, all documents that such Guarantor shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 9(b) shall be without recourse to or warranty by the Agents.

SECTION 10.         Binding Effect; Several Agreement; Successors and Assigns. (a)  This Agreement shall become effective as to any Guarantor when a counterpart hereof executed on behalf of such Guarantor shall have been delivered to the Agents and a counterpart hereof (including a facsimile copy) shall have been executed on behalf of the Agents, and thereafter shall be binding upon such Guarantor and the Agents and their respective permitted

3

successors and assigns, and shall inure to the benefit of such Guarantor, the Agents and the other Secured Parties and their respective permitted successors and assigns, except that no Guarantor shall have the right to assign or transfer its rights or obligations hereunder or any interest herein (and any such attempted assignment or transfer shall be void) except as expressly permitted by each of the other Loan Documents.

(b)           Under Oregon law, most agreements, promises and commitments made after October 3, 1989, concerning loans and other credit extensions which are not for personal, family or household purposes or secured solely by the borrower’s residence must be in writing, express consideration and be signed to be enforceable.

(c)           This Agreement shall be construed as a separate agreement with respect to each Guarantor and may be amended, modified, supplemented, waived or released with respect to any Guarantor without the approval of any other Guarantor and without affecting the obligations of any other Guarantor hereunder.

(d)           Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Guarantor or the Agents that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns.

SECTION 11.         Waivers; Amendment. (a)  No failure or delay of the Agents in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agents hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or any other Loan Document or consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Guarantor in any case shall entitle such Guarantor or any other Guarantor to any other or further notice or demand in similar or other circumstances.

(b)           Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into among the Borrower, the Agents and the Guarantors with respect to which such waiver, amendment or modification is to apply.

SECTION 12.       Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

SECTION 13.         Notices. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Guarantor shall be given to it at its address or telecopy number set forth on Schedule I, with a copy to Borrower.

SECTION 14.         Survival of Agreement; Severability. (a)  All covenants, agreements, representations and warranties made by any Guarantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Agents and the other Secured Parties and shall survive the making by the Lenders of the Loans and the Lenders’ issuance of and participations in Letters of Credit, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect until this Agreement shall terminate.

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(b)           In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 15.         Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract (subject to Section 10) and shall become effective as provided in Section 10. Delivery of an executed signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. It is understood and agreed among the parties that this Agreement shall create separate guarantees in favor of each of the Term Lenders and the Revolving Lenders, and that any determination by any court with jurisdiction that the guarantee in favor of either group of Lenders is invalid for any reason shall not in and of itself invalidate the guarantee with respect to any other beneficiary hereunder.

SECTION 16.         Rules of Interpretation; Headings. (a)  The rules of interpretation specified in Section 1.03 of the Credit Agreement shall be applicable to this Agreement.

(b)           Section headings used herein are for the purpose of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting this Agreement.

SECTION 17.         Jurisdiction; Consent to Service of Process. (a)  Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Agents or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Guarantor or its properties in the courts of any jurisdiction.

(b)           Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court referred to in paragraph (c) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c)           Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 13. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

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SECTION 18.       WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (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 WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 18.

SECTION 19.         Right of Setoff. If an Event of Default or Event of Termination shall have occurred and be continuing, each Secured Party is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Secured Party to or for the credit or the account any Guarantor against any of and all the obligations of such Guarantor now or hereafter existing under this Agreement and other Loan Documents held by such Secured Party, irrespective of whether or not such Secured Party shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. In connection with exercising its rights pursuant to the previous sentence, a Secured Party may at any time use any of the such Guarantor’s credit balances with the Secured Party to purchase at the Secured Party’s applicable spot rate of exchange any other currency or currencies which the Secured Party considers necessary to reduce or discharge any amount due by the such Guarantor to the Secured Party, and may apply that currency or those currencies in or towards payment of those amounts. The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff) which such Secured Party may have. Each Secured Party agrees promptly to notify such Guarantor and the Agents after making any such setoff.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

BONLAM (S.C.), INC.
CHICOPEE, INC.
DOMINION TEXTILE (USA) INC.
FABPRO ORIENTED POLYMERS, INC.
FABRENE CORP.
FABRENE GROUP L.L.C.
FIBERGOL CORPORATION
FIBERTECH GROUP, INC.
FNA ACQUISITION, INC.
FNA POLYMER CORP.
LORETEX CORPORATION
PGI EUROPE, INC.
PGI POLYMER, INC.
PNA CORP.
POLY-BOND INC.
POLYIONIX SEPARATION TECHNOLOGIES, INC.
PRISTINE BRANDS CORPORATION
TECHNETICS GROUP, INC.
By:
	Name:
	Title:

S-1

CITICORP NORTH AMERICA, INC., as
Administrative Agent
By:
	Name:
	Title:

Schedule I to the
Guarantee Agreement

Guarantors

Name

Bonlam (S.C.), Inc.

Chicopee, Inc.

Dominion Textile (USA) Inc.

FabPro Oriented Polymers, Inc.

Fabrene Corp.

Fabrene Group L.L.C.

FiberGol Corporation

FiberTech Group, Inc.

FNA Acquisition, Inc.

FNA Polymer Corp.

Loretex Corporation

PGI Europe, Inc.

PGI Polymer, Inc.

PNA Corp.

Poly-Bond Inc.

PolyIonix Separation Technologies, Inc.

Pristine Brands Corporation

Technetics Group, Inc.

Address/telecopy number for each Guarantor

c/o Polymer Group, Inc.

4055 Faber Place, Suite 201

North Charleston, South Carolina 29405

attention: Willis C. Moore III

(telecopy: 843-329-0415)

3

EX-21

Exhibit 21

POLYMER GROUP, INC.

LIST OF SUBSIDIARIES OF THE COMPANY

The following comprises a list of the subsidiaries of the Company as of December 31, 2005:

PGI Polymer, Inc.

DT Acquisition Inc.

Fabrene Group, L.L.C.

Bonlam (S.C.), Inc.

FabPro Oriented Polymers, Inc.

Chicopee, Inc.

PGI Nonwovens (Mauritius)

Dominion Textile Mauritius Inc.

Bonlam S.A. de C.V.

Fabrene, Inc.

Dominion Textile (USA) Inc.

Fabrene Corp.

Nanhai Nanxin Non-Wovens Co. Ltd.

Dominion Nonwovens Sudamerica, S.A.

Bonlam Andina Ltd.

Bonlam Holdings BV

DIFCO Performance Fabrics, Inc.

FiberTech Group, Inc.

PNA Corp.

PGI Europe, Inc.

Poly-Bond Inc.

Pristine Brands Corporation

Polyionix Separation Technologies, Inc.

Technetics Group, Inc.

FNA Polymer Corp.

Chicopee Holdings B.V.

FiberGol Corporation

FNA Acquisition, Inc.

PGI Holdings BV

Chicopee Holdings CV

PGI Nonwovens BV

PGI Neunkirchen GmbH

PGI Nonwoven Ltd.

PGI Nonwovens A.B.

Geca Tapes B.V.

Albuma S.A.S.

Geca-Tapes PTE LTD

Nordlys SAS

PGI Nonwovens (China) Co. Ltd.

PGI Nonwoven (Foshan) Co. Ltd.

EX-23.1

Exhibit 23.1

Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm

We have issued our reports dated March 15, 2006, accompanying the consolidated financial statements and schedule and management’s assessment of the effectiveness of internal control over financial reporting included in the Annual Report of Polymer Group, Inc. on Form 10-K for the fiscal year ended December 31, 2005. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Polymer Group, Inc. on Forms S-8 (File No. 333-131156, effective January 20, 2006, File No. 333-121252, effective December 14, 2004 and File No. 333-121254, effective December 14, 2004).

/s/ GRANT THORNTON LLP

Columbia, South Carolina

March 15, 2006

EX-23.2

Exhibit 23.2

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-131156) pertaining to the 2005Employee Restricted Stock Planof Polymer Group, Inc., (Form S-8 No. 333-121252) pertaining to the 2003Employee Stock Option Planand (Form S-8 No. 333-121254) pertaining to the 2004 Restricted Stock Plan for Directorsof Polymer Group, Inc. of our report dated March 23, 2005, with respect to the consolidated financial statements and schedule of Polymer Group, Inc, included in the Annual Report (Form 10-K) for the year ended December 31, 2005.

	/s/ Ernst & Young, LLP
Greenville, South Carolina
March 14, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James L. Schaeffer, certify that:

1.I have reviewed this Annual Report on Form 10-K of Polymer Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006	/s/ JAMES L. SCHAEFFER
	James L. Schaeffer Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Willis C. Moore III, certify that:

1.I have reviewed this Annual Report on Form 10-K of Polymer Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006	/s/ WILLIS C. MOORE, III
	Willis C. Moore, III Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report of Polymer Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James L. Schaeffer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2006 /s/ JAMES L. SCHAEFFER James L. Schaeffer Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification Pursuant To 18 U.S.C. Section 1350

In connection with the Annual Report of Polymer Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Willis C. Moore III, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2006 /s/ WILLIS C. MOORE, III Willis C. Moore, III Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.