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, 2006

OR

¨ 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 0-23938

INTERNATIONAL TEXTILE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0596831
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
804 Green Valley Road Suite 300 Greensboro, North Carolina	27408
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (336) 379-2865

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, par value $.01 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ¨     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  ¨     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 such filing requirements for the past 90 days. Yes  x     No  ¨

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 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. x

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   ¨                Accelerated Filer  ¨                Non-Accelerated Filer  x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (based upon the assumption, solely for purposes of this computation, that W.L. Ross & Co. LLC and its affiliates (the majority stockholders of the Company) and all of the officers and directors of the registrant were affiliates of the registrant) as of the last business day of the registrant’s most recently completed second fiscal quarter: $18,503,801.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Class	Outstanding at March 31, 2007
Common Stock, par value $.01	17,479,996 Shares

DOCUMENTS INCORPORATED BY REFERENCE:

NONE

PART I

ITEM 1. BUSINESS

Company Overview

Business

International Textile Group, Inc. (“ITG”, the “Company”, “we” or “us”) is a global, diversified textile manufacturer headquartered in Greensboro, North Carolina, and produces automotive safety, apparel, government uniform, technical and specialty textiles. The Company considers its five primary markets to be:

• Automotive safety – including airbag fabric and airbag cushions;

• Bottom-weight woven apparel fabrics—including denim, synthetic and worsted fabrics;

• Government uniform fabrics—including fabrics for military dress uniforms and battle dress uniforms;

• Interior furnishings fabrics; and

• Specialty fabrics and services—including commission printing and finishing, and value added technical fabrics used in a variety of niche industrial and commercial applications.

The Company’s automotive safety business unit, which consists of the Company’s automotive airbag fabric and automotive airbag cushion business segments, is the leading Tier 2 global airbag flat fabric cushion manufacturer in North America, Asia and Europe, as well as a leading airbag fabric manufacturer in North America. Tier 2 manufacturers produce and sell various automotive airbag components to airbag module integrators, referred to as Tier 1 suppliers, who then sell complete airbag modules to automobile manufacturers.

The Company believes it is one of the world’s largest and most diversified producers of denim fabrics and the largest producer of better denim fabrics for products distributed through department stores and specialty retailers. In addition, the Company believes it is one of the largest worsted wool manufacturers and commission printers and finishers in North America, and is a leading developer, marketer and manufacturer of other fabrics and textile products.

ITG’s strategy is to be the leading, globally diversified provider of textiles and related supply chain solutions for its customers. In pursuit of this strategy, the Company is actively engaged in expanding its global operations through greenfield initiatives and other strategic growth opportunities, while substantially reconfiguring its U.S. asset base. ITG expects to focus on the start up of its international greenfield initiatives and the substantial completion of the reconfiguration of its U.S. operations in 2007 and 2008. Key international greenfield initiatives include the construction and operation of facilities, either wholly-owned or through controlling stakes in joint ventures, in China, Vietnam and Nicaragua. With the completion of these strategic initiatives, ITG will have transformed itself from a North American producer of apparel textiles into a diversified, global manufacturer with a primary focus on the automotive safety, apparel, government uniform and technical and specialty textile markets. Consequently, the Company will have reduced its exposure to U.S. markets other than in the automotive safety and specialty markets, which have a low labor content and highly technical manufacturing processes requiring operations within close proximity of the customer base, and the military uniform fabric market, which is protected by the Berry Amendment (a U.S. law requiring military uniform fabric to be sourced wholly within the U.S.). ITG expects to realize further opportunities for international growth as it completes the expansion plans linked to current projects, and expands its presence in markets such as Europe, Vietnam, China, India and throughout Asia.

By the end of 2007, ITG expects to have a global market presence with operational facilities in North America, Europe, Asia and Africa. ITG’s long-term focus will be on the realization of the benefits of its global expansion, capitalizing on the expected continued market growth of automotive safety textiles, leveraging the benefits of

- 2 -

integrating acquired operations, completing construction and commencing production at ITG facilities in Vietnam and Nicaragua, as described below, and continuing to seek strategic growth opportunities around the world.

The Company had net sales of approximately $720.9 million for its 2006 fiscal year.

Subsequent Event – Acquisition of BST Safety Textiles

As a part of the execution of its strategy described above, on April 1, 2007, the Company completed the acquisition of BST US Holdings, Inc. (“BST Holdings”). The Company acquired all of the outstanding shares of BST Holdings in exchange for the issuance of approximately $84.0 million of Series A Convertible Preferred Stock (the “Preferred Stock”) of the Company. As a result of the acquisition, BST Holdings became a wholly-owned subsidiary of the Company.

BST Holdings owns the BST Safety Textiles business (“BST”). BST, based in Maulburg, Germany, is a leading international manufacturer of flat and one piece woven fabrics for automotive airbags as well as narrow fabrics for seat belts and military and technical uses. In 2006, BST had net sales of approximately $270.0 million.

History and Financial Presentation

The Company, a Delaware corporation incorporated in 1994, was formerly known as Safety Components International, Inc. (“SCI”). The Company acquired a company formerly known as International Textile Group, Inc. (“Former ITG”) through a merger in October 2006 (the “Combination”). Upon completion of the Combination, SCI changed its name to “International Textile Group, Inc.” “SCI” is used herein to refer to the Company and its historical operations prior to the Combination.

Former ITG was formed in August 2004 by W.L. Ross & Co. LLC (“WLR”) to consolidate the businesses of leading textile and fabric manufacturers, including Burlington Industries, Inc. (a manufacturer of textile products for apparel and interior furnishing products) (“Burlington”) and Cone Mills Corporation (a manufacturer of textile products, primarily denim, for apparel and interior furnishing products) (“Cone”). WLR, through certain affiliates, acquired substantially all of the assets of the Burlington and Cone businesses through chapter 11 bankruptcy reorganization proceedings. In establishing Former ITG, WLR consolidated certain corporate overhead functions, combined the Burlington denim operation with Cone Denim and began the detailed process of investing in a global footprint to service its customers in key textile and apparel regions of the world. Recognizing the implications of the elimination of quotas at the beginning of 2005, Former ITG formulated a strategic vision to transform itself into the leading, globally diversified provider of textiles and related supply chain solutions for its customers. By mid-2006, affiliates of WLR held approximately 85% of the stock of Former ITG.

SCI was originally formed to provide textile products, primarily airbags and airbag fabrics, to the automotive industry, and had been a publicly traded company since 1996. In December 2005, certain entities affiliated with WLR acquired a majority of SCI’s outstanding common stock, which at that time was traded on the Over-the-Counter Bulletin Board (“OTC-BB”) under the symbol “SAFY.” In October 2006, in a negotiated transaction between SCI and Former ITG, the Combination was completed and the Company’s stock, which continued to be traded on the OTC-BB, began trading under the symbol “ITXN.”

At the time of the Combination, WLR controlled a majority of the outstanding stock of each of SCI and Former ITG and, as a result, for accounting purposes, the acquisition of the majority interest of Former ITG was accounted for under the “as if pooling-of-interests” method of accounting applicable to the transfer of assets or exchange of equity interests between entities under common control. Under the “as if pooling-of-interests” method of accounting, the value of the assets and liabilities transferred is recognized at historical carrying cost as of the date of the transfer, rather than at fair value. The Company accounted for the acquisition of the minority interest of Former ITG using the purchase method of accounting in accordance with FASB Statement No. 141, Business Combinations and FASB Technical Bulletin (“FTB”) No. 85-5, Issues Relating to Accounting for Business Combinations.

In accordance with the guidelines of the accounting staff of the Securities and Exchange Commission (the “SEC”), upon a combination of entities under common control, the earlier acquired entity is deemed to be the predecessor for

- 3 -

financial statement presentation purposes. Consequently, in accordance with those guidelines and as a result of the Combination, Former ITG is deemed to be the predecessor entity, for accounting purposes, to the Company. As a result, the financial statements, and all related financial information, of the Company included herein have been recast to present the results of Former ITG for all historical periods, as it was deemed acquired when formed by WLR in 2004, prior to WLR’s acquisition of a majority of the stock of SCI in December 2005. Because the legal structure of the Combination resulted in SCI acquiring Former ITG and, ultimately, Former ITG being merged with and into the Company, the Company continues to report its results in accordance with the fiscal year of SCI, which corresponds to the calendar year.

References herein to the “2006 fiscal year” refer to the fiscal and calendar year ended December 31, 2006, and include the financial results of both SCI and Former ITG for the twelve-month period then-ended. In order to reconcile the different fiscal year-ends of SCI and Former ITG, and still present, for financial reporting purposes, the results of Former ITG as those of the predecessor entity, the Company considers the three-month period from October 3, 2005 (the first day of Former ITG’s fiscal year) until December 31, 2005 (the last day of the fiscal year of the surviving entity in the Combination) as the “2005 transition period” in accordance with the views of the staff of the SEC. In accordance with “as if pooling-of-interests” accounting, the 2005 transition period consists of the results of Former ITG for such period combined with the results of SCI from December 3, 2005 (the day of acquisition of control of SCI by WLR) until December 31, 2005. References to the “2005 fiscal year” refer to the fiscal year of Former ITG ended October 2, 2005. References to the “2004 fiscal year” refer to the forty-seven week period from the inception of Former ITG until October 3, 2004.

As a result of the application of the accounting guidelines summarized above, the presentation of the Company’s historical financial information herein is not consistent with the historical financial information of SCI as reported in prior filings with the SEC. The presentation of certain previously reported amounts included herein has been reclassified to conform to the current presentation and to reflect certain discontinued operations of the Company.

Products and Segments

In 2006, the Company reported its financial results in seven reportable segments: automotive airbag fabrics; automotive airbag cushions; bottom-weight woven apparel fabrics; government uniform fabrics; interior furnishings; commission finishing; and development stage. The Company’s products include a broad range of fabrics that are sold to the automotive safety, apparel, government uniform, interior furnishings and specialty fabrics and services markets.

Automotive airbag fabrics and automotive airbag cushions

Through its automotive safety business unit, the Company produces automotive airbag fabrics and airbag cushions for automotive airbag modules. Airbag fabric and airbag cushions are components of airbag modules. The Company and other component manufacturers that sell their products to airbag module integrators are generally referred to as Tier 2 suppliers to the automotive industry. Airbag module integrators, which sell complete airbag modules to automobile manufacturers, are generally referred to as Tier 1 suppliers to the automotive industry. Tier 1 suppliers generally produce a majority of the components required for a complete airbag module. However, as the industry has evolved, Tier 1 suppliers have outsourced varying portions of non-proprietary components, such as airbag fabric and airbag cushions, to Tier 2 suppliers that specialize in the production of individual airbag components. Most Tier 1 suppliers produce airbag cushions for some models of cars and trucks internally and out-source their production requirements for other models to Tier 2 suppliers.

The Company’s airbag-related products include passenger, driver and side impact airbag cushions, side protection curtains, knee protection cushions and related parts and accessory components manufactured for installation in various car and truck models sold worldwide under multiple name brands, as well as airbag fabric sold to airbag manufacturers.

Additionally, the Company manufactures a wide variety of technical and value added fabrics used in a variety of niche industrial and commercial applications. The technical fabrics industry includes highly engineered materials used in numerous applications and a broad range of industries, including fire service apparel, ballistics materials, filtration, military fabrics and outdoor awnings and covers. The Company sells these technical fabrics in both North America and Europe. Historically, the Company’s technical fabrics products have not been reported internally separately from the Company’s automotive fabrics segment.

- 4 -

Bottom-weight woven apparel fabrics (including denim, cotton, synthetic and worsted)

The Company produces apparel fabrics for use in garments, typically bottoms (i.e., pants, skirts or shorts). Demand for apparel fabric generally arises, directly or indirectly, from apparel wholesalers and retailers. Generally, wholesalers and retailers do not manufacture garments themselves, but instead they use “cut and sew” contractors who convert apparel fabric into finished garments. When an apparel wholesaler or retailer contracts for finished garments from the cut and sew contractors, they will usually specify which fabric manufacturer’s product is to be used. The cut and sew contractor then purchases apparel fabric directly from the designated fabric manufacturer.

Through the Cone Denim business unit, the Company manufactures and markets a wide variety of denim apparel fabrics. Denims are generally “yarn-dyed,” which means that the yarn is dyed before the fabric is woven. The result is a fabric with variations in color that give denim its distinctive appearance. Denim fabrics are marketed under the Cone Denim^® brand name to premium and vintage jeanswear markets, where styling and innovation are important factors, as well as to the fashion and better basic jeanswear markets. The Company’s product developers and designers work directly with customers to provide differentiated denim products. This allows the Company to offer superior denim products to internationally known jeanswear brands and retailers who are seeking to differentiate themselves based on fashion, lifestyle branding and superior supply chain management.

Synthetic and worsted fabrics are marketed under the Burlington^® WorldWide and Raeford^® Uniform brand names. Synthetic fabrics include 100% polyester, nylon and polyester blended fabrics with wool, rayon and lycra. These products are targeted for the production of mens and womens apparel, performance activewear and uniform career apparel. Worsted fabrics include 100% wool and wool blended fabrics primarily targeted to branded mens apparel customers and the uniform career apparel trade.

Government uniform fabrics

The Company manufactures fabrics for military dress uniforms and battle dress uniforms (camouflage) sold primarily to the U.S. Government and to government contractors. Government legislation, commonly referred to as the Berry Amendment, requires that U.S. military uniform fabric must be manufactured in the United States. Worsted fabrics marketed under the Burlington WorldWide brand name are produced for the military dress uniform business. The Company is the largest producer of worsted fabrics for products produced for the U.S. military and fabrics protected by the Berry Amendment. The Company’s Carlisle Finishing business unit also produces military prints that are used to service the battle dress uniform business primarily for the U.S., but also for other, governments.

Interior furnishings

The Company’s interior furnishings fabrics are marketed under the Burlington House^® and Cone Jacquard™ brand names. Upholstery fabrics are used in the residential and commercial markets, including healthcare, hospitality and corporate contract furnishings and furniture fabrics, panel fabrics and cubicle curtains. For interior fabrics, orders for fabric generally arise directly from the customer, and that customer produces the finished product or contracts for its production.

Commission finishing

The Company believes it is one of the largest commission printers and finishers in North America.

Commission textile printing and finishing services are provided by the Company’s Carlisle Finishing business unit, primarily for decorative interior furnishings and specialty prints. The Company’s capabilities in this segment include finishing, color matching and digital printing. The Company expects to begin operation in 2007 of a dyeing and finishing plant in China which, in addition to meeting internal production requirements, will provide commission finishing services primarily to the interior furnishings and ancillary markets.

- 5 -

Development stage

The Company allocates certain corporate expenses related to its international initiatives, described below, to its development stage segment. Management has established that a start-up operation is deemed to be operational when all equipment has been installed and normalized operating performance has been achieved. During the first full quarter that such performance has been realized, the results of a start-up operation are aggregated with the appropriate reporting segment.

Segment and Geographic Information

The Company generally attributes its revenues based on the ultimate destination of products and attributes its long-lived assets to a particular country based on the location of the assets within each of the Company’s production facilities. Summarized financial information by segment and geographic area is provided below. The data presented for the automotive airbag cushions and automotive airbag fabrics reportable segments relates to certain historical businesses of SCI and has been included in the Company’s results of operations beginning on December 3, 2005. For additional information, see Note 20 to the notes to consolidated financial statements included elsewhere in this annual report.

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
Net Sales:
Automotive Airbag Cushions	$	173,183		$	10,053		$	N/A		$	N/A
Automotive Airbag Fabrics		57,326			3,161			N/A			N/A
Bottom-weight Woven Apparel Fabrics		409,013			88,288			529,319			451,322
Government Uniform Fabrics		44,522			12,165			46,328			48,072
Interior Furnishings		36,418			8,805			41,115			35,854
Commission Finishing		21,683			5,879			27,481			19,596
Development Stage		—			—			—			—
All Other		386			67			401			339
		742,531			128,418			644,644			555,183
Intersegment Sales		(21,615	)		(2,996	)		(11,178	)		(6,229	)
	$	720,916		$	125,422		$	633,466		$	548,954
	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Three Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
Net Sales:
United States	$	355,024		$	78,544		$	397,755		$	337,889
Mexico		128,869			14,016			108,544			99,609
Germany		92,675			4,745			—			—
Other Foreign		144,348			28,117			127,167			111,456
	$	720,916		$	125,422		$	633,466		$	548,954

- 6 -

	December 31, 2006		December 31, 2005		October 2, 2005		October 3, 2004
Long-lived Assets:
United States	$	45,759	$	37,617	$	20,019	$	6,988
Mexico		31,401		6,559		1,218		363
China		55,223		4,504		297		31
Other Foreign		30,961		20,519		20		—
	$	163,344	$	69,199	$	21,554	$	7,382

International Initiatives

In pursuit of its strategy, the Company is in the process of pursuing international greenfield initiatives, as well as other strategic growth opportunities, to develop manufacturing operations that allow it to diversify both geographically and by customer sourcing patterns. The Company believes that a global platform will increase its flexibility to address customer relationships and mitigate market risks associated with any specific location.

The strategic focus of the Company’s automotive safety division has been to become the lowest cost provider of total customer solutions for high quality automotive airbag fabric and airbag cushions worldwide. The Company’s original airbag cushion manufacturing facilities were in Mexico and the United Kingdom. The Company has since repositioned most of its European manufacturing from Western Europe to Eastern Europe. The Company’s U.K. facility began subcontracting with airbag cushion manufacturers in the Czech Republic in 1996, and the Company began producing airbag cushions at its own facilities in the Czech Republic in 1997. The Company acquired airbag cushion manufacturing facilities in Germany in 1996 and began subcontracting a portion of its production to Romania in 2002. In January 2005, the Company announced that it had signed an agreement to form a joint venture with Kingsway International Limited, an entity associated with Huamao (Xiamen) Technical Textile Co., Ltd., or Huamao, which manufactures airbag and industrial and technical fabrics in China. This China Joint Venture began commercial production in the fourth quarter of 2005 and produces automotive airbag cushions utilizing fabrics produced by Huamao. Production is intended to satisfy the Chinese domestic and Asian markets. The Company owns 65% of the entity formed to conduct the operations of the China Joint Venture. In November 2004, the Company announced that it had signed an agreement to form a joint venture with KAP Textile Holdings SA Ltd., or Gelvenor, which, through its textiles divisions, produces high technology industrial, technical and specialized fabrics in South Africa. The South Africa Joint Venture began commercial production in the first quarter of 2006 and produces automotive airbag cushions utilizing fabrics produced by Gelvenor. The Company owns 75% of the entity formed to conduct the operations of the South Africa Joint Venture.

On June 30, 2006, the Company completed the acquisition of the 50% equity interest of the Parras Cone joint venture not then owned by it from Compania Industrial de Parras S.A. de C.V. Prior to this acquisition, through a marketing agreement, ITG’s Cone Denim division marketed 100% of the denim produced at Parras Cone. Parras Cone has been producing basic denims and yarn since 1995.

In the fourth quarter of 2006, the Company acquired certain plant and airbag cushion assets of its Romanian subcontractor for airbag cushions for an aggregate purchase price of €5.5 million. This facility provides “cut and sew” services to the Company’s European automotive airbag business.

The Company is constructing a technologically advanced 28 million yard vertical denim plant in the city of Jiaxing, Zhejiang Province, China. Cone Denim (Jiaxing) Limited is a joint venture 51% owned by the Company and is consolidated in the Company’s financial statements. The Cone Denim division will market 100% of the denim produced at Cone Denim (Jiaxing) in coordination with Cone Denim’s other operations. The Company expects Cone Denim (Jiaxing) to begin production in calendar year 2007. The cost of this project is estimated at approximately $100 million.

- 7 -

The Company is also building a fabric dyeing and finishing plant in Jiaxing, China. This dyeing and finishing operation, Jiaxing Burlington Textile Company Limited, is wholly owned. The Company expects Jiaxing Burlington Textile Company to begin operations in calendar year 2007. This facility will provide synthetic apparel fabrics and commission finishing services for interior furnishings and other complementary products. The cost of this project is estimated at approximately $30 million.

In 2006, the Company also began construction of a 28 million yard vertical denim plant in Nicaragua. The choice of Nicaragua reflects the Company’s belief that Nicaragua, and Central America generally, will be long-term providers of apparel products to the U.S. market, given their regional proximity and competitive labor base. In addition, the Company expects to benefit from tariff preference levels, or TPLs, granted to Nicaragua as part of the Central America Free Trade Agreement, or CAFTA. Management believes that access to these TPLs will allow the Company to ship its products, primarily denim, cost competitively from its facilities in Mexico and China to Nicaragua for garment production by its customers. The Company expects Cone Denim de Nicaragua to begin production in 2008. The cost of this project is estimated at approximately $100 million.

The Company has entered into an agreement to build a technologically advanced cotton-based fabrics and garment manufacturing complex in Da Nang, Vietnam. ITG – Phong Phu Ltd., Co. (“ITG-PP JV”) is 60% owned by the Company and 40% owned by Phong Phu Corporation and is consolidated in the Company’s financial statements. Construction of these facilities commenced in March 2007. This venture will offer apparel customers a total supply chain solution from fabric to finished garments. The operation will focus on the production of cotton bottom-weight fabrics and finished garments. Capabilities will include weaving, dyeing and finishing fabric operations, as well as garment production. This integrated complex is expected to be operational in calendar year 2008 with an initial dyeing and finishing capacity for fabrics of 30 million yards annually. As a component of the ITG-PP JV, a garment agency will also be established.

The Company’s international initiatives, including its significant foreign operations and exports to foreign markets, are subject to a number of special risks, which are described in more detail in the section entitled “Risk Factors” below.

Customers

The Company sells its products to a diversified, worldwide customer base within the automotive, apparel, government fabric, and interior furnishings markets. No single customer represented more than 10% of the Company’s net sales in 2006.

The automotive safety business unit sells its airbag cushions to Tier 1 suppliers globally for inclusion in specified car and truck models. Airbag fabric is sold in North America and Europe either directly to Tier 1 suppliers or to other Tier 2 suppliers, which then sew the airbag and sell it to a Tier 1 supplier. In some cases, particularly when the airbag cushion requires lower air permeability to facilitate more rapid or prolonged inflation, and to eliminate particulate burn-through caused by hot inflators, the airbag fabric must be coated before it is fabricated into an airbag. In such a case, the Company generally sells airbag fabric to a coating company, which then resells the coated fabric to either a Tier 1 supplier or a Tier 2 supplier. The Company has contractual relationships with several large, global Tier 1 suppliers, the most significant being, in alphabetical order, Autoliv, Inc., Key Safety Systems, Inc., Takata Group and TRW Automotive Holdings Corp.

The Cone Denim and Burlington WorldWide divisions serve customers throughout the apparel supply chain, including a variety of cut and sew contractors and apparel wholesalers and retailers, worldwide. The Company believes it is a leading supplier to the world’s leading jeanswear brands. The Company also sells its products to manufacturers, wholesalers and retailers of home textile products and other users of fabric products.

Although none of the Company’s customers accounted for 10% or more of direct net sales in the 2006 fiscal year, Levi Strauss & Co. (“Levi Strauss”), its largest customer, is able to direct certain of its garment producers to purchase denim (or other fabric) directly from the Company for use in Levi Strauss products. Although Levi Strauss is not directly liable in any way for the payment by any of those contractors for fabric purchased from the Company, the Company believes that continued sales to these customers are dependent upon the Company maintaining a strong supplier/customer relationship with Levi Strauss, as well as Levi Strauss’ continued success in the

- 8 -

marketplace. The Company estimates that Levi Strauss directly and indirectly accounted for approximately 12% of net sales in the 2006 fiscal year. In addition to Levi Strauss, key customers of the Company’s denim fabrics include, in alphabetical order, American Eagle Outfitters, Inc., Buckle Inc., Gap, Inc. (including retailers Banana Republic, GAP and Old Navy), and VF Corporation (principal jeanswear brands include Lee^®, Rustler^® and Wrangler^®). Key customers of the Company’s synthetic and worsted products include, in alphabetical order, Bayer Clothing Group, Inc., Cintas Corporation, Fechheimer Brothers Co., and Oxford Industries, Inc. Key customers of the government uniform fabrics segment include the U.S. Government and suppliers to the U.S. Government.

Competition

The U.S. and global textile industries are highly fragmented and competitive. No single firm dominates the United States or global market, and many companies compete only in limited segments of the textile market. Certain of the Company’s products also compete with nontextile products. In many markets, the Company competes with large, integrated enterprises, as well as small, niche regional manufacturers. Textile competition is based in varying degrees on price, product styling and differentiation, quality, response time and customer service. The importance of each of these factors depends upon the needs of particular customers and, within certain of the Company’s segments, the degree of fashion risk inherent in the product.

The airbag fabric and airbag cushion markets are highly competitive. Some of the Company’s current and potential competitors may have greater financial and other resources than the Company, and some are more diversified than the Company. The Company competes primarily on the basis of price, product quality, reliability, flexibility and capability. The automotive safety business unit competes with various Tier 2 suppliers in North America for airbag fabric sales, and in both North America and Europe for airbag cushion sales to Tier 1 suppliers. Because Tier 1 suppliers dictate the airbag fabric to be used in the airbag cushions they purchase from Tier 2 suppliers, the Company is sometimes required to use airbag fabric produced by its competitors in the airbag cushions manufactured by the Company. Most Tier 1 suppliers produce a portion of their airbag cushion requirements internally and outsource the rest of their production requirements to Tier 2 suppliers. Tier 1 suppliers generally do not divide their production requirements for any single car or truck model between in-sourcing and outsourcing, but rather in-source all of their production requirements for some models and outsource all of their production requirements for other models. Tier 2 suppliers, such as the Company, generally do not compete with Tier 1 suppliers for airbag cushion sales to third parties; however, during downturns in the automotive industry, Tier 1 suppliers tend to in-source their production requirements for more models in order to maximize utilization of their own facilities. Similarly, but to a lesser extent, some Tier 1 suppliers in-source a portion of their airbag fabric requirements. The automotive safety business unit’s primary Tier 2 competitors in the North American airbag fabric market are Milliken and Company, Mastex Industries, Inc. and Reeves Brothers, Inc. Its primary Tier 2 competitors in the North American and European airbag cushion markets are Milliken and Company and Aerazur S.A. As discussed above, most Tier 1 suppliers in-source some of their airbag cushion production requirements and some Tier 2 suppliers in-source some of their airbag fabric production requirements. Some Tier 1 suppliers, such as Takata Highland, in-source all of their airbag fabric and their airbag cushion production requirements.

The textile apparel industry continually faces changes in demand and sourcing. Industry participants, including customers of the Company, continue to seek lower prices for textile products and have shifted the sourcing of products to outside of North America, principally to Asia, the Indian subcontinent and Central America.

Within the Company’s bottom-weight woven apparel segment, imports of foreign-made textile and apparel products are a significant source of competition. The Company believes that imports of apparel garments will continue to rise, especially as certain quotas on goods imported from China expire over the next two years. This expected increase in imports will place additional competitive pressures on the Company.

Raw Materials

The Company uses many types of fiber, both natural (principally cotton and wool) as well as synthetic (polyester, nylon, polypropylene, acrylic, rayon, Tencel^®, and acetate), in the manufacture of its textile products.

The raw materials required by the automotive safety division largely consist of synthetic yarns provided primarily by Invista, Inc. (“Invista”), Pharr Yarns, LLC (“Pharr Yarns”), and Polyamide High Performance GmbH (“PHP”).

- 9 -

The primary yarns include nylon, polyester and Nomex. Invista and PHP are the leading suppliers of airbag fabric yarn to both the market and the Company. Invista supplies a majority of the nylon yarn used in the Company’s airbag fabric operations pursuant to purchase orders or releases on open purchase orders. The automotive safety division’s principal customers generally require that they approve all suppliers of major airbag components or airbag fabric raw materials. These suppliers are approved after undergoing a rigorous qualification process on their products and manufacturing capabilities. In many cases, only one approved source of supply exists for certain airbag components. In the event that a sole source supplier experienced prolonged delays in product shipments or no longer qualified as a supplier, the Company would work together with its customers to identify another qualified source of supply. Any inability to obtain such alternative supplies, if necessary, could have a material adverse effect on the Company. Other materials, such as dyes and chemicals, are generally available, but, as in the case of the Company’s primary raw materials, continued availability is dependent to varying degrees upon the adequacy and cost of the polymers used in production and petroleum prices.

Cotton and wool are available from a wide variety of domestic and foreign sources. The cost of cotton and, to a lesser extent, its availability generally has varied in the past several years as a result of volatility in crop production. United States agricultural programs affect the crop production, and thus the cost and supply of cotton in the U.S., and the policies of foreign governments have an effect on worldwide prices and supplies as well. Synthetic fibers, principally polyester, are generally available from a wide variety of sources both domestically and abroad. However, the prices of those fibers are influenced heavily by demand, manufacturing capacity, petroleum prices and the cost of the underlying polymers.

Employees

At December 31, 2006, the Company employed approximately 8,700 individuals worldwide. The Company’s hourly employees in Mexico, the Czech Republic and South Africa are entitled to a federally regulated minimum wage, which is adjusted from time to time. The Company seeks to set wages for its hourly employees in China at a level designed to compete for skilled workers in its economic zone market. Employees at the Company’s White Oak Plant in the United States, and at its facilities in Mexico and the Czech Republic are unionized. In addition, the Company’s wholly owned German subsidiary has a workers’ council pursuant to German statutory labor law, and a similar council exists at the Company’s facility in Romania. The Company has not experienced any work stoppages related to its work force and considers its relations with its employees and all unions currently representing its employees to be good.

Regulatory

The Company’s operations are subject to various product safety, environmental, employee safety and wage and transportation related statutes and regulations. The Company believes that it is in substantial compliance with existing laws and regulations and has obtained or applied for the necessary permits to conduct its business operations.

As a provider of textile products internationally, the sale of the Company’s products is subject to various regulations governing trade among countries. The Company seeks to maximize the benefits that may be achievable under trade laws of various countries. For example, under the North American Free Trade Agreement, or NAFTA, entered into between the United States, Mexico and Canada, there are no textile or apparel quotas between the United States and either Mexico or Canada for products that meet certain origin criteria. Because the Company is an apparel fabrics manufacturer and a resident, diversified textile product manufacturer in Mexico, the Company believes that NAFTA is advantageous to the Company. In addition, the Company is able to benefit from certain recently passed CAFTA legislation in its development of a denim manufacturing facility in Nicaragua. The Company’s announcement of an investment in Vietnam coincided with Vietnam’s proposed entry into the World Trade Organization.

Generally, trade agreements such as NAFTA and CAFTA affect the Company’s business by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country. However, trade agreements can also impose requirements that limit the countries from which ITG can purchase raw materials and set quantitative limits on products that may be imported from a particular country.

- 10 -

In general, previously existing quotas on the importation of fabrics and apparel were phased out over a ten-year period that ended on January 1, 2005. These phased-out quotas only applied to World Trade Organization, or WTO, member countries. With China’s accession to the WTO in 2001, the phase-out completed on January 1, 2005 was applicable to that country as well. Given this short time frame, however, a “safeguard” mechanism was established with respect to China only. The safeguard mechanism is a transition rule to protect against surges of imports from China that would disrupt the domestic market in such goods. The additional safeguards put in place with respect to products sourced from China has reduced or limited the flow of textile and apparel products from that country and, as a result, many manufacturers are considering alternative sourcing plans.

The existing safeguard mechanism will expire on, and it is likely that no safeguard actions will be invoked after, December 31, 2008.

The Berry Amendment, which was enacted in 1941, is one of multiple statutes that impose “domestic source” requirements on products used in government procurement contracts. The Berry Amendment, in pertinent part, requires the Department of Defense, or DOD, to use only domestically produced apparel and fabrics. Under the requirement, these items must be made with 100% U.S. content and labor. The DOD may waive the Berry Amendment requirement and purchase foreign made goods under certain circumstances, such as “emergency” acquisitions or when U.S.-origin products are unavailable.

The United States and other countries in which the Company’s products are manufactured and sold may impose new duties or tariffs, change standards for the classification of products or implement other restrictions. Management monitors new developments and risks related to duties, tariffs, quantitative limits and other trade-related matters pending with the U.S. and foreign governments.

Customers of the automotive safety business unit require the Company to meet specific requirements for design validation. The Company and its customers jointly participate in design and process validations and customers must be satisfied with reliability and performance prior to awarding a purchase order. All standards and requirements relating to product performance are required to be satisfied before the Company is qualified as a supplier by its customers. The Company maintains extensive quality control and quality assurance systems in its North American and European automotive facilities, including inspection and testing of all products, and is TS 16949 and ISO 9001 certified. The more stringent TS 16949 replaces SCI’s previous QS 9000 certification. The Company believes it was the first airbag fabric manufacturer to have its entire business (not just its manufacturing facility) certified under ISO 9000. The Company also performs process capability studies and designs experiments to determine that the manufacturing processes meet or exceed the quality levels required by each customer. The Company’s fabric operations’ laboratories are accredited by A2LA pursuant to the requirements under ISO 17025. The Company’s facility in the Czech Republic as well as its fabric operations are also certified under the environmental management standard ISO 14001. The Company’s fire service products are registered under the UL Product Registration Program against specific National Fire Protection Association requirements.

Environmental

The Company’s operations and properties are subject to a wide variety of environmental laws. Such laws may impose joint and several liability and may apply to conditions at properties presently or formerly owned or operated by an entity or its predecessor as well as to conditions of properties at which wastes or other contamination attributable to an entity or its predecessor have been sent or otherwise come to be located. The nature of the Company’s operations exposes it to the risk of claims with respect to such matters and there can be no assurance that violations of such laws have not occurred or will not occur or that material costs or liabilities will not be incurred in connection with such claims. Based upon its experience to date, the Company believes that the future cost of compliance with existing environmental laws and liability for known environmental claims pursuant to such environmental laws will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, future events, such as new information, changes in existing environmental laws or their interpretation, and more vigorous enforcement policies of regulatory agencies, may give rise to additional expenditures or liabilities that could be material. Although no assurances can be given in this regard, in the opinion of management, no material expenditures beyond those accrued are expected to be required for the Company’s environmental control efforts and the final outcomes of these matters are not expected to have a material adverse effect on the Company’s financial position or results of future operations. The Company believes that it currently is in compliance with applicable environmental regulations in all material respects.

- 11 -

Research and Development

The Company is committed to researching and developing new products, product and process improvements, and improving the quality of its existing products. These efforts are primarily channeled toward improving the quality, styling and performance of its fabrics and related products.

The Company’s airbag fabric and airbag cushion operations have maintained an active design and development effort focused toward new and enhanced products and manufacturing processes. The Company has technical centers in Greenville, South Carolina; Ensenada, Mexico; and Hildesheim, Germany. Through its textile laboratory located in Greenville, South Carolina, the Company has the ability to test and analyze a wide range of fabrics (airbag and other) under internationally accepted testing standards, including US-ASTM, Europe-DIN and ISO, Asian-JIS and Underwriters NFPA. The laboratory is A2LA accredited (ISO 17025) and certified with ISO/TS 16949, which are the most important certifications for the industry. All validation testing and analytical testing of fabric is performed at this laboratory. Additionally, the Greenville facility has prototype-manufacturing capabilities. All necessary validation testing and process development testing of airbag cushions manufactured in North America is performed in Ensenada, Mexico. The Ensenada, Mexico technical center consists of a testing laboratory and prototype cells complete with dedicated staff and equipment. The Company’s technical center in Hildesheim, Germany conducts static and dynamic deployment testing and analysis using high-speed video equipment and includes pendulum-testing capability, a sample shop with manual and computerized sewing equipment, a production-style laser cutter, volumetric measurement and analysis equipment, textile welding and other non-sewn fastening equipment.

The Company’s Burlington Labs division, which is a part of the bottom-weight woven apparel segment, works with technology vendors to develop new fabric innovations in exchange for exclusivity commitments from these vendors on new products and to explore and develop proprietary technologies exclusive to Burlington WorldWide, including chemical formulations, fiber enhancements and fabric processing applications designed to lead to new fabric innovations. These innovations include odor adsorption, insect repellency, flame retardancy and sun protection properties woven into fabrics without compromising hand aesthetics and appearance. These products are used in activewear and military apparel as well as in hospitals and home fashions. Both Burlington WorldWide and Cone Denim have a long history of research and development projects, which have resulted in new products such as denim fabrics with unique appearances, specialty fabrics with performance characteristics such as moisture wicking and stain repellency, and fabric with fire retardant properties.

The Company is also involved in the development of computer aided design and manufacturing systems and other methods to facilitate and streamline interaction between employees and the Company’s customers.

The Company’s research and development costs were approximately $7.3 million in the 2006 fiscal year, $1.5 million in the 2005 transition period, $5.1 million in the 2005 fiscal year and $4.6 million in the 2004 fiscal year.

Intellectual Property

The Company maintains a portfolio of patents, trade secrets, trademark and copyrights. The Company holds a number of patents that relate to technical improvements, and the enhancement of product performance, with respect to airbag fabric and technical related products. Provided that all requisite maintenance fees are paid, the patents held by the Company will expire at various times through 2022. The Company also has several registered trademarks for brand names for some of its technical fabrics, including WeatherMax and MCS, which are subject to renewal at various times through 2015.

The Company engages in both active and passive branding in its various business segments, and seeks to leverage the heritage and authenticity of its established, widely-recognized brands and brand names, including Cone Denim^®, Burlington House^® and Burlington^® in its bottom-weight woven apparel fabrics segment, as well as its Raeford^® Uniform brand name in its bottom-weight woven apparel fabrics and government uniform fabrics segments.

- 12 -

Seasonality

Sales in the Company’s automotive airbag fabrics and automotive airbag cushions segments are subject to the seasonal characteristics of the automotive industry, in which, generally, there are plant shutdowns in the third and fourth quarters of each calendar year. The strongest portion of the apparel sales cycle is typically from March through November as customers target goods to be sold at retail for the back-to-school fall, holiday and spring seasons. In recent years, apparel fabric sales have become increasingly seasonal as customers have begun to rely more upon contract sewing and have sought to compress the supply cycle to mirror retail seasonality as described above. Historically, the Company’s apparel fabric sales have been typically four to six months in advance of the retail sale of the apparel garment. Demand for upholstery fabrics and the level of attendant sales generally fluctuate moderately during the year.

Backlog

The backlog of the Company’s open orders as at December 31, 2006 was approximately $71 million, and was approximately $69 million as at December 31, 2005. The Company believes that the open orders at December 31, 2006 will be filled during the 2007 fiscal year.

Restructuring Activities and Discontinued Operations

The Company continues to examine its existing domestic manufacturing operations and evaluate opportunities for strategic growth, including possible acquisitions. The Company evaluates opportunities to restructure certain of its domestic operations in an effort to align its domestic manufacturing base with long-term opportunities and increase return on investment.

In November 2005, the Company finalized the shutdown of its denim manufacturing facility in Cliffside, North Carolina, and in May 2006, completed the sale of the real property and certain equipment from this location. Remaining equipment from this location is being placed in operation at other ITG facilities.

In May 2006, the Company entered into an agreement pursuant to which it agreed to close its Reidsville, North Carolina weaving plant in the interior furnishings segment and transition all future production of U.S. produced mattress fabrics to a leased facility as part of an agreement with Tietex International. The Company received proceeds from the related sale of plant assets of $3.9 million. This restructuring resulted in the elimination of approximately 60 jobs in the United States with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company.

In August 2006, the Company announced that it would be transitioning production from its Hurt, Virginia dyeing and finishing plant to other domestic facilities and its new synthetic finishing plant in China (Jiaxing Burlington Textile Company). Based upon expected customer requirements, synthetic fabric production will be transitioned to ITG’s Burlington, North Carolina finishing plant. As with Jiaxing Burlington Textile Company, the Burlington finishing plant will also service both apparel and interior furnishings customers.

In November 2006, the Company announced that it would transition from a 7-day continuous operation to a 3-shift/5-day operation at its White Oak denim plant located in Greensboro, North Carolina. In conjunction with this transition, the plant will stop producing open-end yarns in order to further focus on being a niche supplier of premium denims. This restructuring resulted in the elimination of approximately 260 jobs in the United States with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company.

In December 2006, the Board of Directors of ITG committed to a plan to exit certain Burlington House businesses in the interior furnishings segment and instructed management to seek potential buyers and negotiate sales of the related product lines or assets. The businesses being exited produced decorative fabrics and mattress fabrics as well as warps and package-dyed yarns for sale to other manufacturers with all production facilities located in Burlington, North Carolina and its surrounding vicinity.

- 13 -

The Company intends to transfer its worsted finishing operations from the Hurt facility to its Raeford, North Carolina facility, which presently produces yarn for the worsted fabric. This strategic move will consolidate key steps of the Berry Amendment-protected U.S. military dress uniform fabric production in a long term defensible domestic facility. The transition of these operations and the related closing of the Hurt, Virginia facility is expected to be completed in the 2007 fiscal year.

In January 2007, the Company sold certain assets that were part of its discontinued mattress fabrics product line to Culp, Inc. The sale price of $7.8 million was paid with $2.5 million of cash and the remainder in shares of stock of Culp.

ITEM 1A. Risk Factors

The Company and its operations are subject to a number of risks and uncertainties, including those described below. You should carefully consider these risks when evaluating the Company’s prospects. The risks below are not the only risks facing the Company, but are currently considered the most material by management. Additional risks and uncertainties not presently known to the Company or that it currently considers immaterial could adversely affect the Company in the future. Should any of these risks occur, the Company’s financial condition and results of operations could be materially adversely affected.

The Company operates in a highly competitive and rapidly evolving market and faces intense competition from both established entities and new entries in its markets that may adversely affect the Company’s revenues and profitability.

The Company’s markets are highly competitive and evolving rapidly, both in the U.S. and internationally, and the Company has been subject to increased competition for its products. Competition is generally based upon price, product quality and service. The Company competes for sales with large integrated enterprises that may have greater financial and marketing resources than the Company, as well as with small, niche manufacturers that may be able to achieve greater market penetration than the Company in certain regions or with respect to individual product lines. Increased competition for the Company’s products, including in the form of lower cost production in other countries, or foreign imports at low prices, could result in decreased prices and/or demand for the Company’s products, which could have a potentially adverse effect on the Company’s results of operations, cash flows or financial position.

In addition, many companies both in and outside of the Company’s industries have active research and development programs. Many of these companies have considerable experience in areas of competing interests to the Company. The Company cannot determine if other manufacturers are conducting potentially competitive research, which could result in the development and introduction of processes, products or materials that are either comparable or superior to the processes or materials the Company uses, or the products the Company sells. Further, new product introductions, product enhancements and the use of other technologies by the Company’s competitors could lead to a loss of market acceptance and cause a decline in sales or gross margins.

Cost pressures resulting in further integration or industry consolidation could reduce sales opportunities, decrease sales prices and drive down demand for the Company’s products, especially within the automotive safety business.

Automotive suppliers, such as certain of the Company’s customers, are currently subject to cost pressures. As a result, certain suppliers have begun to vertically integrate some industry operations. Consolidation within the automotive supply industry, as well as further vertical integration among the Company’s customers, in either case combined with increased in-sourcing as described below, could result in decreased sales prices and demand for the Company’s products. The occurrence of any one or more of these factors could have a potentially adverse effect on the Company’s results of operations, cash flows or financial position.

- 14 -

Demand for the Company’s products varies with trends in consumer demand for automobiles, the fashion industry, and general economic cycles, as well as other patterns.

Demand for the Company’s automotive textile products is generally related to the demand for automobiles. A change in any number of factors, including U.S. and world business cycles, imbalances between consumer demand and inventories of retailers and manufacturers, consumer spending patterns and changes in fashion trends, could affect demand for textile products and, in turn, result in decreased sales prices and/or demand for the Company’s products. Demand for the Company’s apparel and interior furnishing products also vary with those trends. Any such changes could have a potentially adverse effect on the Company’s results of operations, cash flows or financial position.

The Company’s customers of airbag fabric and airbag cushions may, in certain circumstances, increase their internal production of airbag fabric and airbag cushions, reducing their demand for the Company’s automotive safety products.

The Company supplies airbag fabric and airbag cushions to Tier 1 suppliers. Most Tier 1 suppliers produce airbag cushions for some models of cars and trucks internally and outsource their production requirements for other models to Tier 2 suppliers, such as the Company. From time to time, Tier 1 suppliers decide to in-source the production of airbag cushions for car and truck models that were previously outsourced. During downturns in the automotive industry, Tier 1 suppliers tend to in-source more frequently in order to maximize utilization of their own facilities. Similarly, but to a lesser extent, some Tier 1 suppliers in-source a portion of their airbag fabric requirements, and such in-sourcing also tends to increase during downturns in the automotive industry. Recent decreases in demand for automobiles in both the North American and the European markets resulted in the decisions by certain Tier 1 suppliers in 2005 and 2006 to curtail outsourcing and in-source additional production, which resulted in reduced sales. Any additional in-sourcing decisions by Tier 1 suppliers could materially adversely affect results of operations, cash flows or financial position.

Downturns in the automotive industry, as well as production stoppages, typically reduce demand for the Company’s automotive safety products and, therefore, reduce the Company’s revenues and income.

The Company sells its automotive safety products to Tier 1 suppliers, which in turn sell their modules to various automotive manufacturers. Automotive manufacturers have, from time to time, experienced rising inventories of unsold automobiles resulting in reduced production in order to balance inventory levels with sales. Sustained reductions in automotive production reduce demand for the Company’s products and therefore reduce its revenues and profitability. Any sustained downturn within the automotive production market could have a material adverse effect on the Company’s results of operations, cash flows or financial position. The results of operations of the automotive safety business unit are also subject to the effects of work stoppages within the automotive industry as a whole. In particular, sales of airbag products are vulnerable to interruptions as a result of work stoppages of labor forces of customers and/or major automotive manufacturers whose unionized workers may strike from time to time.

New suppliers in the North American automotive safety products market could reduce sales prices and demand for the Company’s automotive safety products.

The cost pressures currently being experienced in the automotive industry increase the possibility that a customer may seek to qualify new suppliers in the North American market, with the possibility of decreased sales prices and demand for the Company’s automotive safety products. New suppliers could be existing U.S. companies in similar or related businesses or existing foreign competition expanding into the North American market. New suppliers and competition could have a material adverse effect on the Company’s customers and/or suppliers resulting in a potentially adverse effect on the Company’s results of operations, cash flows or financial position.

The Company’s results could be affected by fluctuations in the cost and availability of materials and naturally occurring and other resources used in the production of the Company’s products.

The primary materials used in the production of the Company’s products include cotton, wool, nylon and polyester. In addition, the Company relies heavily on naturally occurring resources such as fuel, as well as certain chemicals, in the production of its products. The materials and other resources used in the production of the Company’s products are subject to fluctuations in price and availability. For instance, cotton prices and availability vary from season to season depending upon the crop yields. The price of nylon and polyester is influenced by demand, manufacturing capacity and costs, petroleum prices and the cost of polymers used in producing polyester. The

- 15 -

Company attempts to pass along certain of these raw material price increases to its customers in order to protect its profit margins. Its success in so doing is dependent upon market dynamics present at the time of any price increases. The Company’s inability to pass on the effects of any such material price increases to its customers may materially adversely affect the Company’s results of operations, cash flows or financial position.

Decreased material or resource availability could impair the Company’s ability to meet its production requirements on a timely basis. Increases in prices of materials or the resources used in the production of products have historically not been able to be, and in the future may not be able to be, passed along to customers of the Company through increases in prices of the Company’s products. If any production delays occur, or if any increases in these prices cannot be passed along to the Company’s customers, it could have a potentially adverse effect on the Company’s results of operations or cash flows.

The Company’s automotive safety business unit is dependent on a small number of major yarn suppliers.

The raw materials for the Company’s automotive safety fabric operations largely consist of synthetic yarns provided by Invista, Inc., Pharr Yarns, and PHP, among others. The primary yarns include nylon, polyester and Nomex. Invista and PHP are the leading suppliers of airbag fabric yarn to both the Company and the airbag cushion market generally. In particular, Invista supplies a majority of the nylon yarn used in the Company’s airbag fabric operations pursuant to purchase orders or releases on open purchase orders. The loss of Invista as a supplier could have a material adverse effect on the Company.

The Company is dependent on the success of, and its relationships with, its largest customers.

The customer base of the Company’s automotive safety business is highly concentrated, and this division relies on key contractual relationships with several large Tier 1 suppliers. The most significant customers to this division, in alphabetical order, are Autoliv, Inc., Key Safety Systems, Inc., the Takata Group and TRW Automotive Holdings Corp. The loss of any key customer, its direction to a significant number of its contractors to purchase fabric from a producer other than the Company or a material slowdown in the business of one of the key customers could have a material adverse effect on the Company’s results of operations, cash flows or financial position.

The Company’s apparel and textile solutions business is dependent on the success of, and its relationships with, its largest customers. None of the Company’s customers accounted for 10% or more of the Company’s total direct net sales in its 2006 fiscal year. However, the Company estimates that one large customer of the denim fabrics division (Levi Strauss & Co.) directly and indirectly accounted for approximately 12% of the Company’s net sales in the 2006 fiscal year. Levi Strauss is able to direct certain of its garment producers to purchase denim (or other fabric) directly from the Company for use in Levi Strauss products. Although Levi Strauss is not directly liable in any way for the payment by any of those contractors for fabric purchased, the Company believes that continued sales to these customers are dependent upon the Company maintaining a stronger supplier/customer relationship with Levi Strauss, as well as Levi Strauss’ continued success in the marketplace.

Successful execution of the Company’s strategy is dependent upon, among other things, the Company obtaining financing at times, and on terms, deemed necessary by it.

Successful execution of the Company’s strategy, and the related implementation of its international initiatives, will require the Company to obtain financing from external sources. There can be no assurances that the Company will be able to obtain this financing in amounts, at times and on terms acceptable to it, if at all. Any failure by the Company to obtain any necessary financing in amounts, at times and on terms acceptable to it, if at all, may delay, or make impossible to implement, the Company’s strategy, which would have a material adverse effect on the Company.

- 16 -

Execution of the Company’s strategy involves an increase in international operations. Significant international operations involve special risks that could increase expenses, adversely affect operating results and require increased time and attention of the Company’s management.

The Company currently has significant operations outside of the United States. Additionally, the Company expects to further expand its international operations as part of its business strategy. International operations are subject to a number of risks in addition to those faced by domestic operations, including:

• potential loss of proprietary information due to piracy, misappropriation or laws that may be less protective of the Company’s intellectual property rights;

• economic instability in certain countries or regions resulting in higher interest rates and inflation, which could make the Company’s products more expensive in those countries or raise the Company’s cost of operations in those countries;

• changes in both domestic and foreign laws regarding trade and investment abroad;

• the possibility of the nationalization of foreign assets;

• limitations on future growth or inability to maintain current levels of revenues from international sales if the Company does not invest sufficiently in its international operations;

• longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;

• restrictions on transfers of funds, foreign customs and tariffs and other unexpected regulatory changes;

• difficulties in staffing, managing and operating international operations;

• difficulty in identifying desirable local partners for alliances or joint ventures and managing any such relationships;

• obtaining project financing from third parties, which may not be available on satisfactory terms, if at all;

• difficulties in coordinating the activities of geographically dispersed and culturally diverse operations; and

• political unrest, war or terrorism, particularly in areas in which the Company will have facilities.

A portion of the Company’s transactions outside of the United States are denominated in foreign currencies. In addition, the Company expects that it will continue to purchase a portion of its raw materials from foreign suppliers in foreign currencies, and incur other expenses in those currencies. As a result, future operating results will continue to be subject to fluctuations in foreign currency rates. Although the Company may enter into hedging transactions, hedging foreign currency transaction exposures is complex and subject to uncertainty. The Company may be negatively affected by fluctuations in foreign currency rates in the future, especially if international sales continue to grow as a percentage of total sales.

Financial statements of certain of the Company’s foreign operations are prepared using the local currency as the functional currency while certain other financial statements of these foreign operations will be prepared using the U.S. dollar as the functional currency. Translation of financial statements of foreign operations into U.S. dollars using the local currency as the functional currency occurs using the exchange rate as of the date of the balance sheet for balance sheet accounts and at a weighted average exchange rate for results of operations. The Company’s consolidated balance sheet and results of operations may be negatively impacted by changes in the exchange rates as of the applicable date of translation. For instance, a stronger U.S. dollar at an applicable date of translation will lead to less favorable translation results than a weaker U.S. dollar at that date.

The Company’s international greenfield initiatives may not be completed in a timely manner, may not be completed at expected costs and may not produce expected benefits.

The Company’s strategy includes the completion and operation of several international greenfield initiatives. The failure of one or more of these initiatives to be completed in a timely manner or at costs currently expected by management, or to produce sales in amounts and at times expected by management, may adversely affect the Company’s results of operations, cash flows or financial position.

Changing international trade regulations and future qualitative limits, duties or tariffs may increase the Company’s costs or limit the amount of products that the Company can import from suppliers in a particular country.

Trade restrictions, including increased tariffs, safeguards or quotas, on textile products could limit the countries from which the Company produces or sources its products, restricting the availability of raw material and finished apparel sourcing by requiring yarn and/or fabric to be produced in certain countries or setting quantitative limits on products that may be imported from a particular country. These trade restrictions could have a particular impact on the Company’s business when, after the Company has moved its operations to a particular location, new unfavorable

- 17 -

regulations are enacted in that area or favorable regulations currently in effect are changed. The countries in which the Company’s products are manufactured or into which they are imported may from time to time impose additional regulations, or modify existing regulations, including:

• additional duties, taxes, tariffs and other charges on imports, including retaliatory duties or other trade sanctions, which may or may not be based on World Trade Organization, or “WTO,” rules, and which would increase the cost of products purchased from suppliers in those countries;

• quantitative limits on the quantity of goods which may be imported into the United States from a particular country, including the imposition of further “safeguard” mechanisms by the U.S. Government or governments in other jurisdictions, limiting the Company’s ability to import goods from particular countries, such as China;

• changes in the classification of products that could result in higher duty rates than the Company has historically paid;

• modification of the trading status of certain countries;

• requirements as to where products are manufactured;

• creation of export licensing requirements, imposition of restrictions on export quantities or specification of minimum export pricing; or

• creation of other restrictions on imports.

Adverse changes in trade regulations and the costs associated with such regulations could interrupt production in offshore facilities or delay receipt of the Company’s products in the United States and other markets, which would harm its business. Furthermore, future trade agreements could provide the Company’s competitors with an advantage over it or increase the Company’s costs, either of which could have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

The Company’s products may be subject to government regulation in the future that could impair its operations.

Certain of the Company’s products could be subject to stringent government regulation in the United States and other countries in the future. These regulatory processes can be lengthy, expensive and uncertain. Additionally, securing necessary clearances or approvals may require the submission of extensive data and other supporting information. Failure to comply with applicable requirements could result in fines, recall, total or partial suspension of distribution, withdrawal of existing product or the inability to integrate product offerings. If any of these things occur, it could have a material adverse impact on the Company’s business.

Military hostilities have resulted in lower sales of government military dress uniforms. Any future actions by the U.S. Government which result in the shifting of spending or reductions in the U.S. military’s budget may further negatively impact sales of the Company’s military dress uniform and battle dress business.

Military hostilities and war-related priorities have shifted U.S. military funds away from the Company’s profitable dress uniform business. Given a trend among military personnel to dress in battle or camouflage uniforms on a daily basis, the business may decline further or may not recover to its historical levels of sales or profitability. In addition, any future action by the U.S. Government which results in U.S. military spending being shifted away from spending on military dress uniforms, or an overall reduction of the military’s budget, may further negatively impact the Company’s sales of military dress uniform and battle dress uniform fabric.

The Company faces risks from changes in U.S. Government policies that would be unfavorable to domestic manufacturers.

The Berry Amendment currently requires that the U.S. Department of Defense purchase certain products, including military clothing, manufactured with 100% U.S. content and labor. The Company relies on this requirement to profitably provide government uniforms and fabrics. If the government was to remove or reduce this domestic production requirement, the Company’s sales and profit levels would be adversely affected.

- 18 -

If the Company does not protect its proprietary information and prevent third parties from making unauthorized use of its products and technology, its financial results could be harmed.

The Company relies on a combination of confidentiality agreements and procedures and patent, trademark and trade secret laws to protect its proprietary information. However, all of these measures afford only limited protection and may be challenged, invalidated or circumvented by third parties. Third parties may copy aspects of processes, products or materials, or otherwise obtain and use proprietary information of the Company without authorization. Third parties may also develop similar or superior technology independently, including by designing around patents of the Company. Furthermore, the laws of some foreign countries do not offer the same level of protection of the Company’s proprietary rights as the laws of the U. S., and the Company may be subject to unauthorized use of its products in those countries. Any legal action that the Company may bring to protect proprietary information could be expensive and may distract management from day-to-day operations. Unauthorized copying or use of products or proprietary information of the Company could result in reduced sales of its products.

The Company has assumed the defined benefit pension plan of Burlington Industries, which will require substantial funding over the next several years. This required funding will reduce funds available for the execution of the Company’s strategic expansion.

The Company’s Burlington Industries subsidiary has a frozen defined benefit plan which is underfunded. This plan has a provision that allows individuals to receive their pension benefits in a lump sum payment when they leave the employment of the Company. Any material downsizing of the Company’s domestic workforce covered by this plan would likely result in the requirement for significant cash payouts from the plan, increase the funding deficit, and require funding from the Company, thereby reducing funds available for use in the execution of the Company’s strategy.

Changes in existing environmental laws or their interpretation, more vigorous enforcement by regulatory agencies or the discovery of currently unknown conditions could have a material adverse effect on the Company.

The Company’s operations and properties are subject to a wide variety of increasingly complex and stringent federal, state, local and international laws and regulations governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials, substances and wastes; the remediation of contaminated soil and groundwater; and the health and safety of employees. Future events, such as new information, changes in existing environmental laws or their interpretation, or more vigorous enforcement policies of regulatory agencies, may give rise to expenditures or liabilities that could result in a material adverse effect on the Company’s results of operations, cash flows or financial position.

The Company continues to focus on the integration of the business and operations SCI and Former ITG, as well as integration of the operations of BST. If the Company fails to effectively integrate these operations, the Company may not realize the potential benefits of any of these transactions.

The integration of SCI and Former ITG has been a time consuming and expensive process. The Company expects that the integration of BST into its operations will also be time consuming and expensive. Integration efforts may disrupt the Company’s operations if they are not completed in a timely and efficient manner. If these integration efforts are not successful, the Company’s results of operations could be adversely affected. In addition, the Company may not achieve anticipated synergies or other benefits of any of these transactions.

The success of the Company will depend on the abilities of its senior management team, as well as the Company’s ability to attract and retain key personnel.

The Company’s success is highly dependent on the abilities of its management team. The management team must be able to effectively work together to successfully conduct the Company’s current operations, as well as implement the Company’s strategy, which includes significant international expansion. If they are unable to do so, the results of operations and financial condition of the Company may suffer. In addition, as part of the Company’s strategy of international expansion, there is great competition for the services of qualified personnel. The failure to retain current key managers or key members of the design, product development, manufacturing, merchandising or marketing staff, or to hire additional qualified personnel for new operations could be detrimental to the Company’s business.

- 19 -

Anti-takeover provisions contained in the Company’s governance documents, and Delaware corporate law, may make it difficult for the Company’s stockholders to replace or remove the Company’s board of directors and could deter or delay third-parties from acquiring the Company, which may adversely affect the marketability and market price of the Company’s common stock.

Provisions contained in the certificate of incorporation and bylaws of the Company may make it difficult for stockholders to change the composition of the Company’s board of directors in any one year, and thus prevent them from changing the composition of management. These same provisions may make it difficult and expensive for a third-party to pursue a tender offer, change in control or takeover attempt that is opposed by management and the board of directors of the Company. In addition, the Company may, in the future, be subject to certain provisions of Delaware corporate law that may prevent certain stockholders from engaging in a business combination with the Company. Stockholders who might desire to participate in this type of transaction may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of stockholders to benefit from a change in control or change the Company’s management and board of directors and, as a result, may adversely affect the marketability and market price of the Company’s stock.

There may be circumstances in which the interests of the Company’s significant stockholders could be in conflict with your interests as a stockholder.

Affiliates of WLR own approximately 87% of Company’s total voting stock on a fully diluted basis. Also, affiliates of WLR hold seven of the nine positions on the Company’s board of directors. Circumstances may arise in which affiliates of WLR or other major investors may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their investment in the Company or another company in which they invest. In connection with any such transaction involving the Company, WLR could have interests that might conflict with, be different from, or be in addition to, the interests of the Company’s other stockholders. In addition, the Company may from time to time engage in transactions with related parties and affiliates that include, among other things, management and consulting arrangements.

- 20 -

ITEM 2. PROPERTIES

The Company’s corporate headquarters are located in Greensboro, North Carolina, in a facility that is leased by the Company. As indicated below, the Company owns most of its manufacturing facilities. The Company believes all facilities and machinery and equipment are in good condition and are suitable for the Company’s needs. The Company’s principal manufacturing, distribution and administrative facilities at December 31, 2006 are listed below:

PRINCIPAL PROPERTIES

Facility Name	Products and Segment	Location	Owned/ Leased	Approximate Floor Area (Sq. Ft.)
Burlington Finishing	Synthetic apparel and interior furnishings finishing (3, 5)	U.S.	Owned	426,000
Carlisle Finishing	Commission finishing and government (4, 6)	U.S.	Owned	665,000
Cone Jacquards	Interior furnishings (5)	U.S.	Owned	138,000
Greenville	Automotive safety and technical fabrics (2)	U.S.	Owned	826,000
Raeford	Apparel and government (worsted and automotive safety) (3, 4)	U.S.	Owned	647,000
Richmond	Apparel and government (synthetic and worsted) (3, 4)	U.S.	Owned	556,000
White Oak	Apparel (denim) (3)	U.S.	Owned	1,567,000
Casimires	Apparel (worsted) (3)	Mexico	Owned	699,000
Cone Denim Jiaxing (under construction)	Apparel (denim) (7)		Owned(8)	630,000
Cone Denim Nicaragua (under construction)	Apparel (denim) (7)	Nicaragua	Owned	620,000
Jiaxing Burlington Textile Company (under construction)	Apparel and (synthetic) interior furnishings (7)	China	Owned	187,000
Parras Cone	Apparel (denim) (3)	Mexico	Owned	652,000
Summit	Apparel (denim) (3)	Mexico	Owned(8)	280,000
Yecapixtla	Apparel (denim) (3)	Mexico	Owned	493,000
Ensenada, Mexico	Airbag cushions (1)	Mexico	Leased	97,000
Ensenada, Mexico	Airbag cushions (1)	Mexico	Leased	43,000
Hildesheim, Germany	Airbag cushions (1)	Germany	Owned	70,000
Jevicko, Czech Republic	Airbag cushions (1)	Czech Republic	Owned	100,000
Changshu, China	Airbag cushions (1)	China	Leased(8)	58,000

⁽¹⁾ Automotive airbag cushions segment

⁽²⁾ Automotive airbag fabrics segment

⁽³⁾ Bottom-weight woven apparel fabrics segment

⁽⁴⁾ Government uniform fabrics segment

⁽⁵⁾ Interior furnishings segment

⁽⁶⁾ Commission finishing segment

⁽⁷⁾ Development stage segment

⁽⁸⁾ Joint venture

- 21 -

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business and from time to time, we are involved in various pending or threatened legal proceedings. We cannot predict with certainty the outcome of any legal or environmental proceedings to which we are, or are threatened to become, a party. In our opinion, however, adequate liabilities have been recorded for losses that are probable to result from presently known and expected legal proceedings and environmental remediation requirements. If such liabilities prove to be inadequate, however, it is reasonably possible that we could be required to record a charge to our earnings that could be material to our results of operations and cash flows in a particular future period. We believe that any ultimate liability in excess of that which has been recorded arising from any presently known or expected action will not be material to our consolidated financial condition, and sufficient liquidity will be available for any required payments.

Primarily as a result of its production of automotive safety products, the Company is engaged in a business that could expose it to possible claims for injury resulting from the failure of products sold by it. To date, however, the Company has not been named as a defendant in any automotive product liability lawsuit, nor has it been threatened with any such lawsuit. The Company maintains product liability insurance coverage, which management believes to be adequate. However, a successful claim brought against the Company resulting in a product recall program or a final judgment in excess of its insurance coverage could have a material adverse effect on the Company.

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

The 2006 annual meeting of stockholders of the Company was held on October 20, 2006. The following items of business were voted upon by the stockholders at such meeting:

1. Adoption of the amended and restated certificate of incorporation of the Company; and

2. Re-election of five members of the Company’s board of directors, including Dr. Daniel D. Tessoni and Michael J. Gibbons as Class I directors to hold office until the Company’s 2007 annual meeting, David K. Storper as a Class II director to hold office until the Company’s 2008 annual meeting, and Wilbur L. Ross, Jr. and Joseph L. Gorga as Class III directors to hold office until the Company’s 2009 annual meeting.

The results of the voting on the adoption of the amended and restated certificate of incorporation of the Company was as follows:

Votes For	Votes Against	Abstentions	Broker Non-Votes
4,427,558	7,517	8	0

The results of the voting for the election of directors was as follows:

Nominee	Votes For	Votes Withheld	Broker Non-Votes
Dr. Daniel D. Tessoni	5,179,616	7,600	0
Michael J. Gibbons	4,930,216	257,000	0
David K. Storper	4,930,216	257,000	0
Wilbur L. Ross, Jr.	4,930,216	257,000	0
Joseph L. Gorga	4,930,216	257,000	0

- 22 -

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock trades on the Over-the-Counter Bulletin Board under the symbol “ITXN.” However, as a result of the significant concentration of stock ownership by affiliates of WLR, as described elsewhere herein, the level of public float of the Company’s common stock is extremely limited. There can be no assurances that a more active trading market in the Company’s common stock will develop and, if it does develop, will be sustained. The following table sets forth the range of high and low prices for reported bids on the common stock during each quarter within the twelve month periods ended December 31, 2006 and December 31, 2005, respectively (which includes the Company’s two most recent fiscal years). The prices quoted on the Over-the-Counter Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

	High		Low
Year Ended December 31, 2006
First Quarter	$	15.00	$	14.00
Second Quarter		14.25		13.30
Third Quarter		14.70		13.25
Fourth Quarter		14.05		11.30
Year Ended December 31, 2005
First Quarter	$	17.55	$	13.40
Second Quarter		17.00		12.70
Third Quarter		14.75		12.90
Fourth Quarter		15.20		14.00

As of March 15, 2007, there were approximately 300 holders of record of the Company’s common stock.

To date, the Company has not paid any cash dividends to its stockholders and does not currently have plans to do so in the foreseeable future. The Company intends to use earnings to fund its strategic plans. Further, the Company’s bank credit agreements (as described below) and certain other agreements by which the Company is bound may, from time to time, restrict the Company’s ability to pay dividends.

During the three months ended December 31, 2006, the Company did not repurchase any equity securities that were registered by the Company pursuant to Section 12 of the Exchange Act.

Equity Compensation Plan Information

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a))
Plan Category	(a)	(b)	(c)
Equity compensation plans approved by security holders	—	—	352,600
Equity compensation plans not approved by security holders	—	—	—
Total	—	—	352,600

- 23 -

In connection with the Combination, the Company assumed the Equity Incentive Plan (the “Equity Incentive Plan”) and the Stock Option Plan for Non-Employee Directors (the “Directors’ Plan”) of Former ITG. No further grants of equity awards are authorized to be made under either of these plans. A total of 592,850 and 33,588 shares may be issued at a weighted average exercise price of $10.10 and $10.10 under the Equity Incentive Plan and the Directors’ Plan, respectively.

Stock Performance Graph

The graph below compares the cumulative total return to stockholders on an investment in the Company’s common stock with the return on a similar investment in (i) the Russell 2000 Index, (ii) the previously comparable S&P Auto Parts and Equipment Index (the “Auto Parts and Equipment Index”), and (iii) a peer group of various automotive airbag fabric and cushion, and other textile, manufacturers (the “Peer Group”). The graph assumes that $100 was invested in each applicable investment as of March 31, 2002 and that the all dividends were reinvested. In 2003, the Company changed its fiscal year end from the last Saturday in the month of March to a calendar-based year ending December 31.

Prior to the Combination, SCI had selected and used the Auto Parts and Equipment Index for stock performance comparison purposes as the Company had determined that it closely reflected the line of business in which SCI operated. As a result of the completion of the Combination and the expansion of the Company’s operations into a global, diversified textile manufacturer, the Company believes that the Peer Group now provides a more meaningful comparison for stockholders. The Peer Group consists of the following companies: Albany International Corp., Autoliv Inc., Culp, Inc., The Dixie Group Inc., Hanesbrands, Inc., Mohawk Industries, Inc., Oxford Industries, Inc., TRW Automotive Holdings Corp., Unifi, Inc., Sioen Industries N.V., Gamma Holding N.V. and Gildan Activewear, Inc.

- 24 -

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Among International Textile Group, Inc., The Russell 2000 Index,

The S & P Auto Parts & Equipment Index And A Peer Group

Copyright © 2007, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm

- 25 -

ITEM 6. SELECTED FINANCIAL DATA

The Company was formerly known as Safety Components International, Inc. (“SCI”). SCI was originally formed to provide textile products, primarily airbags and airbag fabrics, to the automotive industry. In December 2005, certain entities affiliated with W.L. Ross & Co. LLC (“WLR”) acquired a majority of SCI’s outstanding common stock. The Company acquired a company formerly known as International Textile Group, Inc. (“Former ITG”) through a negotiated merger transaction in October 2006 (the “Combination”). Former ITG was formed in August 2004 by WLR to consolidate the businesses of leading textile and fabric manufacturers, including Burlington Industries, Inc. (a manufacturer of textile products for apparel and interior furnishing products) and Cone Mills Corporation (a manufacturer of textile products, primarily denim, for apparel and interior furnishing products). By mid-2006, affiliates of WLR held approximately 85% of the stock of Former ITG. Upon completion of the Combination, SCI changed its name to “International Textile Group, Inc.” “SCI” is used herein to refer to the Company and its historical operations prior to the Combination.

At the time of the Combination, WLR controlled a majority of the outstanding stock of each of SCI and Former ITG and, as a result, for accounting purposes, the acquisition of the majority interest of Former ITG was accounted for under the “as if pooling-of-interests” method of accounting applicable to the transfer of assets or exchange of equity interests between entities under common control. Under the “as if pooling-of-interests” method of accounting, the value of the assets and liabilities transferred is recognized at historical carrying cost as of the date of the transfer, rather than at fair value. The Company accounted for the acquisition of the minority interest of Former ITG using the purchase method of accounting in accordance with FASB Statement No. 141, Business Combinations, and FASB Technical Bulletin (“FTB”) No. 85-5, Issues Relating to Accounting for Business Combinations.

In accordance with the guidelines of the accounting staff of the Securities and Exchange Commission (the “SEC”), upon a combination of entities under common control, the earlier acquired entity is deemed to be the predecessor for financial statement presentation purposes. Consequently, in accordance with those guidelines and as a result of the Combination, Former ITG is deemed to be the predecessor entity, for accounting purposes, to the Company. As a result, the financial statements, and all related financial information, of the Company included herein have been recast to present the results of Former ITG for all historical periods, as it was deemed acquired when formed by WLR in 2004, prior to WLR’s acquisition of a majority of the stock of SCI in December 2005. Because the legal structure of the Combination resulted in SCI acquiring Former ITG and, ultimately, Former ITG being merged with and into the Company, the Company continues to report its results in accordance with the fiscal year of SCI, which corresponds to the calendar year.

References herein to the “2006 fiscal year” refer to the fiscal and calendar year ended December 31, 2006, and include the financial results of both SCI and Former ITG for the twelve-month period then-ended. In order to reconcile the different fiscal year-ends of SCI and Former ITG, and still present, for financial reporting purposes, the results of Former ITG as those of the predecessor entity, the Company considers the three-month period from October 3, 2005 (the first day of Former ITG’s fiscal year) until December 31, 2005 (the last day of the fiscal year of the surviving entity in the Combination) as the “2005 transition period” in accordance with the views of the staff of the SEC. In accordance with “as if pooling-of-interests” accounting, the 2005 transition period consists of the results of Former ITG for such period combined with the results of SCI from December 3, 2005 (the day of acquisition of control of SCI by WLR) until December 31, 2005. References to the “2005 fiscal year” refer to the fiscal year of Former ITG ended October 2, 2005. References to the “2004 fiscal year” refer to the forty-seven week period from the inception of Former ITG until October 3, 2004.

The following table presents selected consolidated historical financial data for the Company as of the dates and for the fiscal periods indicated. As a result of the application of the accounting guidelines summarized above, the presentation of the Company’s historical financial information herein is not consistent with the historical financial information of SCI as reported in prior filings with the SEC. The presentation of certain previously reported amounts included herein has been reclassified to conform to the current presentation and to reflect certain discontinued operations of the Company.

- 26 -

The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements and the notes thereto, included elsewhere in this annual report.

- 27 -

International Textile Group, Inc. and Subsidiary Companies

(amounts in thousands, except per share data)

(see Note to Selected Financial Data)

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004 (1)
Net sales	$	720,916		$	125,422		$	633,466		$	548,954
Cost of goods sold		660,734			117,748			559,461			498,577
Gross profit		60,182			7,674			74,005			50,377
Selling and administrative expenses		72,762			10,320			59,321			36,930
Expenses associated with certain share transactions		4,350			2,965			—			—
Stock-based compensation and related cash bonus expense		1,318			195			5,236			—
Start-up costs on international initiatives		4,595			344			1,268			—
Gain on disposal of assets		(769	)		(1,276	)		(2,432	)		(1,302	)
Settlement/curtailment gain on retiree medical plans		(321	)		—			(8,153	)		—
Provision for restructuring, special termination benefit and impairment		14,829			(407	)		6,949			—
Income (loss) from operations		(36,582	)		(4,467	)		11,816			14,749
Other income (expense):
Interest expense		(6,937	)		(947	)		(5,183	)		(4,341	)
Other income (expense)		11,301			639			1,435			416
Income (loss) from continuing operations before income taxes, equity in losses of unconsolidated affiliates and minority interest		(32,218	)		(4,775	)		8,068			9,293
Total income tax (expense) benefit		(5,913	)		1,731			(2,187	)		(3,718	)
Equity in income (losses) of unconsolidated affiliates		(847	)		(690	)		2,714			166
Minority interest in (income) losses of consolidated subsidiaries		2,899			26			92			(110	)
Income (loss) from continuing operations		(36,079	)		(3,708	)		8,687			5,631
Income (loss) from discontinued operations, net of taxes		(13,976	)		342			(1,806	)		1,084
Extraordinary gain (loss), net of taxes (1)		—			—			(2,837	)		56,123
Net income (loss)	$	(50,055	)	$	(3,366	)	$	4,044		$	62,838
Net income (loss) per common share, basic:
Income (loss) from continuing operations	$	(2.34	)	$	(0.30	)	$	0.89		$	0.62
Income (loss) from discontinued operations		(0.91	)		0.03			(0.18	)		0.12
Extraordinary gain (loss)		—			—			(0.30	)		6.16
		(3.25	)	$	(0.27	)		0.41		$	6.90
Net income (loss) per common share, diluted:
Income (loss) from continuing operations	$	(2.34	)	$	(0.30	)	$	0.85		$	0.62
Income (loss) from discontinued operations		(0.91	)		0.03			(0.17	)		0.12
Extraordinary gain (loss)		—			—			(0.27	)		6.16
	$	(3.25	)	$	(0.27	)	$	0.41		$	6.90
Total assets	$	492,813		$	391,166		$	291,572		$	331,722
Long-term obligations		202,118			84,396			89,239			132,910
Shareholders’ equity		168,220			189,719			127,874			101,163

- 28 -

Note to Selected Financial Data:

(1) On November 10, 2003, WLR completed the acquisition of substantially all the assets of Burlington Industries, Inc. out of chapter 11 bankruptcy proceedings. WLR created a separate legal entity to consummate the acquisition, WLR Burlington Acquisition LLC, which was wholly owned by three investment funds managed by WLR. The purchase price plus assumed liabilities and acquisition costs resulted in a total purchase price of $173.5 million allocated to assets valued at $221.5 million, generating unallocated negative goodwill of $48.0 million, which was recorded by WLR Burlington Acquisition LLC as an extraordinary gain on November 10, 2003. On March 12, 2004, WLR completed the acquisition of substantially all of the assets of Cone Mills Corporation out of chapter 11 bankruptcy proceedings. WLR created a separate, wholly owned, legal entity, WLR Cone Mills Acquisition LLC, to consummate the acquisition. The purchase price plus assumed liabilities and acquisition costs resulted in a total purchase price of $100.8 million allocated to assets valued at $108.9 million, generating unallocated negative goodwill of $8.1 million recorded by WLR Cone Mills Acquisition LLC as an extraordinary gain on March 12, 2004. Effective August 2, 2004, WLR Cone Mills Acquisition LLC was merged with and into WLR Burlington Acquisition LLC. Immediately following this merger, WLR Burlington Acquisition LLC converted into a Delaware corporation under the name International Textile Group, Inc., which was subsequently renamed ITG Holdings, Inc. upon completion of the Combination. The results of operations of WLR Burlington Acquisition LLC have been included in the consolidated financial statements since its formation on November 10, 2003. The results of operations of WLR Cone Mills Acquisition LLC have been included in the consolidated financial statements from March 12, 2004 until August 2, 2004, the date of merger into WLR Burlington Acquisition LLC. In March 2005, the Company agreed to settle a lawsuit with the Pension Benefit Guaranty Corporation, or PBGC, by issuing common stock of the Company valued at $4.0 million, plus $0.5 million of cash. The cost of this settlement was treated as a purchase price adjustment and was recorded as an extraordinary loss, net of tax in the 2005 fiscal year consolidated statement of income in accordance with United States generally accepted accounting principles.

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

International Textile Group, Inc. (“ITG” or the “Company”), is a global, diversified textile manufacturer headquartered in Greensboro, NC, and produces automotive safety, apparel, government uniform, technical and specialty textiles. The Company was formerly known as Safety Components International, Inc. (“SCI”). The Company acquired a company formerly known as International Textile Group, Inc. (“Former ITG”) through a negotiated merger transaction in October 2006 (the “Combination”). Upon completion of the Combination, SCI changed its name to “International Textile Group, Inc.” “SCI” is used herein to refer to the Company and its historical operations prior to the Combination.

ITG’s strategy is to be the leading, globally diversified provider of textiles and related supply chain solutions for its customers. In pursuit of this strategy, the Company is actively engaged in expanding its global operations through greenfield initiatives and other strategic growth opportunities, while substantially reconfiguring its U.S. asset base. ITG expects to focus on the start up of its international greenfield initiatives and the substantial completion of the reconfiguration of its U.S. operations in 2007 and 2008. Key international greenfield initiatives include the construction and operation of facilities, either wholly-owned or through controlling stakes in joint ventures, in China,

- 29 -

Vietnam and Nicaragua. With the completion of these strategic initiatives, ITG will have transformed itself from a North American producer of apparel textiles into a diversified, global manufacturer with a primary focus on the automotive safety, apparel, government uniform and technical and specialty textile markets. Consequently, the Company will have reduced its exposure to U.S. markets other than in the automotive safety and specialty markets, which have a low labor content and highly technical manufacturing processes requiring operations within close proximity to the customer base, and the military uniform fabric market, which is protected by the Berry Amendment (a U.S. law requiring military uniform fabric to be sourced wholly within the U.S.). ITG expects to realize further opportunities for international growth as it completes the expansion plans linked to current projects, and expands its presence in markets such as Europe, Vietnam, China, India and throughout Asia. ITG expects to fund its strategic initiatives through a combination of cash flows from operations, equipment financing, available borrowings under its Bank Credit Agreement (defined below) and other external financing as management deems appropriate. ITG believes that future external financing may include, but may not be limited to, borrowings under additional credit agreements, the issuance of equity or debt securities or funding from certain entities affiliated with WLR, depending upon the perceived cost of any such financing at the appropriate time. ITG cannot provide any assurances that any financing would be available to it upon acceptable terms, if at all, at any time in the future. ITG’s failure to obtain any necessary financing may adversely affect its expansion plans and, therefore, its financial condition and results of operations.

Recent Acquisition

As a part of the execution of its strategy described above, on April 1, 2007, the Company completed the acquisition of BST US Holdings, Inc. (“BST Holdings”). The Company acquired all of the outstanding shares of BST Holdings in exchange for the issuance of approximately $84.0 million of Series A Convertible Preferred Stock, as described below under “—Subsequent Events” (the “Preferred Stock”) of the Company. As a result of the acquisition, BST Holdings became a wholly-owned subsidiary of the Company.

BST Holdings owns the BST Safety Textiles business (“BST”). BST, based in Maulburg, Germany, is a leading international manufacturer of flat and one piece woven fabrics for automotive airbags as well as narrow fabrics for seat belts and military and technical uses. In 2006, BST had net sales of approximately $270.0 million.

The Company is in the process of integrating BST with the Company’s Safety Components business, and will operate BST as a part of the automotive safety business unit. Management believes the combined product, technical and market expertise of the BST and Safety Components businesses provides enhanced opportunities for accelerating the growth and expansion of the automotive safety business. The acquisition of BST is expected to provide considerable operating cash flow to ITG as well as opportunities for significant synergies upon the combination of the businesses.

Background and Basis of Financial Statement Presentation

The Company is a global, diversified textile manufacturer headquartered in Greensboro, North Carolina, and produces automotive safety, apparel, government uniform, technical and specialty textiles. The Company considers its five primary markets to be:

• Automotive safety – including airbag fabric and airbag cushions;

• Bottom-weight woven apparel fabrics—including denim, synthetic and worsted fabrics;

• Government uniform fabrics—including fabrics for military dress uniforms and battle dress uniforms;

• Interior furnishings fabrics; and

• Specialty fabrics and services—including commission printing and finishing, and value added technical, fabrics used in a variety of niche industrial and commercial applications.

- 30 -

Former ITG was formed in August 2004 by W.L. Ross & Co. LLC (“WLR”) to consolidate the businesses of leading textile and fabric manufacturers, including Burlington Industries, Inc. (a manufacturer of textile products for apparel and interior furnishing products) (“Burlington”) and Cone Mills Corporation (a manufacturer of textile products, primarily denim, for apparel and interior furnishing products) (“Cone”). WLR, through certain affiliates, acquired substantially all of the assets of the Burlington and Cone businesses through chapter 11 bankruptcy reorganization proceedings. In establishing Former ITG, WLR consolidated certain corporate overhead functions, combined the Burlington denim operation with Cone Denim and began the detailed process of investing in a global footprint to service its customers in key textile and apparel regions of the world. Recognizing the implications of the elimination of quotas at the beginning of 2005, Former ITG formulated a strategic vision to transform itself into the leading, globally diversified provider of textiles and related supply chain solutions for its customers. By mid-2006, affiliates of WLR held approximately 85% of the stock of Former ITG. In connection with these acquisitions, WLR sold or transferred certain assets that were not directly related to Former ITG’s primary business to other entities affiliated with WLR. Prior to the acquisition of the Burlington business, Former ITG did not have any material assets, liabilities or results of operations.

On December 2, 2005, certain entities affiliated with WLR acquired 77.3% of the outstanding common stock of SCI, a leading, low-cost independent supplier of high quality automotive airbag fabric and airbag cushions for automotive airbag modules, as well as other technical fabrics. At that time, SCI’s common stock was traded on the Over-the-Counter Bulletin Board (the “OTC-BB”) under the symbol “SAFY.”

On October 20, 2006, in a negotiated transaction, SCI and Former ITG completed their previously announced Combination, and the Company’s stock, which continued to be traded on the OTC-BB, began trading under the symbol “ITXN.” Upon completion of this Combination, Former ITG became a wholly-owned subsidiary of SCI, and SCI changed its name to “International Textile Group, Inc.” Subsequent to the Combination, Former ITG was merged with and into ITG.

At the time of the Combination, WLR controlled a majority of the outstanding stock of each of SCI and Former ITG and, as a result, for accounting purposes, the acquisition of the majority interest of Former ITG was accounted for under the “as if pooling-of-interests” method of accounting applicable to the transfer of assets or exchange of equity interests between entities under common control. Under the “as if pooling-of-interests” method of accounting, the value of the assets and liabilities transferred is recognized at historical carrying cost as of the date of the transfer, rather than at fair value. The Company accounted for the acquisition of the minority interest of Former ITG using the purchase method of accounting in accordance with FASB Statement No. 141, Business Combinations, and FASB Technical Bulletin (“FTB”) No. 85-5, Issues Relating to Accounting for Business Combinations.

In accordance with the guidelines of the accounting staff of the Securities and Exchange Commission (the “SEC”), upon a combination of entities under common control, the earlier acquired entity is deemed to be the predecessor for financial statement presentation purposes. Consequently, in accordance with those guidelines and as a result of the Combination, Former ITG is deemed to be the predecessor entity, for accounting purposes, to the Company. As a result, the financial statements, and all related financial information, of the Company included herein have been recast to present the results of Former ITG for all historical periods, as it was deemed acquired when formed by WLR in 2004, prior to WLR’s acquisition of a majority of the stock of SCI in December 2005. Because the legal structure of the Combination resulted in SCI acquiring Former ITG and, ultimately, Former ITG being merged with and into the Company, the Company continues to report its results in accordance with the fiscal year of SCI, which corresponds to the calendar year.

References herein to the “2006 fiscal year” refer to the fiscal and calendar year ended December 31, 2006, and include the financial results of both SCI and Former ITG for the twelve-month period then-ended. In order to reconcile the different fiscal year-ends of SCI and Former ITG, and still present, for financial reporting purposes, the results of Former ITG as those of the predecessor entity, the Company considers the three-month period from October 3, 2005 (the first day of Former ITG’s fiscal year) until December 31, 2005 (the last day of the fiscal year of the surviving entity) as the “2005 transition period” in accordance with the views of the staff of the SEC. In accordance with “as if pooling-of-interests” accounting, the 2005 transition period consists of the results of Former ITG for such period combined with the results of SCI from December 3, 2005 (the day of acquisition of control of SCI by WLR) until December 31, 2005. References to the “2005 fiscal year” refer to the fiscal year of Former ITG

- 31 -

ended October 2, 2005. References to the “2004 fiscal year” refer to the forty-seven week period from the inception of Former ITG until October 3, 2004.

The results of operations of the Burlington business have been included in Former ITG’s consolidated financial statements since November 10, 2003. The results of operations of the Cone business have been included in Former ITG’s consolidated financial statements since March 12, 2004.

As a result of the application of the accounting guidelines summarized above, the presentation of the Company’s historical financial information herein is not consistent with the historical financial information of SCI as reported in prior filings with the SEC. The presentation of certain previously reported amounts included herein has been reclassified to conform to the current presentation and to reflect certain discontinued operations of the Company.

See “Results of Operations” below for certain pro forma financial information intended to provide information on how the Combination might have affected Former ITG’s historical results of continuing operations (before extraordinary items) if the Combination had occurred at an earlier time.

Outlook

Based on available economic reports, the U.S. economy, as measured by gross domestic product, grew at an annualized rate of 3.3% in 2006, slightly better than the 2005 reported rate of 3.2%, but slower than the 3.9% reported for 2004. Specifically, growth in the fourth quarter of 2006 decelerated to 2.5% and there is a decidedly mixed view of the expected 2007 economic performance as consumer confidence has recently declined, housing starts and sales continue to decline and inflationary pressures remain present as energy prices remain at high levels as compared to the past decade. Notwithstanding these factors, retail sales and job growth continue to be stable and the global economy continues to grow. In the near-term, the slowing growth rate of the U.S. gross domestic product is expected to continue to impact the Company’s results of operations.

The Company’s two largest markets are affected somewhat differently by U.S. and global economic conditions and trade. Sales of the Company’s automotive safety products are affected by total automotive sales and product penetration rates, as consumers continue to seek vehicles with a higher safety content, such as the level of airbags, including rollover protection airbag systems. The Company’s apparel businesses is affected by changes in retail sales, inventory at the retail and the manufacturer level, which declined in 2006, and the types and amount of imported products.

The Company expects that while its automotive safety business will continue to be affected by the slowing U.S. economy and the reduced level of car builds, the effects of these general economic conditions will be somewhat offset by the increasing penetration of safety products in automobiles and the Company’s recent completion of its acquisition of BST. The Company believes that Tier 1 suppliers will continue to outsource a portion of their airbag cushion requirements as they focus on the development of proprietary technologies and that, with a strong Tier 2 supplier relationship, they may increase their outsourcing of these products as they focus on other components. However, in the near-term, decreased overall demand in the automotive market may increase the likelihood of decisions by Tier 1 suppliers to curtail outsourcing and begin production of certain programs using their own facilities to better utilize their own in-house capacity. Like the automotive supply industry generally, the Company continues to experience significant competitive pressure for its airbag fabrics and airbag cushions. The Company expects that it will continue to experience competitive pressures and although it believes that it has good working relationships with its customers due to its manufacturing capabilities, quality products and service, it cannot give assurances that purchases by Tier 1 suppliers will continue at or near their current levels.

In addition, the U.S. and global textile apparel industries continue to undergo changes in geographic demand and sourcing. Textile industry participants, including customers of ITG, continue to seek lower prices for fabrics and finished textile products. These participants have shifted sourcing of products to outside of the U.S., principally to Asia, the Indian subcontinent, Mexico and Central America. As a result, U.S.-sourced apparel products have declined and imports to the United States have increased. The value of imports of apparel and textiles, as reported by the U.S. Commerce Office of Textiles and Apparel, increased by 4.6% in 2006 following a 7.1% increase in 2005. Imports from China increased 20.8% in 2006 following a 53.9% increase in 2005 with the phase-out of quotas. China accounted for 29% of the market in 2006. In response to these developments, ITG is continuing to expand

- 32 -

operations outside of the United States to provide low-cost textile manufacturing platforms that are closely integrated and geographically aligned with its customers’ supply chains. ITG is developing global manufacturing operations that allow it to diversify both geographically and by customer sourcing patterns. ITG believes that such a platform will provide flexibility to address customer relationships and mitigate market risks. This is expected to give ITG the ability to deliver products promptly and cost competitively and position ITG to be a preferred provider of fabrics and textile solutions on a global basis. ITG is restructuring certain of its domestic operations in an effort to align its domestic manufacturing base with long-term opportunities and to increase return on investment. While ITG’s international projects are under construction and start-up, ITG expects that it may continue to operate certain domestic operations at marginal profit or at a loss in order to maintain technical capabilities and market share. The continued operation of these assets in the near term is expected to improve the early-stage results of international initiatives by allowing the transition of products and the transfer of technical know-how.

A number of significant uncertainties continue to impact the Company’s outlook for its financial results. See “Risk Factors.”

Overview

The Company recorded a loss from continuing operations for the twelve months ended December 31, 2006 of $36.1 million, including provisions for restructuring, termination benefits and impairment of $14.8 million (described below), merger related costs of $4.4 million, start-up costs on international initiatives of $4.6 million, and a $9.2 million gain on the sale of its Indian denim joint venture described below. Net sales from continuing operations for the twelve months ended December 31, 2006 were $720.9 million. The major factors impacting net sales were continued weakness in automotive safety sales, which was partially offset by the growth of the Company’s airbag cushion operations in China. Additionally, net sales within the Company’s bottom-weight woven apparel fabrics segment declined by 18.8% in 2006, or $94.5 million, as compared with 2005 net sales in this segment. Bottom-weight woven apparel fabrics net sales were negatively impacted by continued growth of imported apparel into the U.S. and the decision by the Company to exit or downsize its U.S. textile apparel operations as a result of a lack of profitability on many products given its cost of production and market pricing.

Restructuring Activities

2005

During the 2005 fiscal year, the Company began a number of restructuring activities to address difficult market dynamics, including increased Asian imports of apparel products, all with the goal of improving long-term return on investment. As a result of these restructuring activities, the Company recorded restructuring and impairment charges of $6.9 million during the 2005 fiscal year. The major elements of these activities included:

• capacity and workforce reductions in North Carolina and Virginia, including the closing of the Cliffside denim plant in the bottom-weight woven apparel fabrics segment; and

• consolidation of upholstery and contract jacquards fabrics operations in North Carolina (interior furnishings segment).

The closings, consolidations and workforce reductions outlined above resulted in the elimination of approximately 1,100 jobs in the United States with severance benefits paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service. These activities resulted in a pre-tax charge for restructuring of $7.1 million during the 2005 fiscal year as adjusted by $(0.5) million during the three months ended December 31, 2005 and $(0.6) during the 2006 fiscal year. The components of these charges included the establishment of a $4.2 million reserve for severance and COBRA benefits in the 2005 fiscal year as reduced by $0.5 million, non-cash pension curtailment and settlement charges of $2.1 million in the 2005 fiscal year as reduced by $0.6 million, and $0.4 million in fiscal year 2005 and $0.4 million in the 2006 fiscal year for costs paid to relocate and convert equipment to new facilities that were charged to operations as incurred. The Company also recorded impairment charges of $0.2 million and $0.1 million during the 2005 fiscal year and the three months ended December 31, 2005, respectively, related to equipment located at its Cliffside, North Carolina operation.

- 33 -

Following is a summary of activity related to the 2005 restructuring reserves (in millions):

	Severance and COBRA Benefits
2005 restructuring charge	$	4.2
Payments		(0.4	)
Balance at October 2, 2005		3.8
Payments		(1.2	)
Balance at December 31, 2005		2.6
Adjustments		(0.5	)
Payments		(1.9	)
Balance at December 31, 2006	$	0.2

2006

In May 2006, the Company entered into an agreement pursuant to which it agreed to close its Reidsville, North Carolina weaving plant in the interior furnishings segment and transition all future production of U.S. produced mattress fabrics to a leased facility as part of an agreement with Tietex International. The Company received proceeds from the related sale of plant assets of $3.9 million. This restructuring resulted in the elimination of approximately 60 jobs in the United States with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $0.5 million during the 2006 fiscal year. The components of this charge included the establishment of a $0.2 million reserve for severance and COBRA benefits ($0.1 million of payments made as of December 31, 2006) and $0.3 million for contract cancellations and costs to relocate and convert equipment to new facilities that are charged to operations as incurred.

In August 2006, the Company announced that it would transition production from its Hurt, Virginia dyeing and finishing plant in the bottom-weight woven apparel fabrics segment to other domestic facilities. Synthetic fabric production is being transitioned to the Company’s finishing plant located in Burlington, North Carolina. The Company intends to transfer its worsted finishing operations to its Raeford facility, which presently produces yarn for the worsted fabric. The transition of products and the closing of the Hurt facility is expected to be completed by the second half of 2007. This restructuring resulted in the elimination of approximately 675 jobs, mostly in the United States, with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $3.5 million during the 2006 fiscal year. The components of this charge included the establishment of a $2.7 million reserve for severance and COBRA benefits ($0.4 million of cash payments made as of December 31, 2006) and $0.3 million for costs to relocate and convert equipment to new facilities that are charged to operations as incurred. The Company also recorded an impairment charge of $0.5 million during fiscal year 2006 related to equipment located at these facilities.

In November 2006, the Company announced that it would transition from a 7-day continuous operation to a 3-shift/5-day operation at its White Oak denim plant located in Greensboro, North Carolina. In conjunction with this transition, the plant will stop producing open-end yarns in order to further focus on being a niche supplier of premium denims. This restructuring resulted in the elimination of approximately 260 jobs in the United States with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $0.9 million during the 2006 fiscal year related to the establishment of a reserve for severance and COBRA benefits (no cash payments made as of December 31, 2006).

In December 2006, the Company announced that it would be transitioning certain administrative functions from its Greenville, South Carolina location and that it would be undertaking the consolidation of certain manufacturing operations in Germany. Expected costs associated with this restructuring resulted from the planned elimination

- 34 -

and/or relocation of approximately 12 jobs in the United States and the planned elimination of approximately 30 jobs in Germany with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $1.1 million during the 2006 fiscal year for the establishment of a reserve for severance and benefits, with substantially all of these amounts expected to be paid in 2007. Of the $1.1 million reserve, approximately $0.9 million pertains to the Company’s automotive airbag cushion segment.

Discontinued Operations

In December 2006, the Board of Directors of ITG committed to a plan to exit certain Burlington House businesses within the interior furnishings segment and instructed management to seek potential buyers and negotiate sales of the related product lines or assets. The businesses being exited produced decorative fabrics and mattress fabrics, as well as warps and package-dyed yarns for sale to other manufacturers with all production facilities located in Burlington, North Carolina and its surrounding vicinity. The Company recorded pre-tax restructuring charges of $2.3 million for severance and COBRA benefits related to these discontinued operations, $0.5 million for costs to relocate and convert equipment to new facilities that are charged to operations as incurred and pre-tax asset impairment charges totaling $3.7 million. The Company announced in January 2007 that it had reached an agreement to sell certain assets of the Burlington House division’s mattress fabrics product line to Culp, Inc. for $2.5 million in cash and a number of shares of Culp’s common stock. Amounts of revenue and pretax income (loss) reported in discontinued operations related to these businesses are $70.8 million and $(14.0) million for the 2006 fiscal year, $22.0 million and $0.5 million for the three months ended December 31, 2005, $90.6 million and $(2.8) million for the 2005 fiscal year and $88.6 million and $1.7 million for the 2004 fiscal year, respectively.

Following is a summary of activity related to the 2006 restructuring reserves (in millions):

	Severance and COBRA Benefits
2006 restructuring charges	$	7.2
Payments		(0.5	)
Balance at December 31, 2006	$	6.7

The 2006 restructuring activity also resulted in pension curtailment charges of $5.6 million recognized in continuing operations and $0.8 million included in discontinued operations during the 2006 fiscal year.

2006 Key Developments

In 2006, the Company began construction of a 28 million yard vertical denim plant in Nicaragua at an estimated cost of $100 million. The choice of Nicaragua reflects ITG’s belief that Nicaragua, and Central America generally, will be long-term strategic providers of apparel products to the U.S. market. In addition, ITG expects to benefit from tariff preference levels (“TPLs”) granted to Nicaragua as part of the CAFTA trade agreement. Management believes that access to a portion of these TPLs will allow ITG to ship its products, primarily denim, cost-competitively from its facilities in Mexico and China to Nicaragua for garment production by its customers. ITG expects Cone Denim de Nicaragua to begin production in 2008.

The Company has entered into an agreement to build a technologically advanced cotton-based fabrics and garment manufacturing complex in Da Nang, Vietnam. ITG – Phong Phu Ltd., Co. (“ITG-PP JV”) is 60% owned by the Company and 40% owned by Phong Phu Corporation and is included in the Company’s consolidated financial statements. Construction of these facilities commenced in March 2007. This venture will offer apparel customers a total supply chain solution from fabric to finished garments. The operation will focus on the production of cotton bottom-weight fabrics and finished garments. Capabilities will include weaving, dyeing and finishing fabric operations, as well as garment production. This integrated complex is expected to be operational in calendar year

- 35 -

2008 with an initial dyeing and finishing capacity for fabrics of 30 million yards annually. As a component of the ITG-PP JV, a garment agency will also be established. The cost of the first phase of this project is estimated to be approximately $71 million.

On June 30, 2006, ITG completed the acquisition of the 50% equity interest of the Parras Cone joint venture not then-owned by ITG from Compania Industrial de Parras S.A. de C.V. for a purchase price of approximately $27.0 million and the pro rata assumption of debt. The Company believes the acquisition of the remaining 50% of Parras Cone from a denim competitor will allow the Company to improve operating results as a result of fully integrating that operation with ITG’s consolidated denim merchandising strategy and to achieve synergies from integration and coordination with ITG’s other Mexican facilities. Prior to this acquisition, through a marketing agreement, ITG’s Cone Denim division marketed 100% of the denim produced at Parras Cone. Parras Cone has been producing basic denims and yarn since 1995. Beginning in 2004, Parras Cone commenced an expansion project through significant investment in various product differentiating capabilities. This investment has allowed Parras Cone to increase overall production capacity as well as produce higher fashion, more differentiated denim fabrics.

In the fourth quarter of 2006, the Company acquired certain plant and airbag cushion assets of its Romanian subcontractor for airbag cushions for an aggregate purchase price of €5.5 million. This facility provides “cut and sew” services to the Company’s European automotive airbag business. The Company expects that the acquisition will enable the Company to improve its margins on products produced at the facility as well as allow for expansion of production at the facility, thereby generating an enhanced contribution to future operating earnings.

The Company is constructing a technologically advanced 28 million yard vertical denim plant in the city of Jiaxing, Zhejiang Province, China. Cone Denim (Jiaxing) Limited is a joint venture 51% owned by the Company. The Cone Denim division will market 100% of the denim produced at Cone Denim (Jiaxing) in coordination with Cone Denim’s other operations. The Company expects Cone Denim (Jiaxing) to begin production in calendar year 2007. The cost of this project is estimated at approximately $100 million.

The international greenfield projects are expected to generate long-term returns in excess of ITG’s cost of capital, primarily as a result of ITG’s market positions and technical know-how, the strategic locations of the facilities in low labor cost areas that are in proximity to its customers, and the use of modern machinery and engineered plant layouts. The completion of the Cone Denim (Jiaxing) and Cone Denim de Nicaragua projects are expected to provide ITG with a global manufacturing base designed to cost competitively service its denim customers.

The Company is also building a fabric dyeing and finishing plant in Jiaxing, China. This dyeing and finishing operation, Jiaxing Burlington Textile Company Limited, is wholly owned. The Company expects Jiaxing Burlington Textile Company to begin operations in calendar year 2007. This facility will provide synthetic apparel fabrics and commission finishing services for interior furnishings and other complementary products. The cost of this project is estimated at approximately $30 million.

During the period December 15, 2006 through December 29, 2006, ITG offered to certain employees an early retirement incentive as part of its previously announced strategy to reconfigure its domestic operations in order to better compete in the global marketplace. This incentive, offered to certain corporate and division support staff employees age 55 or over as of June 30, 2007, included severance benefits, additional incentive payments and extended medical and dental benefits, all conditioned upon the employee working through a date specified by ITG and the employee executing a valid release of claims. Forty-seven (47) eligible employees elected early retirement under this incentive arrangement. These activities resulted in estimated pretax charges of approximately $3.2 million, of which $2.6 million are expected to result in future cash expenditures. The components of these estimated charges included the establishment of a $2.6 million reserve for severance and incentive benefits, medical and dental benefits and COBRA benefits in the year ended December 31, 2006. ITG also recorded a charge of approximately $0.6 million for pension expense in the 2006 fiscal year.

Subsequent Events

On March 2, 2007, the Company entered into a Debt Exchange Agreement (the “Debt Exchange Agreement”) with an entity (“Fund II”) affiliated with WLR and Wilbur L. Ross, Jr., the Company’s chairman of the board. Pursuant to the Debt Exchange Agreement, the Company, which was a successor obligor with respect to approximately $68

- 36 -

million of indebtedness owed to Fund II, repaid and had discharged its obligations under such indebtedness in exchange for the issuance of an aggregate of 2,719,695 shares of the Preferred Stock of the Company.

Also on March 2, 2007, the Company issued and sold an aggregate of 2,000,000 shares of Preferred Stock, at a price of $25.00 per share, for a total purchase price of $50.0 million to certain other entities affiliated with WLR and Wilbur L. Ross, Jr., the Company’s chairman of the board.

On April 1, 2007, the Company issued 3,355,020 shares of Preferred Stock in connection with the acquisition of BST Holdings, as described above under “Recent Acquisition.”

Shares of Preferred Stock vote together with shares of the Company’s common stock on all matters submitted to a vote of the Company’s stockholders. Each share of Preferred Stock is entitled to one vote per share on all such matters. At any time on or after December 31, 2007, the Preferred Stock is convertible, at the option of the holder thereof, into a number of shares of the Company’s common stock equal to $25.00 (subject to certain adjustments, the “Liquidation Value”) divided by the book value per share of the common stock, as reflected in the Company’s audited financial statements, as of December 31, 2006. Shares of Preferred Stock are not convertible prior to December 31, 2007. In addition, upon the consummation of a Public Offering (as defined in the Certificate of Designation of Series A Convertible Preferred Stock), each share of Preferred Stock will automatically convert into a number of shares of the Company’s common stock equal to the Liquidation Value divided by the product of (i) the price per share of common stock sold in such Public Offering and (ii) 0.75. At any time on or after December 31, 2007, the Company may redeem any and all shares of Preferred Stock upon notice to the holders thereof and payment of 110% of the Liquidation Value. Dividends on the Preferred Stock will be cumulative and will accrue and be payable quarterly, in arrears, at an annual rate of 7.5%. Dividends will be payable, at the Company’s option, in either cash or additional shares of Preferred Stock.

Results of Operations

As described above, in accordance with accounting principles generally accepted in the United States, in a transaction accounted for as an “as if pooling-of-interests,” the financial statements of the previously separate entities are not combined for periods prior to the date common control was established. SCI and Former ITG came under common control on December 3, 2005. As a result, the Company’s historical financial statement presentation includes the results of both entities as of, and from, that date.

However, in order to enhance an understanding of the Company’s results of operations, the following unaudited pro forma combined financial information is designed to show how the combination of SCI and Former ITG might have affected the Company’s historical results of operations if the merger of these entities had occurred at an earlier time. The following unaudited pro forma combined statements of operations give effect to the completion of the Combination as if it occurred on the first day of each period presented. The following unaudited pro forma combined financial information has been prepared by the management of the Company for illustrative purposes only and is not necessarily indicative of the combined results of operations in future periods or the results that actually would have been realized had the Combination of SCI and Former ITG been completed at the beginning of the specified periods or at any other time.

Additionally, for its fiscal years ended October 2, 2005 and October 3, 2004, the Company operated in only the following business segments: apparel fabrics, government uniform fabrics, interior furnishings, commission finishing and development stage.

- 37 -

STATEMENTS OF OPERATIONS OF FORMER ITG AND SCI

For the Years Ended December 31, 2006 and 2005

(amounts in thousands)

	Year Ended December 31, 2006			Unaudited Pro Forma Year Ended December 31, 2005
				Former ITG			SCI			Combined
Net sales	$	720,916		$	607,160		$	220,114		$	827,274
Cost of goods sold		660,734			535,890			196,693			732,583
Gross profit		60,182			71,270			23,421			94,691
Selling and administrative expenses		72,762			55,122			16,004			71,126
Stock-based compensation and related cash bonus expense		1,318			5,431			—			5,431
Start-up costs on international initiatives		4,595			1,612			—			1,612
(Gain) loss on disposal of property, plant and equipment		(769	)		(3,508	)		141			(3,367	)
Expenses associated with certain share transactions		4,350			—			2,965			2,965
Settlement/curtailment gain on retiree medical plans		(321	)		—			—			—
Provision for special termination benefit		3,227			—			—			—
Provision for restructuring and impairment		11,602			6,542			—			6,542
Income (loss) from operations		(36,582	)		6,071			4,311			10,382
Other income (expense):
Interest income		1,509			1,131			68			1,199
Interest expense		(6,937	)		(4,860	)		(682	)		(5,542	)
Write-off of deferred financing costs		(1,054	)		—			—			—
Other income (expense)		10,846			901			(606	)		295
Income (loss) from continuing operations before income taxes		(32,218	)		3,243			3,091			6,334
Income tax expense		(5,913	)		(306	)		(907	)		(1,213	)
Equity in earnings (losses) of unconsolidated affiliates		(847	)		1,408			754			2,162
Minority interest net income		2,899			43			605			648
Income (loss) from continuing operations		(36,079	)		4,388			3,543			7,931
Loss from discontinued operations		(13,976	)		(1,162	)		—			(1,162	)
Extraordinary loss, net of income taxes of $1,663		—			(2,837	)		—			(2,837	)
Net income (loss)	$	(50,055	)	$	389		$	3,543		$	3,932

- 38 -

STATEMENTS OF OPERATIONS OF FORMER ITG AND SCI

For the Three Month Transition Period Ended December, 31 2005 and December 31, 2004

(amounts in thousands)

	Three Month Transition Period Ended December 31, 2005			Unaudited Pro Forma Three Months Ended December 31, 2004 for Former ITG and One Month Ended December 31, 2004 for SCI
				Former ITG			SCI			Combined
Net sales	$	125,422		$	139,209		$	16,183		$	155,392
Cost of goods sold		117,748			128,506			14,637			143,143
Gross profit		7,674			10,703			1,546			12,249
Selling and administrative expenses		10,515			13,137			1,618			14,755
Expenses associated with certain share transactions		2,965			—			—			—
Start-up costs on international initiatives		344			—			—			—
Gain on disposal of property, plant and equipment		(1,276	)		(227	)		—			(227	)
Settlement/curtailment gain on retiree medical plans		—			(8,153	)		—			(8,153	)
Provision for restructuring and impairment		(407	)		—			—			—
Income (loss) from operations		(4,467	)		5,946			(72	)		5,874
Other income (expense):
Interest income		661			54			13			67
Interest expense		(947	)		(1,188	)		(146	)		(1,334	)
Other income (expense)		(22	)		—			1,126			1,126
Income (loss) from continuing operations before income taxes		(4,775	)		4,812			921			5,733
Income tax (expense) benefit		1,731			(1,624	)		(554	)		(2,178	)
Equity in earnings (losses) of unconsolidated affiliates		(690	)		619			—			619
Minority interest net income		26			—			—			—
Income (loss) from continuing operations		(3,708	)		3,807			367			4,174
Income (loss) from discontinued operations		342			(302	)		—			(302	)
Net income (loss)	$	(3,366	)	$	3,505		$	367		$	3,872

- 39 -

INTERNATIONAL TEXTILE GROUP, INC.

SEGMENT RESULTS OF OPERATIONS

(amounts in thousands)

	Twelve Months Ended December 31, 2006			Pro Forma Twelve Months Ended December 31, 2005			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty- seven Weeks Ended October 3, 2004
Net Sales:
Automotive Airbag Cushions	$	173,183		$	171,212		$	10,053		$	N/A		$	N/A
Automotive Airbag Fabrics		57,326			63,577			3,161			N/A			N/A
Bottom-weight Woven Apparel Fabrics		409,013			503,521			88,288			529,319			451,322
Government Uniform Fabrics		44,522			48,004			12,165			46,328			48,072
Interior Furnishings		36,418			39,812			8,805			41,115			35,854
Commission Finishing		21,683			26,597			5,879			27,481			19,596
Development Stage		—			—			—			—			—
All Other		386			369			67			401			339
		742,531			853,092			128,418			644,644			555,183
Intersegment sales		(21,615	)		(25,818	)		(2,996	)		(11,178	)		(6,229	)
	$	720,916		$	827,274		$	125,422		$	633,466		$	548,954
Income (Loss) From Continuing Operations
Before Income Taxes:
Automotive Airbag Cushions	$	5,653		$	11,646		$	(533	)	$	N/A		$	N/A
Automotive Airbag Fabrics		(1,992	)		671			(724	)		N/A			N/A
Bottom-weight Woven Apparel Fabrics		2,387			21,796			291			23,894			21,230
Government Uniform Fabrics		4,245			5,204			2,123			4,911			969
Interior Furnishings		656			(2,749	)		64			(4,136	)		(2,398	)
Commission Finishing		(2,431	)		(769	)		(268	)		(246	)		1,189
Development Stage		(4,595	)		(1,612	)		(344	)		(1,268	)		—
Total reportable segments	$	3,923		$	34,187		$	609		$	23,155		$	20,990

The data presented above for the automotive airbag cushions and automotive airbag fabrics reportable segments relates to certain historical businesses of SCI and has been included in Former ITG’s results of operations beginning on December 3, 2005.

Twelve Months Ended December 31, 2006 Compared to Pro Forma Twelve Months Ended December 31, 2005

The Company had net sales of $720.9 million for the twelve months ended December 31, 2006 compared to pro forma net sales of $827.3 million for the twelve months ended December 31, 2005. Declines in bottom-weight woven apparel segment sales, as a result of continued import penetration and the downsizing of certain of the Company’s denim production capacities, accounted for the sales decline. Gross profit margin in the twelve months ended December 31, 2006 of 8.3% of sales, as compared with 11.4% for the comparable pro forma period in 2005, was impacted negatively by underutilized manufacturing facilities and higher raw material costs.

Automotive Airbag Cushions: Sales in the automotive cushion segment increased approximately $2.0 million, or 1.2%, to $173.2 million for the year ended December 31, 2006 compared to the pro forma year ended December 31,

- 40 -

2005. The increase in sales resulted primarily from sales in new markets which offset sales decreases in certain existing markets in which vehicle platforms decreased or had been phased out in 2006 as compared to 2005. The Company’s automotive cushion operations in China and South Africa had net sales of $6.7 million during the year ended December 31, 2006, as those joint ventures began production on new programs awarded in 2006, compared with net sales of $0.4 million for the pro forma year ended December 31, 2005. The increase in net sales was also driven by the positive effect of approximately $1.2 million of favorable changes in foreign currency exchange rates compared to the twelve months ended December 31, 2005.

Income in the automotive cushions segment decreased $6.0 million to $5.7 million in the twelve months ended December 31, 2006 as compared to the pro forma twelve months ended December 31, 2005. The decrease in earnings income resulted primarily from a decrease in sales to certain existing markets described above combined with continued production ramp up expenses at the China and South Africa cushion joint ventures, as well as cost increases for raw materials for the automotive cushions segment.

Automotive Airbag Fabrics: Sales in the automotive fabrics segment decreased $3.5 million, or 7.2%, to $45.4 million for the twelve months ended December 31, 2006 compared to the pro forma twelve months ended December 31, 2005. The decrease in sales resulted primarily from declining sales volumes on some of the Company’s fabric products for vehicle platforms that were experiencing decreased sales volumes or were being phased out during 2006 and the loss of other programs as a result of insourcing by a customer and aggressive pricing by an independent competitor.

The automotive fabrics segment realized a loss of $2.0 million for the twelve months ended December 31, 2006 compared to operating income of $0.7 million for the pro forma twelve months ended December 31, 2005. The decrease in earnings resulted primarily from the decrease in sales described above combined with the Company’s stable fixed cost component of cost of goods sold and selling, general and administrative expenses.

Bottom-Weight Woven Apparel Fabrics: Net sales in the bottom-weight woven apparel fabrics segment for the twelve months ended December 31, 2006 were $399.4 million, 18.9% lower than the $492.4 recorded in the pro forma twelve months ended December 31, 2005. Fiscal year 2006 net sales increased $37.4 million due to the acquisition of the remaining 50% interest in Parras Cone in June 2006 and the resulting consolidation of its results with ITG. ITG’s bottom-weight woven apparel fabric sales were adversely impacted by a continued growth of Asian imports and a direct decrease in denim sales volumes reflecting the closing of certain of the Company’s domestic denim plants at the end of 2005, as well as retailer conservatism which was impacted by historically high energy prices and a continued shift of consumer spending to electronics. Sales prices for denims remained flat with lower sales prices for worsted and synthetics. As a result of, among other things, continued volume declines, ITG announced in August 2006 the decision to close its Hurt, Virginia finishing plant.

Income for the bottom-weight woven apparel fabrics segment for the twelve months ended December 31, 2006 was $2.4 million compared to $21.8 million recorded in the pro forma twelve months ended December 31, 2005. Bottom-weight woven apparel fabrics income was negatively impacted in 2006 by higher raw material costs, the reduction in sales volume resulting in underutilized manufacturing facilities and higher energy costs. The acquisition of the remaining 50% interest in Parras Cone in June 2006 increased income as compared with 2005 by $3.6 million.

Government Uniform Fabrics: Net sales in the government uniform fabrics segment for the twelve months ended December 31, 2006 were $44.5 million, 7.3% lower than the $48.0 million recorded in the pro forma twelve months ended December 31, 2005. Sales of worsted wool for dress uniforms declined significantly in 2006 as the U.S. government curtailed purchases as a result of budget constraints and excess inventories in certain styles. With the Company’s acquisition of the H. Landau unit of HLC Industries in 2005, sales of battle dress uniforms (camouflage) increased significantly in 2006 as compared to 2005. As with the dress uniform fabric, government budget constraints negatively impacted volume levels of battle dress uniform fabric shipments in the second half of 2006.

Income in the government uniform fabrics segment for the twelve months ended December 31, 2006 was $4.2 million, 19.2% lower than the $5.2 million recorded in the pro forma twelve months ended December 31, 2005. The significant volume decline in dress uniform sales, partially offset by increased battle dress uniform sales, was responsible for the reduction in this segment’s income.

- 41 -

Interior Furnishings: Net sales in the interior furnishings segment for the twelve months ended December 31, 2006 were $36.4 million, 8.5% lower than the $39.8 million recorded in the pro forma twelve months ended December 31, 2005. The decrease in interior furnishings sales was due primarily to lower volume as the result of the consolidation of the Burlington House contract and Cone Jacquards operations, as well as continued difficult market conditions.

Income (loss) in the interior furnishings segment for the twelve months ended December 31, 2006 was $0.7 million compared to a $2.7 million loss recorded in the pro forma twelve months ended December 31, 2005. Operating income for the upholstery/contract business increased in 2006 with the completion of the integration of the Burlington Contract Fabrics with Cone Jacquards businesses and the resulting overhead reductions. Business volume continued to be impacted negatively by the continued growth of imported furniture.

Commission Finishing: Net sales in the commission finishing segment for the twelve months ended December 31, 2006 were $21.7 million, 18.4% lower than the $26.6 million recorded in the pro forma twelve months ended December 31, 2005. In 2006, volumes continued to decline in Carlisle’s traditional print markets as a result of the continued growth of imports and the continued shift in lifestyle choices to products other than prints.

Loss in the commission finishing segment for the twelve months ended December 31, 2006 was $2.4 million compared to a $0.8 million loss recorded for the pro forma twelve months ended December 31, 2005. In 2006, volumes continued to decline in Carlisle Furnishing’s traditional print markets as lifestyle choices continued to shift to other products and with the continued growth of imports. In 2006, volumes continued to decline in Carlisle’s traditional print markets as a result of the continued growth of imports and the continued shift in lifestyle choices to products other than prints. In addition, contract denim finishing volume declined with the reduction in overall denim sales.

Development Stage: Start up costs on international initiatives increased $3.0 million in the twelve months ended December 31, 2006 from $1.6 million in the comparable period in the prior year. This increase was primarily due to the fact that the Cone Denim (Jiaxing) facility began construction in August 2005 and the Jiaxing Burlington Textile Company facility began construction in November 2005, and the related costs continue to be incurred. As of December 31, 2006, the Company had capital expenditure commitments not reflected as liabilities on the balance sheet of $12.6 million related to Cone Denim (Jiaxing), $4.3 million related to Jiaxing Burlington Textile Company and $3.2 million related to the construction of the Cone Denim de Nicaragua plant. These commitments were not reflected as liabilities on the balance sheet because the Company had not received the related goods or taken title to the property, plant and equipment.

SELLING AND ADMINISTRATIVE EXPENSES: Selling and administrative expenses for the twelve months ended December 31, 2006 were $72.8 million compared to $71.1 million for the pro forma twelve months ended December 31, 2005. Fiscal year 2006 amounts increased $2.8 million due to the acquisition of the remaining 50% interest in Parras Cone in June 2006, which was partially offset by lower selling cost on decreased sales and cost savings realized from the Company’s restructuring initiatives.

STOCK-BASED COMPENSATION EXPENSE: The Company recognized a charge of $1.3 million for stock-based compensation expense for the twelve months ended December 31, 2006 as compared to $5.4 million for the comparable pro forma 2005 period. This expense in the 2006 period represented the amortization of restricted stock granted to certain management employees, 50% of which vested during the third quarter of the fiscal year ended October 2, 2005, and 12.5% of which vests per year at the end of each of the subsequent four September quarters.

GAIN/LOSS ON DISPOSAL OF ASSETS: The Company recognized gains on sales of assets of $0.8 million during the 2006 fiscal year and $3.4 million during the pro forma 2005 fiscal year. The amount in the 2005 fiscal year primarily related to the sale of property, plant and equipment from the Williamsburg, North Carolina interior furnishings plant, which was closed as part of ITG’s consolidation of certain of its North Carolina operations.

EXPENSES ASSOCIATED WITH CERTAIN SHARE TRANSACTIONS: During the 2006 fiscal year, the Company incurred $4.4 million of expenses related to the Combination of SCI and Former ITG. The Company recognized during the pro forma year ended December 31, 2005 expenses of $3.0 million resulting from the sale of a majority of SCI’s then-outstanding shares by a former stockholder to certain entities affiliated with WLR.

- 42 -

PROVISION FOR SPECIAL TERMINATION BENEFIT: In December 2006, the Company announced an early retirement incentive plan for salaried employees and a provision of $3.2 million was recorded for severance, medical and dental benefits associated with this plan.

PROVISION FOR RESTRUCTURING AND IMPAIRMENT: For the twelve months ended December 31, 2006, the Company recognized $11.6 million for restructuring and impairment charges from continuing operations as compared to $6.5 million for the pro forma prior year. The 2006 restructuring charges included severance and COBRA benefits and a non-cash pension curtailment charge related to transitioning production from its Hurt, Virginia dyeing and finishing plant to other domestic facilities as described above, in addition to continued costs paid to relocate and convert equipment to new facilities, that were charged to operations as incurred, related to restructuring activities undertaken during the 2005 fiscal year. The 2005 restructuring charges consisted of severance and COBRA benefits related to restructuring activities described above under “Restructuring Activities – 2005.” The Company also recorded an impairment charge during the pro forma 2005 fiscal year related to equipment located at its Cliffside denim plant to write it down to its expected net realizable value.

INTEREST EXPENSE: Interest expense of $6.9 million in the twelve months ended December 31, 2006 is $1.4 million higher than interest expense of $5.5 million in the pro forma twelve months ended December 31, 2005. The increase was primarily due to increased borrowings to finance the Company’s international initiatives and higher interest rates on the Company’s variable rate debt securities. The Company also recorded a write-off of deferred financing fees of $1.1 million due to the replacement of its former bank credit facility.

OTHER INCOME: Other income of $12.4 million in the twelve months ended December 31, 2006 was primarily a result of the sale of the Company’s 50% interest in its Indian joint venture, Mafatlal Burlington Industries Limited, during March 2006. Other income of $1.5 million in the pro forma twelve months ended December 31, 2005 was primarily a result of the sale of the Company’s 15% interest in a domestic textured polyester yarn joint venture in April 2005. Other income also included interest income of $1.5 million in the twelve months ended December 31, 2006 compared to $1.2 million in the pro forma twelve months ended December 31, 2005.

INCOME TAX EXPENSE: Income tax expense was $5.9 million for the twelve months ended December 31, 2006 in comparison with $1.2 million for the pro forma twelve months ended December 31, 2005. Income tax expense for the 2006 period is different from the amount obtained by applying U.S. federal and state statutory rates to income before income taxes primarily as a result of the establishment of a $20.6 million valuation allowance on U.S. deferred tax assets, foreign withholding taxes paid related to the sale of the Indian denim joint venture interest for which no U.S. foreign tax credit is available, other foreign income taxed at different rates, and business expenses that are not deductible in the U.S. In 2006, the Company recorded the valuation allowance to reduce U.S. deferred tax assets on the portion of the tax benefit that management considers is more likely than not to be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income in the jurisdictions in which these deferred tax assets were recognized. Income tax expense for the 2005 period is different from the amount obtained by applying U.S. federal and state statutory rates to income before income taxes primarily as a result of foreign income taxed at different rates and business expenses that are not deductible in the U.S.

INCOME (LOSS) FROM CONTINUING OPERATIONS: For twelve months ended December 31, 2006, the Company recorded a loss from continuing operations of $36.1 million compared to income from continuing operations of $7.9 million in the prior year’s pro forma comparable period due to the factors discussed above.

DISCONTINUED OPERATIONS: Operating losses, net of income taxes, related to the Burlington House division’s discontinued businesses were $14.0 million for the twelve months ended December 31, 2006 compared to operating losses of $1.2 million for the pro forma twelve months ended December 31, 2005. The 2006 loss includes a pre-tax restructuring charge of $2.3 million for severance and COBRA benefits, $0.8 million for a non-cash pension curtailment charge, $0.5 million for costs paid to relocate and convert equipment to new facilities that are charged to operations as incurred as well as pre-tax asset impairment charges totaling $3.7 million.

NET INCOME (LOSS): Net loss for the twelve months ended December 31, 2006 included minority interest in losses of consolidated affiliates of $2.9 million compared to $0.6 million in the pro forma twelve months ended December 31, 2005, and equity in losses of unconsolidated affiliates of $0.8 million in the twelve months ended December 31, 2006 compared to equity in income of unconsolidated affiliates of $2.2 million in the pro forma

- 43 -

twelve months ended December 31, 2005. The decrease in equity earnings from unconsolidated affiliates reflects the acquisition of the remaining 50% interest in Parras Cone in June 2006. Net income for the pro forma twelve months ended December 31, 2005 included an extraordinary loss of $2.8 million related to purchase accounting adjustments from the acquisition of the Cone business.

Three Months Ended December 31, 2005 Compared to Pro Forma Three Months Ended December 31, 2004

The Company recorded net sales of $125.4 million for the three months ended December 31, 2005 compared to net sales of $155.4 million for the pro forma three months ended December 31, 2004. Declines in apparel segment sales, as a result of continued increased import penetration and the downsizing of the Company’s denim production capacities in late 2005, accounted for the sales decline. Gross profit margin for the 2005 transition period declined to 6.1% of sales, as compared with 7.9% for the 2004 comparable period, as gross profit was negatively impacted by underutilized manufacturing facilities and the Company’s inability to reduce its fixed cost of operations in a manner corresponding to reduced sales.

SELLING AND ADMINISTRATIVE EXPENSES: Selling and administrative expenses for the three months ended December 31, 2005 were $10.5 million, or 8.4% of sales, as compared to $14.8 million, or 9.5% of sales, for the pro forma three months ended December 31, 2004. The decrease in overall selling and administrative expenses in the 2005 period as compared to the 2004 pro forma period reflected cost savings realized from the Company’s restructuring initiatives and a change in classification of certain costs located at manufacturing facilities in the 2005 period.

EXPENSES ASSOCIATED WITH CERTAIN SHARE TRANSACTIONS: The Company recognized, during the three months ended December 31, 2005, expenses of $3.0 million resulting from the sale of a majority of the Company’s then-outstanding shares by a stockholder of the Company to certain entities affiliated with WLR. $2.4 million of this amount was paid to certain key executives of the Company in lieu of any special change of control bonuses that were or might have been payable under employment agreements and for efforts to sell the Company and as an incentive to remain employed with the Company during the pendency of the completion of the transaction. The bonuses were partly funded by a capital contribution by the former stockholder of $1.0 million. In addition, the Company recognized expenses of approximately $0.6 million related to this stock purchase transaction.

GAIN/LOSS ON DISPOSAL OF ASSETS: The Company recognized gains on sales of assets of $1.3 million during the three months ended December 31, 2005 and $0.2 million during the comparable pro forma 2004 period.

SETTLEMENT/CURTAILMENT GAIN ON RETIREE MEDICAL PLANS: The Company recognized a settlement/curtailment gain on retiree medical plans of $8.2 million during the pro forma three months ended December 31, 2004 as compared to no gain during the comparable 2005 period. This gain reflected the reduction of the postretirement benefit liabilities recorded by the Company upon its decision, in November 2004, to terminate certain legacy retiree health and dental plans effective September 30, 2005.

INTEREST EXPENSE: Interest expense of $0.9 million in the three months ended December 31, 2005 was lower than interest expense of $1.3 million in the pro forma three months ended December 31, 2004. The decrease was primarily due to lower outstanding borrowings during the 2005 period.

OTHER INCOME: Other income of $0.6 million in the three months ended December 31, 2005 consisted primarily of interest income. Other income of $1.2 million in the pro forma three months ended December 31, 2004 was primarily a result of currency revaluation adjustments and gains related to the Company’s deferred compensation plan.

INCOME TAX EXPENSE: Income tax (expense) benefit was $1.7 million for the three months ended December 31, 2005 in comparison with $(2.2) million for the pro forma three months ended December 31, 2004. Income taxes for the 2005 and 2004 periods are different from the amount obtained by applying U.S. federal and state statutory rates to income before income taxes primarily as a result of foreign income being taxed at different rates, partially offset by business expenses that are not deductible in the U.S.

- 44 -

EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES: Equity in losses of unconsolidated affiliates of $0.7 million during the three months ended December 31, 2005 compared to equity in earnings of unconsolidated affiliates of $0.6 in the pro forma three months ended December 31, 2004. The decrease in unconsolidated affiliates’ earnings was primarily attributable to losses at Parras Cone associated with lower sales and operating days as compared with the prior year period.

INCOME (LOSS) FROM CONTINUING OPERATIONS: For three months ended December 31, 2005, the Company recorded a net loss from continuing operations of $3.7 million compared to income from continuing operations of $4.2 million in the pro forma prior year’s comparable period due to the factors described above.

DISCONTINUED OPERATIONS: Operating income, net of income taxes, related to the Burlington House division businesses was $0.3 million for the three months ended December 31, 2005 compared to operating losses of $0.3 million for the pro forma three months ended December 31, 2004.

NET INCOME (LOSS): For the three months ended December 31, 2005, the Company reported a net loss of $3.4 million compared to net income of $3.9 million for the pro forma prior year comparable period. As discussed above, the decline in sales in 2005, the change of control expenses incurred in December 2005 and the gain on curtailment of retiree medical plans largely accounted for the change in net income (loss).

Fiscal Year Ended October 2, 2005 Compared to Fiscal Year Ended October 3, 2004

ITG reported net sales of $633.5 million for the 2005 fiscal year compared to net sales of $549.0 million for the 2004 fiscal year. The sales results for the 2005 fiscal year increased over the prior period primarily due to (i) the inclusion of an additional five weeks in the measurement period for the Burlington business, (ii) the inclusion of an additional twenty-three weeks in the measurement period for the Cone business, and (iii) the inclusion of the partial year results of operations of the Cleyn & Tinker and H. Landau product lines, which were acquired during the 2005 fiscal year. These increases were partially offset by, among other things, an increase in imported products by customers, slowing retailer and consumer purchasing of apparel, reduced government purchases and some loss of North American market share by ITG. As a result of, among other things, the declining demand for apparel fabrics produced in the U.S., the Company announced the reduction of its U.S. denim capacity by approximately 40% in late 2005 and the downsizing of workforces in its U.S. worsted and synthetic facilities.

Gross profit margin for the 2005 fiscal year was 11.7% of sales as compared with 9.2% of sales for the 2004 fiscal year. The gross profit margin improved in 2005 primarily as a result of lower raw material prices and, to a lesser extent, the inclusion of results of the Cleyn & Tinker and H. Landau product lines, which were acquired during the 2005 fiscal year.

Bottom-weight Woven Apparel Fabrics: Net sales in the bottom-weight woven apparel fabrics segment for the 2005 fiscal year were $529.3 million compared to $451.3 million recorded in the 2004 fiscal year. The sales results for the 2005 fiscal year increased over the prior period primarily due to (i) the inclusion of an additional five weeks in the measurement period for the Burlington business, (ii) the inclusion of an additional twenty-three weeks in the measurement period for the Cone business, and (iii) the inclusion of the partial year results of operations of the Cleyn & Tinker product line, which was acquired during the 2005 fiscal year. Apparel sales were adversely impacted by a market-wide slowdown in sales to retailers as they adjusted inventory levels and established conservative outlooks for the upcoming retail year. The decrease in denim sales was due primarily to lower volume, partially due to planned reductions resulting from restructuring plans, with selling prices remaining flat. The decrease in synthetic, worsted and government uniform sales was due primarily to lower volume, partially due to planned reductions resulting from restructuring plans and, to a lesser extent, lower selling prices.

Income from the bottom-weight woven apparel fabrics segment for the 2005 fiscal year was $23.9 million compared to $21.2 million recorded in the 2004 fiscal year. The results for the 2005 fiscal year improved over the prior period primarily due to (i) the inclusion of an additional five weeks in the measurement period for the Burlington business, (ii) the inclusion of an additional twenty-three weeks in the measurement period for the Cone business, and (iii) the inclusion of the partial year results of operations of the Cleyn & Tinker product line, which was acquired during the 2005 fiscal year.

- 45 -

Government Uniform Fabrics: Net sales in the government uniform fabrics segment for the 2005 fiscal year were $46.3 million compared to $48.1 million recorded in the 2004 fiscal year. The sales results for the 2005 fiscal year decreased from the prior period primarily due to a reduction in dress uniform demand from the U.S. government as a result of its inventory position reflecting lower consumption during the periods of military hostilities partially offset by (i) the inclusion of an additional five weeks in the measurement period for the worsted dress uniform product line, (ii) the inclusion of an additional twenty-three weeks in the measurement period for the battle dress uniform (camouflage) product line, and (iii) the inclusion of the results of the H. Landau product line, which was acquired in August 2005.

Income in the government uniform fabrics segment for the 2005 fiscal year was $4.9 million compared to $1.0 million recorded in the 2004 fiscal year. The results for the 2005 fiscal year increased over the prior period primarily due to: (i) the inclusion of an additional five weeks in the measurement period for the worsted dress uniform product line, (ii) the receipt of a Wool Trust refund from the U.S. government in the 2005 calendar year, (iii) the inclusion of an additional twenty-three weeks in the measurement period for the battle dress uniform product line, and (iv) the inclusion of the results of the H. Landau product line, which was acquired in August 2005.

Interior Furnishings: Net sales in the interior furnishings segment for the 2005 fiscal year were $41.1 million compared to $35.9 million recorded in the 2004 fiscal year. The sales results for the 2005 fiscal year increased over the prior period primarily due to: (i) the inclusion of an additional five weeks in the measurement period for the Burlington House contract product line and (ii) the inclusion of an additional twenty-three weeks in the measurement period for the Cone Jacquard product line.

Losses in the interior furnishings segment for the 2005 fiscal year were $4.1 million compared to $2.4 million recorded in the 2004 fiscal year reflecting the longer operating periods and the strategic repositioning of the operations.

Commission Finishing: Net sales in the commission finishing segment for the 2005 fiscal year were $27.5 million compared to $19.6 million recorded in the 2004 fiscal year. The sales results for the 2005 fiscal year increased over the prior period primarily due to the inclusion of an additional twenty-three weeks in the measurement period for the Cone business.

Loss in the commission finishing segment for the 2005 fiscal year was $0.2 million compared to income of $1.2 million recorded in the 2004 fiscal year as a result of a decline in sales volume on an annualized basis.

Development Stage: Start up costs on international initiatives were $1.3 million for the 2005 fiscal year as compared to $0.0 for the 2004 fiscal year. This increase during the 2005 fiscal year reflected costs associated with the start up of ITG’s international initiatives and greenfield projects, including two projects in Jiaxing, China. As of October 2, 2005 and October 3, 2004, ITG had $2.0 million and $0, respectively, of capital expenditure commitments not already reflected as liabilities on the balance sheet, which were related to its Cone Denim (Jiaxing) and Jiaxing Burlington Textile Company construction projects.

SELLING AND ADMINISTRATIVE EXPENSES: Selling and administrative expenses for the 2005 fiscal year increased $22.4 million to $59.3 million compared to the 2004 fiscal year. ITG’s selling and administrative expenses for the 2005 fiscal year were affected by (i) the inclusion of an additional five weeks in the measurement period for the Burlington business and (ii) the inclusion of an additional twenty-three weeks in the measurement period for the Cone business, which were partially offset by certain reductions in administrative expenses associated with the rationalization or closing of certain operations during the 2005 fiscal year, as well as the realization of certain synergies as a result of the consolidation of the Burlington and Cone businesses.

STOCK-BASED COMPENSATION AND RELATED CASH BONUS EXPENSE: For the 2005 fiscal year, ITG recognized a charge of $5.2 million for stock-based compensation and related cash bonus expense as compared to $0.0 for the 2004 fiscal year. This expense in the 2005 fiscal year related to the establishment of an equity incentive plan and the related issuance of shares of restricted stock to certain management employees which vested 50% during the 2005 fiscal year. The cash portion of this charge was $2.1 million for the 2005 fiscal year and $0.0 for the 2004 fiscal year and related to bonuses paid to certain recipients of stock-based compensation in order to cover such employees’ income taxes related to the restricted stock grants.

- 46 -

GAIN/LOSS ON DISPOSAL OF ASSETS: ITG recognized gains on sales of assets of $2.4 million during the 2005 fiscal year and $1.3 million during the 2004 fiscal year. The increase in the 2005 fiscal year primarily related to the sale of property, plant and equipment from the Williamsburg, North Carolina interior furnishings plant, which was closed as part of ITG’s consolidation of certain of its North Carolina operations.

SETTLEMENT/CURTAILMENT GAIN ON RETIREE MEDICAL PLANS: ITG recognized a settlement/curtailment gain on retiree medical plans of $8.2 million during the 2005 fiscal year as compared to $0.0 during the 2004 fiscal year. This gain reflected the reduction of the postretirement benefit liabilities recorded by ITG upon its decision, in November 2004, to terminate certain legacy retiree health and dental plans effective September 30, 2005.

PROVISION FOR RESTRUCTURING AND IMPAIRMENT: For the 2005 fiscal year, ITG recognized $6.9 million for restructuring and impairment charges as compared to no charges for the 2004 fiscal year. The restructuring charges consisted of severance and COBRA benefits, a non-cash pension curtailment charge and costs paid to relocate and convert equipment to new facilities that were charged to operations as incurred related to restructuring activities undertaken during the second and third quarters of the 2005 fiscal year and described above. ITG also recorded an impairment charge during the 2005 fiscal year related to the write down, to net realizable value, of equipment located at its Cliffside denim plant.

INTEREST EXPENSE: Interest expense of $5.2 million in the 2005 fiscal year was $0.9 higher than interest expense of $4.3 million in the 2004 fiscal year. The higher interest expense was primarily due to the inclusion of an additional five weeks in the measurement period for the Burlington business, the inclusion of an additional twenty-three weeks in the measurement period for the Cone business, and higher interest rates on the Company’s variable rate debt securities.

INCOME TAX EXPENSE: Income tax expense of $2.2 million was recorded in the 2005 fiscal year as compared to $3.7 million in the 2004 fiscal year. The reduction was primarily due to lower income before income taxes and minority interest in the 2005 period. Income tax expense for the 2005 fiscal year is different from the amount obtained by applying U.S. federal and state statutory rates to income before income taxes primarily as a result of foreign income taxed at different rates, partially offset by business expenses that are not deductible in the U.S. Income tax expense for the 2004 period is different from the amount obtained by applying U.S. federal and state statutory rates to income before income taxes primarily as a result of business expenses that are not deductible in the U.S., partially offset by the effect of changes in income tax rate brackets.

DISCONTINUED OPERATIONS: Operating losses, net of income taxes, related to the Burlington House division businesses were $1.8 million for the 2005 fiscal year compared to operating income of $1.1 million for the 2004 fiscal year reflecting a less profitable sales mix and loss in volume in the mattress and decorative fabrics businesses.

NET INCOME: For the 2005 fiscal year, ITG earned net income of $4.0 million, compared to net income of $62.8 million for the 2004 fiscal year. The significant reduction in net income was primarily a result of the matters discussed above as well as the $56.1 million extraordinary gain during the 2004 fiscal year as compared to an extraordinary loss of $2.8 million during 2005 fiscal year. Both extraordinary items resulted from purchase accounting adjustments related to the acquisition of the Burlington and Cone businesses.

Liquidity and Capital Resources

Cash Flows

Net cash provided by (used in) operating activities was $(0.4) million in the twelve months ended December 31, 2006 and $3.3 million in the three months ended December 31, 2005. The reduction in 2006 cash flows was due to lower operating results, including higher cash interest payments due to higher interest rates.

Net cash provided by operating activities was $32.4 million in the 2005 fiscal year, as compared to net cash used by operating activities of $17.6 million in the 2004 fiscal year. The increase in net cash provided by operating activities in the 2005 fiscal year was primarily the result of (i) the inclusion of an additional five weeks in the measurement

- 47 -

period of the Burlington business, (ii) the inclusion of an additional twenty-three weeks in the measurement period of the Cone business, (iii) a reduction in days sales outstanding in accounts receivable, (iv) management’s efforts to reduce inventory levels, and (v) lower cash income taxes, partially offset by higher cash interest payments due to higher interest rates.

Net cash used in investing activities was $85.1 million in the twelve months ended December 31, 2006 compared to net cash provided of $1.4 million in the three months ended December 31, 2005. The December 2005 period’s cash flows included the addition of $6.2 million of cash as a result of the completion of the Combination. Capital expenditures were significant in both periods with cash used of $77.8 million in the twelve months ended December 31, 2006 and $5.4 million in the three months ended December 31, 2005. Also, the 2006 cash flows were impacted by the acquisition of the remaining 50% equity interest in Parras Cone for net cash of $21.8 million in June 2006, partially offset by the receipt of gross proceeds from the sale of ITG’s interest in its Indian joint venture of $10.0 million in March 2006.

Net cash used in investing activities was $18.0 million in the 2005 fiscal year as compared to $96.0 million used in investing activities in the 2004 fiscal year. The significant decrease in cash used in investing activities between the 2005 and 2004 fiscal years was primarily attributable to the significant amount of cash used in the acquisitions of certain assets and companies by ITG in the 2004 fiscal year. These acquisitions included the Burlington and Cone businesses as described above. Capital expenditures were significant in both periods, with cash used of $14.1 million in the 2005 fiscal year and $8.7 million in the 2004 period.

Net cash provided by financing activities of $110.7 million in the twelve months ended December 31, 2006 was primarily the result of a significant amount of net borrowings and minority interest capital contributions used to fund acquisitions and international expansion.

Net cash used by financing activities in the 2005 fiscal year was $15.3 million, compared to net cash provided by financing activities in the 2004 fiscal year of $117.6 million, a difference of $102.3 million. The difference of the net cash provided by (used in) financing activities was due to significant capital contributions and borrowings in the 2004 fiscal year as the new businesses were established. During the 2005 fiscal year, ITG also repaid certain then-outstanding debt.

The carrying amounts of cash, accounts receivable, certain other financial assets, accounts payable and borrowings under the Company’s various bank loans are reasonable estimates of their fair value at each applicable measurement date because of the short maturity of these instruments or, in the case of the bank loans, because of the variable interest rate terms. The carrying amounts of the unsecured convertible subordinated notes approximated their fair value at October 3, 2004 based on then-current market pricing.

It is expected that ITG’s equipment and working capital requirements will continue to increase in order to support its international initiatives. ITG expects to fund its liquidity requirements through a combination of cash flows from operations, equipment financing, available borrowings under its bank credit facilities, and other external financing as management deems appropriate. ITG believes that future external financing may include, but may not be limited to, borrowings under additional credit agreements, the issuance of equity or debt securities or funding from certain entities affiliated with WLR, depending upon the perceived cost of any such financing at the appropriate time. ITG cannot provide any assurances that any financing would be available to it upon acceptable terms, if at all, at any time in the future. ITG’s failure to obtain any necessary financing may adversely affect its expansion plans and, therefore, its financial condition and results of operations.

Bank Credit Agreements

On December 29, 2006 the Company and certain of its subsidiaries entered into a $165.0 million credit agreement with General Electric Capital Corporation and certain other signatories thereto (the “Bank Credit Agreement”). Also on December 29, 2006, the Company’s wholly owned subsidiary, Burlington Morelos S.A. de C.V. (the “Mexican Holding Company”), entered into a $15.0 million term loan agreement (the “Term Loan Agreement”) with General Electric Capital Corporation and certain other signatories thereto. Both the Bank Credit Agreement and the Term Loan Agreement have maturity dates of December 29, 2009.

- 48 -

The Bank Credit Agreement provides for a revolving credit facility, including a letter of credit sub-facility, in the aggregate amount of up to $165.0 million (the “Revolving Credit Facility”). The Bank Credit Agreement also contains a provision for commitment increases of up to $50.0 million in the aggregate, in amounts of no less than $25.0 million per increase, subject to the satisfaction by the Company of certain conditions. Proceeds from borrowings under the Revolving Credit Facility were and may be used to (i) refinance certain indebtedness existing as of December 29, 2006, (ii) provide for working capital, capital expenditures and other general corporate purposes and (iii) fund certain expenses associated with the Bank Credit Agreement and the Term Loan Agreement.

The obligations of the Company (and certain of its subsidiaries) under the Bank Credit Agreement are secured by substantially all the Company’s (and such subsidiaries’) U.S. assets, a pledge by the Company of the stock of its U.S. subsidiaries (other than BST Holdings and its U.S. subsidiaries), a pledge by the Company of 65% of the stock of certain of its foreign subsidiaries (other than foreign subsidiaries of BST Holdings) and the accounts receivable of Automotive Safety Components International Limited (“UK ASCI”), a United Kingdom company, one of the borrowers under the Credit Agreement and a wholly owned subsidiary of the Company. The obligations of the Mexican Holding Company under the Term Loan Agreement are secured by a pledge of substantially all the property, plant and equipment of its wholly-owned subsidiary, Parras Cone.

In the event that the availability (as defined in the Bank Credit Agreement) was to fall below certain levels, then the Company would be required to comply with a fixed charge coverage ratio set forth in the Bank Credit Agreement. The Term Loan Agreement contains a fixed charge coverage ratio and a minimum collateral coverage covenant, which are calculated quarterly. The respective agreements also contain customary reporting obligations and affirmative and negative covenants, including, but not limited to, restrictions on the uses of proceeds, capital changes, mergers and consolidations, dividend payments, capital expenditures, indebtedness, liens and acquisitions and investments. Subsequent to December 31, 2006 and prior to filing this annual report on Form 10-K, the Company obtained a waiver from General Electric Capital Corporation, as agent under the Bank Credit Agreement, for non-compliance with a covenant relating to the timely delivery of the Company’s audited consolidated financial statements. In addition, the Bank Credit Agreement, as amended, requires the Company to have obtained, and to have contributed to the borrowers under the Credit Agreement, certain additional equity contributions at various times. A contribution of $50.0 million was received from certain entities affiliated with WLR on March 2, 2007 and recorded as equity, and was used to partially repay revolving loans outstanding.

Borrowing availability under the Bank Credit Agreement is determined according to an asset-based formula that values the Company’s borrowing base (as defined) subject to an availability reserve and such other reserves as the agent may establish from time to time in its reasonable credit judgment. The interest rate on borrowings under the Bank Credit Agreement is variable, depending on the amount of the Company’s borrowings outstanding at any particular time. The Company may make borrowings based on either the base rate (defined in the Credit Agreement as the prime rate or the Federal Funds Rate plus 0.5%) or the LIBOR plus an applicable margin. At December 31, 2006, the interest rate on base rate loans was 9.25% and the margin applicable to LIBOR loans was 2.00%, and there was $57.7 million outstanding under the Bank Credit Agreement. Borrowings under the Term Loan Agreement bear interest at the LIBOR plus 4.75%. At December 31, 2006, there was $15.0 million outstanding under the Term Loan Agreement.

Pursuant to the terms of the Bank Credit Agreement, mandatory prepayments are required (i) if the Company sells assets that are part of its borrowing base and (ii) from time to time to the extent that the value of the borrowing base, based on updated appraisals, is lower than its value as of the Closing Date. In addition, beginning on May 29, 2008, the calculated value of the borrowing base will be reduced on a quarterly basis by an amount predetermined according to a 7-year straight-line amortization schedule.

Pursuant to the terms of the Term Loan Agreement, mandatory prepayments are required thereunder if Parras Cone sells assets that are part of the borrowing base thereunder. In addition, amortization payments by the Mexican Holding Company are required in the amount of $0.3 million per quarter beginning in March 2007, with a final payment of $12.3 million due at maturity.

Cone Denim (Jiaxing) Limited has obtained financing from the Bank of China to fund its capital expenditures in excess of partner equity contributions in accordance with applicable Chinese laws and regulations. The financing agreement provides for a $35.0 million term loan available in U.S. dollars to be used for the import of equipment to

- 49 -

be used by this company. Outstanding borrowings under this facility were $22.1 million with a weighted average interest rate of 6.8% at December 31, 2006. The term loan is to be repaid in equal monthly installments over a 60 month period after a two-year grace period on the repayment of principal that commenced on the first drawdown date of June 19, 2006. Interest is based on three-month LIBOR plus a contractual spread of 1.3% or above, as negotiated by the parties per the agreement. The loan is secured by the land, building, machinery and equipment of the joint venture and contains limitations on asset disposals.

In addition, Jiaxing Burlington Textile Company has obtained financing from China Construction Bank. Such funding is being used to finance machinery and equipment capital expenditure needs in excess of ITG’s equity contributions in accordance with applicable Chinese laws and regulations. The agreement provides for an $11.0 million term loan, available in either U.S. dollars or Chinese RMB at the option of the Company, to be used for the import of equipment to be used by this company. The term loan is to be repaid in equal monthly installments over a 60 month period after a two-year grace period on the repayment of principal that commenced on August 31, 2006. Interest is calculated at six-month LIBOR plus 1.25% for U.S. dollar loans. Pricing for RMB loans is at the rate established by the China Central Bank. At December 31, 2006, $8.8 million in principal of U.S. dollar loans were outstanding with a weighted average interest rate of 6.6%. The loan is secured by the land, building, machinery and equipment and additional collateral is required in the form of letters of credit from the Company during the construction phase in the amount of draws on the loan. The agreement also contains financial reporting requirements and limitations on asset disposals.

Upon the completion of the acquisition of BST Holdings in April 2007, BST Holdings became a wholly-owned subsidiary of the Company. BST Holdings is a party to a credit facility (the “BST Facility”) consisting of a €30 million revolving credit facility (the “BST Revolver”), a €100 million first lien term loan (the “First Lien Term Loan”) and a €25 million second lien term loan (the “Second Lien Term Loan”), all of which mature on June 30, 2009. The obligations of BST Holdings under the BST Facility are secured by substantially all of the assets of BST Holdings’ subsidiaries and a pledge by BST Holdings of the stock of its subsidiaries (which subsidiaries are engaged only in the conduct of BST’s business). The BST Facility contains affirmative and negative covenants customary for financing transactions of this type, and also contains provisions for mandatory repayment prior to maturity upon the occurrence of certain extraordinary corporate events. In addition, the BST Facility requires the payment of a commitment fee of 0.5% per year, payable quarterly.

Borrowings under the BST Facility bear interest at a variable rate which is equal to EURIBOR or LIBOR plus an applicable margin. The margin for loans under the BST Revolver, the First Lien Term Loan and the Second Lien Term Loan is 2.5%, 2.5% and 5.25%, respectively. At December 31, 2006, prior to the completion of the acquisition of BST Holdings, there was €5.2 million, €100.0 million and €25.0 million outstanding under the BST Revolver, the First Lien Term Loan and the Second Lien Term Loan at interest rates of 6.2%, 6.2% and 10.6%, respectively.

Preferred Stock Issuances

On March 2, 2007, the Company, which was a successor obligor with respect to approximately $68 million of indebtedness owed to an affiliate of WLR, repaid and had discharged its obligations thereunder in exchange for the issuance of an aggregate of 2,719,695 shares of the Company’s Preferred Stock.

Separately, but also on March 2, 2007, the Company issued and sold 2.0 million shares of Preferred Stock to certain other affiliates of WLR for a total purchase price of $50.0 million.

On April 1, 2007, the Company issued 3,355,020 shares of Preferred Stock in connection with the acquisition of BST Holdings, as described above under “Recent Acquisition.”

Other

ITG is in the process of negotiating financing arrangements for Cone Denim de Nicaragua and ITG-PP JV. ITG believes that it will be able to obtain sufficient financing for each of these initiatives, but cannot provide any assurances that such financing will be available in a timely manner, or on terms acceptable to ITG, if at all.

- 50 -

Commitments

At December 31, 2006, the Company had a U.S. pension plan with an actuarially determined projected benefit obligation in excess of plan assets of approximately $29.2 million. The Company expects to contribute up to $20.0 million to this plan in fiscal year 2007.

At December 31, 2006, ITG had capital expenditure commitments totaling $21.3 million, the majority of which related to Cone Denim (Jiaxing), Jiaxing Burlington Textile Company and Cone Denim Nicaragua and are described in the Results of Operations sections under “Start-Up Costs on International Initiatives.”

ITG plans to fund these commitments from a combination of cash provided by operations and borrowings under its Bank Credit Facility as well as through other external sources of financing as management deems appropriate. ITG believes that future external financing may include, but may not be limited to, borrowings under additional credit agreements, the issuance of equity or debt securities or funding from certain entities affiliated with WLR, depending upon the perceived cost of any such financing at the appropriate time. ITG cannot provide any assurances that any financing would be available to it upon acceptable terms, if at all, at any time in the future.

Off-Balance Sheet Arrangements

As of December 31, 2006, the Company did not have any off-balance sheet arrangements that were material to its financial condition, results of operations or cash flows as defined by Item 303(a)(4) of Regulation S-K promulgated by the SEC. FASB Interpretation No. 45 provides guidance on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued and specific disclosures related to product warranties. As of December 31, 2006, the Company and various consolidated subsidiaries of the Company were borrowers under various bank credit agreements (as described above) and a note payable to a bank in the Czech Republic (together, the “Facilities”). The Facilities are guaranteed by either the Company and/or various consolidated subsidiaries of the Company in the event that the borrower(s) default under the provisions of the Facilities. The guarantees are in effect for the duration of the related Facilities. The Company does not provide product warranties within the disclosure provisions of Interpretation No. 45. As a result of the Company’s expanded business operations resulting from the Combination, the Company and/or its various consolidated subsidiaries may, from time to time, undertake additional obligations under certain guarantees that it may issue or provide product warranties of the type contemplated by FASB Interpretation No. 45.

Derivative Instruments

The Company from time to time utilizes derivative financial instruments to manage changes in cotton and natural gas prices as well as foreign currency exposures. The principal objective of such contracts is to minimize the risks and/or costs associated with financial and global operating activities. The Company does not utilize financial instruments for trading or other speculative purposes. The counterparties to these contractual arrangements are a diverse group of major financial institutions with which the Company may also have other financial relationships. These counterparties expose the Company to the risk of credit loss in the event of nonperformance. However, the Company does not anticipate nonperformance by the other parties.

Cotton is the primary raw material for the Company’s denim fabric manufacturing operations. The Company has an established cotton purchasing program to ensure an uninterrupted supply of appropriate quality and quantities of cotton, to cover committed and anticipated fabric sales and to manage margin risks associated with price fluctuations on anticipated cotton purchases. Derivative instruments used by the Company for cotton purchases are primarily forward purchase contracts and, to a lesser extent, futures and option contracts. The Company qualifies for the “normal purchases exception” under FASB Statements No. 133 and 138 related to its cotton purchase contracts and, as a result, these derivative instruments are excluded from hedge effectiveness evaluation. At December 31, 2006, the fair market value of ITG’s commodity derivative portfolio was $0.1 million.

The Company also uses, from time to time, forward exchange contracts to purchase Mexican Pesos with U.S. Dollars and U.S. Dollars with Euros. The Company monitors its risk associated with the volatility of certain foreign currencies against its functional currency, the U.S. dollar. The Company uses certain derivative financial

- 51 -

instruments to reduce exposure to volatility of foreign currencies. The Company has formally documented all relationships between its derivative financial instruments and corresponding transactions, as well as risk management objectives and strategies for undertaking various derivative financial instruments. Derivative financial instruments are not entered into for trading or speculative purposes. The Company is currently not accounting for these derivative financial instruments using the cash flow hedge accounting provisions of SFAS No. 133, as amended; therefore, the changes in fair values of these derivative financial instruments are included in the consolidated statements of operations.

Certain operating expenses at the Company’s Mexican facilities are paid in Mexican pesos. To reduce exposure to fluctuations in the U.S. dollar and Mexican peso exchange rates, the Company entered into forward contracts and collars at various times during 2006 to buy Mexican pesos for periods and amounts consistent with the related, underlying forecasted cash outflows. At December 31, 2006, the Company had notional value of outstanding forward exchange contracts of $6.8 million and foreign exchange collars ranging from $6.7 million to $6.9 million. Changes in the derivatives’ fair values are recorded in the consolidated statements of operations as other (income) expense.

Certain intercompany sales at the Company’s Greenville, South Carolina facility are denominated and settled in Euros and its operating expenses are paid in U.S. dollars. To reduce exposure to fluctuations in the Euro and U.S. dollar exchange rates, the Company entered into forward contracts in January 2006 to buy U.S. dollars with Euros for periods and amounts consistent with the related, underlying forecasted sales. At December 31, 2006, the Company had outstanding forward exchange contracts that mature between January 2007 and December 2007 to purchase U.S. dollars with an aggregate notional amount of approximately $10.4 million. The fair values of these contracts at December 31, 2006 totaled approximately ($0.7 million) which is recorded as a liability on the Company’s balance sheet in accrued and other current liabilities. Changes in the derivatives’ fair values are recorded in the consolidated statements of operations as other (income) expense.

Gains and losses on derivatives are recognized immediately and reported in cost of goods sold ($0.8 million loss in the 2006 fiscal year, $0.2 million gain in the three months ended December 31, 2005, $0.4 million gain in the 2005 fiscal year and $0.5 million loss in the 2004 fiscal year).

Contractual Obligations

The following table aggregates ITG’s contractual obligations (including those described above) related to long-term debt, non-cancelable leases, capital purchase obligations and other obligations at December 31, 2006.

	Payments Due by Period (in thousands)
	Less Than 1 year		1 - 3 Years		3 - 5 Years		More Than 5 Years		Total
Contractual Obligations:
Long term debt	$	1,284	$	139,168	$	31,862	$	—	$	172,314
Interest payments related to long term debt		9,108		18,048		2,850		—		30,006
Capital lease obligations		1,105		1,406		620		—		3,131
Operating lease obligations		4,454		5,966		4,881		5,202		20,503
Capital purchase obligations (1)		20,483		726		95		20		21,324
Other purchase obligations (2)		29,019		—		—		—		29,019
Other long-term liabilities reflected on the registrant’s balance sheet under GAAP		6,834		12,596		6,593		10,094		36,117
Total	$	72,287	$	177,910	$	46,901	$	15,316	$	312,414

(1) Capital purchase obligations represent commitments for construction or purchase of property, plant and equipment. They were not recorded as liabilities on ITG’s balance sheet as of December 31, 2006, as ITG had not yet received the related goods or taken title to the property. These capital purchase obligations relate primarily to capital equipment for the Cone Denim (Jiaxing) joint venture and the Jiaxing Burlington Textile Company and the Cone Denim Nicaragua facilities.

- 52 -

(2) Other purchase obligations include payments due under various types of contracts which are not already recorded on the balance sheet as liabilities as ITG had not yet received the related goods. As of December 31, 2006 these obligations included $17,165 for cotton contracts, $9,334 for wool contracts and $2,520 for yarn contracts.

Seasonality

Sales in the Company’s airbag fabric and airbag cushions segments are subject to the seasonal characteristics of the automotive industry, in which, generally, there are plant shutdowns in the third and fourth quarters of each calendar year. The strongest portion of the apparel sales cycle is typically from March through November as customers target goods to be sold at retail for the back-to-school fall, holiday and spring seasons. In recent years, apparel fabric sales have become increasingly seasonal as customers have begun to rely more upon contract sewing and have sought to compress the supply cycle to mirror retail seasonality as described above. Historically, the Company’s apparel fabric sales have been typically four to six months in advance of the retail sale of the apparel garment. Demand for upholstery fabrics and the level of attendant sales generally fluctuate moderately during the year.

Critical Accounting Policies

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States, ITG’s management must make decisions that impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions on which to base estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, ITG evaluates its estimates, including those related to allowances for doubtful accounts, inventories, impaired assets, environmental costs, U.S. pension, post-retirement and other post-employment benefits, litigation and contingent liabilities and income taxes. ITG bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. ITG’s management believes the critical accounting policies listed below are the most important to the fair presentation of ITG’s financial condition and results. These policies require more significant judgments and estimates of ITG’s management in the preparation of the Company’s consolidated financial statements.

Accounts Receivable. Trade accounts receivable are recorded at the invoiced amount and bear interest in certain cases that is recognized as received. ITG continuously performs credit evaluations of its customers, considering numerous inputs including, but not limited to, customers’ financial position; past payment history; cash flows and management capability; historical loss experience; and economic conditions and prospects. ITG estimates its allowance for doubtful accounts based on a combination of historical and current information regarding the balance of accounts receivable, as well as the current composition of the pool of accounts receivable. ITG determines past due status on accounts receivable based on the contractual terms of the original sale. Accounts receivable that management believes to be ultimately uncollectible are written off upon such determination. ITG records sales returns as a reduction to sales, cost of sales and accounts receivable and an increase to inventory based on return authorizations for off-quality goods. Returned products that are recorded as inventories are valued based upon expected realizability.

Inventories. Inventories are valued at the lower of cost or market. Cost of substantially all components of textile inventories in the United States is determined using the dollar value last-in, first-out (LIFO) method. All other inventories are valued principally using the first-in, first-out (FIFO) or average cost methods. Each month, ITG reviews its inventory to identify excess or slow moving products, discontinued and to-be-discontinued products, and off-quality merchandise. For those items in inventory that are so identified, ITG estimates their market value based on historical and current realization trends. This evaluation requires forecasts of future demand, market conditions

- 53 -

and selling prices. If the forecasted market value is less than cost, ITG provides an allowance to reflect the lower value of that inventory. This methodology recognizes inventory exposures at the time such losses are evident rather than at the time goods are actually sold.

Impairment of Long-lived Assets. When circumstances indicate, ITG evaluates the recoverability of its long-lived assets by comparing the estimated future undiscounted cash flows with the asset’s carrying amount to determine if a write-down to market value or discounted cash flow is required. Property, plant, and equipment are stated at cost. Depreciation and amortization of property, plant, and equipment is calculated over the estimated useful lives of the related assets principally using the straight-line method: 15 years for land improvements, 10 to 30 years for buildings and 2 to 12 years for machinery, fixtures, and equipment. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not subject to systematic amortization, but rather is tested for impairment annually and whenever events and circumstances indicate that an impairment may have occurred. Impairment testing compares the carrying amount of the goodwill with its fair value. Fair value is estimated based on discounted cash flows. When the carrying amount of goodwill exceeds its fair value, an impairment charge is recorded. ITG has chosen the last day of the second month of the third quarter of its fiscal year as the date to perform its annual goodwill impairment test. At the most recent test date, ITG found no indication of impairment. ITG reviews the estimated useful lives of intangible assets at the end of each reporting period. If events and circumstances warrant a change in the estimated useful life, the remaining carrying amount is amortized over the revised estimated useful life.

Pensions and Postretirement Benefits. The valuation of pension and other postretirement benefit plans requires the use of assumptions and estimates that are used to develop actuarial valuations of expenses, assets, and liabilities. These assumptions include discount rates, investment returns, projected benefits and mortality rates. The actuarial assumptions used are reviewed annually and compared with external benchmarks to assure that they fairly account for future obligations. The discount rate is determined by projecting the plan’s expected future benefit payments as defined for the projected obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation. Returns on investments are based on long-term expectations given current investment objectives and historical results.

Insurance. Insurance liabilities are recorded based upon the claim reserves established by independent insurance consultants, as well as historical claims experience, demographic factors, severity factors, expected trend rates and other actuarial assumptions. To mitigate a portion of its insurance risks, ITG maintains insurance for individual claims exceeding certain dollar limits. Provisions for estimated losses in excess of insurance limits are provided at the time such determinations are made. The reserves associated with the exposure to these liabilities, as well as the methods used in such evaluations, are reviewed by management for adequacy at the end of each reporting period and any adjustments are currently reflected in earnings.

Revenue Recognition. Sales are recorded upon shipment, or in certain circumstances, upon the designation of specific goods for later shipment at a customer’s request with the related risk of ownership passing to such customer (“bill and hold” sales). The Company discourages the use of bill and hold sales in all situations except for sales of off-quality goods, commission finishing and certain sales contracts with the U.S. government. Under the Company’s written bill and hold policy, a standardized bill and hold agreement (“BHA”) must be used for all such transactions. The BHA provides that the risks of ownership must have passed to the buyer and that the buyer has the expected risk of loss in the event of a decline in the market value of goods, the ordered goods must have been segregated from the Company’s other available for sale inventory and not be subject to being used to fill other orders, the product must be complete and ready for shipment, the date by which the Company expects payment and whether the Company has modified its normal billing and credit terms for this buyer. The Company classifies amounts billed to customers for shipping and handling in net sales, and costs incurred for shipping and handling in cost of sales in the consolidated statement of income.

Stock-Based Compensation. Prior to its 2006 fiscal year, the Company applied the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations, in accounting for stock options granted under its stock option plans. Under the intrinsic value method, no compensation cost is recognized if the exercise price of the Company’s employee stock options was equal to or greater than the market price of the underlying stock on the date of the grant. Accordingly,

- 54 -

no compensation cost was recognized in the accompanying consolidated statements of income prior to fiscal year 2006 on stock options granted to employees, since all options granted under the Company’s stock option plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, SCI adopted FASB Statement No. 123(R), Share-Based Payment (“Statement 123(R)”). This statement replaces FASB Statement No. 123, Accounting for Stock-Based Compensation (“Statement 123”) and supersedes APB No. 25. Statement 123(R) requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. This statement was adopted using the modified prospective method of application, which requires companies to recognize compensation cost on a prospective basis. Therefore, prior years’ financial statements have not been restated. For stock-based awards granted in the future, if any, the Company will recognize compensation expense based on the estimated grant date fair value using the Black-Scholes option-pricing model. Prior to the completion of the Combination, SCI had no unvested awards as of January 1, 2006 and did not grant, modify, repurchase or cancel any awards subsequent to its adoption of SFAS No. 123(R) on January 1, 2006. Therefore, the adoption of SFAS No. 123(R) had no effect on SCI’s financial position or results of operations for the fiscal year ended December 31, 2006. In connection with the presentation, for financial reporting purposes, of Former ITG’s financial results as those of the predecessor entity upon completion of the Combination, Former ITG adopted FASB Statement 123(R) on October 20, 2006. The $3.2 million fair value of vested stock options issued in connection with the Combination was included in the purchase price of SCI common stock exchanged for the minority interest of Former ITG. Unvested stock options issued in connection with the Combination are amortized over the remaining vesting periods as compensation expense based on the grant date fair value. These fair value estimates utilized the Black-Scholes option-pricing model with the following assumptions: risk-free interest rates of 4.74% to 4.77%, dividend yields of 0%, expected volatility of 43% to 47%, and expected lives of the options of 4.7 to 6.0 years. In a change from previous standards, Statement 123(R) also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows. Therefore, excess tax benefits related to stock option exercises in 2005 are reflected in operating activities.

Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ITG recognizes valuation allowances on deferred tax assets when it believes that it is more likely than not that some or all of its deferred tax assets will not be realized. In evaluating the future realization of its deferred tax assets, ITG considers both positive and negative evidence related to expected future reversals of existing taxable temporary differences, projections of future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years, and potential tax-planning strategies.

Derivative Instruments. ITG accounts for derivative instruments in accordance FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities and FASB Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. Under these statements, all derivatives are required to be recognized on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. ITG formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative used is highly effective in offsetting changes in the fair values or cash flows of the hedged item. For those derivative instruments that are designated and qualify as hedging instruments, ITG must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings, with the ineffective portion, if any, being recognized in current earnings during the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.

- 55 -

Recently Issued Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for income taxes by proscribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 applies to all tax positions related to income taxes subject to SFAS No. 109 and utilizes a two-step approach for evaluating those tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely that not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied. Those tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period in which they meet the more-likely-than-not threshold or are otherwise resolved to qualify for recognition. De-recognition of previously recognized tax positions occurs when a company subsequently determines that a tax position no longer meets the recognition threshold. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for de-recognition of tax positions. The provisions of FIN 48 are effective beginning with the Company’s first quarter of 2007. The Company is currently in the process of evaluating the impact of FIN 48 on the Company’s results of operations, financial position and related disclosures. Based on the Company’s assessment to date, FIN 48 would have no cumulative material effect due to the existence of U.S. net operating loss carryforwards.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement (“Statement 157”). Statement 157 defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. It does not require any new fair value measures and is effective for fair value measures already required or permitted by other standards for fiscal years beginning after November 15, 2007. The Company is required to adopt Statement 157 beginning on January 1, 2008. Statement 157 is required to be applied prospectively, except for certain financial instruments. Any transition adjustment will be recognized as an adjustment to opening retained earnings in the year of adoption. The Company is currently evaluating the impact of adopting Statement 157 on its results of operations and financial position.

As of December 31, 2006, the Company adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS No. 158”). SFAS No. 158 requires an employer to (a) recognize in its statement of financial position the funded status of a benefit plan measured as the difference between the fair value of plan assets and the benefit obligation, (b) recognize net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employer’s Accounting for Pensions or SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, (c) measure defined benefit plan assets and obligations as of the date of the employer’s statement of financial position and (d) disclose additional information in the notes to the financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The requirements of SFAS No. 158 are applied prospectively upon adoption. The table below shows the incremental effect of applying SFAS No. 158 on individual lines in the December 31, 2006 consolidated balance sheet (in thousands):

	Before Application of SFAS 158		Adjustments			After Application of SFAS 158
Liability for pens ion benefits	$	29,237	$	—		$	29,237
Liability for postretirement benefits		2,438		255			2,693
Total liabilities		31,675		255			31,930
Accumulated other comprehensive income		12,430		(255	)		12,175
Total stockholders’ equity		168,475		(255	)		168,220

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Years Misstatements When Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of

- 56 -

prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for annual financial statements of the first fiscal year ending after November 15, 2006. SAB 108 had no effect on the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITG, from time to time, utilizes derivative financial instruments to manage changes in commodity prices and interest rate and foreign currency exposures. The principal objective of such contracts is to minimize the risks and/or costs associated with financial and global operating activities. ITG does not utilize financial instruments for trading or other speculative purposes. The counterparties to these contractual arrangements are a diverse group of major financial institutions with which ITG may also have other financial relationships. These counterparties expose ITG to the risk of credit loss in the event of nonperformance. However, ITG does not anticipate nonperformance by the other parties.

Interest Rate Risk

To the extent that amounts borrowed under the Company’s bank credit agreements, which provide for borrowings at variable interest rates, are outstanding, ITG has market risk relating to such amounts to the extent that the interest rates under the agreements are variable. An interest rate increase would have a negative impact to the extent ITG borrows against the bank credit agreements. The actual impact would be dependent on the level of borrowings actually incurred. As of December 31, 2006, ITG’s interest rates on outstanding borrowings, exclusive of credit fees, under bank credit facilities with variable interest rates was approximately 8.6%, and the total principal amount outstanding was $103.6 million. Assuming for illustrative purposes only that the interest rates in effect and the amount outstanding under these bank credit facilities on December 31, 2006 remain constant for ITG’s 2007 fiscal year, an increase in the interest rate of 1.0% would have a negative impact of approximately $1.0 million on annual interest expense for the year ending December 31, 2007. Similarly, assuming for illustrative and comparative purposes only that the interest rates in effect and the amount outstanding under the Company’s bank credit facilities on December 31, 2005 had remained constant for ITG’s 2006 fiscal year, an increase in the interest rate of 1.0% would have had a negative impact of approximately $0.7 million on annual interest expense for the 2006 fiscal year. The increase in the negative impact is due to the higher level of borrowings under the bank credit facilities at December 31, 2006 compared to December 31, 2005.

Commodity Price Risk

ITG enters into commodity forward, futures and option contracts agreements for cotton and, to a lesser extent, other commodities in an effort to provide a predictable and consistent commodity price and thereby reduce the impact of volatility in its raw material prices. Cotton is the primary raw material for ITG’s denim fabric manufacturing operations. ITG has an established cotton purchasing program to ensure an uninterrupted supply of appropriate quality and quantities of cotton, to cover committed and anticipated fabric sales and to manage margin risks associated with price fluctuations on anticipated cotton purchases. At December 31, 2006, the fair market value of ITG’s commodity derivative portfolio was $0.1 million. Based on ITG’s derivative portfolio as of December 31, 2006, a hypothetical 10.0% increase in commodity prices under normal market conditions could potentially have an effect on the fair value of the derivative portfolio that is not material. The analysis disregards changes in the exposures inherent in the underlying hedged item; however, ITG expects that any gain or loss in fair value of the portfolio would be substantially offset by increases or decreases in raw material prices.

Foreign Currency Risk

ITG’s international operations, as well as other transactions denominated in foreign currencies, expose ITG to currency exchange rate risks. In order to reduce the risk of certain foreign currency exchange rate fluctuations, ITG periodically enters into forward contracts to buy foreign currencies with U.S. dollars for periods and amounts consistent with the related underlying forecasted cash outflows. The instruments used for hedging are readily marketable exchange-traded forward contracts with banks. ITG monitors its risk associated with the volatility of certain foreign currencies against its functional currency, the U.S. dollar. The impact of changes in the relationship of other currencies to the U.S. dollar in the fiscal year ended December 31, 2006 has resulted in the recognition of income of approximately $1.1 million. It is unknown what the effect of foreign currency rate fluctuations will be on

- 57 -

ITG’s financial position or results of operations in the future. If, however, there were a sustained decline of these currencies versus the U.S. dollar, ITG’s consolidated financial condition could be materially adversely affected. Based on amounts outstanding at December 31, 2006, a hypothetical increase or decrease of 1.0% in the value of the U.S. dollar against the foreign currencies corresponding to the countries in which ITG has operations would result in a reduction or addition of approximately $0.3 million in operating income.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item appears in Items 15(a)(1) and (2) of this annual report on Form 10-K.

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

On April 25, 2006, the audit committee of the board of directors of the Company dismissed PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm and engaged KPMG, LLP as the Company’s independent registered public accounting firm.

The reports of PwC on the Company’s financial statements as of and for the fiscal years ended December 31, 2005 and December 31, 2004 contained no adverse opinion or disclaimer of opinion, nor were they qualified as to uncertainty, audit scope or accounting principle.

During the Company’s fiscal years ended December 31, 2005 and December 31, 2004, the Company had no disagreement with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of PwC, would have caused them to make reference thereto in their report on the Company’s financial statements for such years. During the Company’s fiscal years ended December 31, 2005 and December 31, 2004, none of the events described in Item 304(a)(1)(v) of Regulation S-K occurred.

PwC was provided a copy of the above disclosures and was requested to furnish a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements. A letter to such effect from PwC has been filed with the SEC as Exhibit 16 to the Company’s current report on Form 8-K, dated April 25, 2006.

During the Company’s fiscal years ended December 31, 2005 and December 31, 2004, the Company did not consult with KPMG, LLP regarding any of the matters set forth in Item 304(a)(2) of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s management, under the supervision and with the participation of its principal executive and principal financial officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, and the results of the audit process described below, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective as of such date for the reasons described below.

In the course of the audit of the consolidated financial statements of the Company, it was determined that certain internal controls related to the preparation of tax documentation and management’s review of the income tax provisions and certain related disclosures for 2006, as well as the validity of certain tax planning strategies applied in the determination of valuation allowances for 2006, were not effective. The Company’s subsequent determination that its tax planning strategy was incorrect resulted in a non-cash increase to income tax expense.

Management believes that, as a result of the number and complexity of transactions in 2006, including the accounting and other requirements in connection with the completion of the Combination, additional support and resources at certain levels were needed to address the increasing complexity of the Company and its multi-jurisdictional operations. As a result, management, with the oversight of the audit committee of the board of directors, has taken and continues to take additional steps to address this matter, including adding additional qualified personnel. Management believes that, as result of their additional reviews of the tax provision and related disclosures, the financial statements included in this Form 10-K do present the Company’s tax position correctly and in accordance with the requirements of U.S. generally accepted accounting principles.

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

- 58 -

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file the information required by this Item pursuant to an amendment to this annual report on Form 10-K not later than 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file the information required by this Item pursuant to an amendment to this annual report on Form 10-K not later than 120 days after the end of the fiscal year covered by this Form 10-K.

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

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file the information required by this Item pursuant to an amendment to this annual report on Form 10-K not later than 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file the information required by this Item pursuant to an amendment to this annual report on Form 10-K not later than 120 days after the end of the fiscal year covered by this Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

In accordance with General Instruction G.(3) of Form 10-K, the registrant intends to file the information required by this Item pursuant to an amendment to this annual report on Form 10-K not later than 120 days after the end of the fiscal year covered by this Form 10-K.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) The Company’s consolidated financial statements, related notes thereto and report of our independent registered public accounting firm required by Item 8 are listed in the index on page F-1 herein.

(2) Unless otherwise attached, all financial statement schedules are omitted because they are not applicable or the required information is shown in the Company’s consolidated financial statements or the notes thereto.

(3) Exhibits:

2.1	Agreement and Plan of Merger, dated as of August 29, 2006, by and among Safety Components International, Inc., SCI Merger Sub, Inc. and International Textile Group, Inc.
3.1	Second Amended and Restated Certificate of Incorporation of International Textile Group, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on October 26, 2006)

- 59 -

3.2	Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the Commission on March 8, 2007)
3.3	Amended and Restated Bylaws of International Textile Group, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on October 26, 2006)
4.1	Form of Stockholders Agreement, dated as of March 2, 2007, by and among International Textile Group, Inc., WLR Recovery Fund II, L.P., WLR Recovery Fund III, L.P. and WLR/GS Master Co-Investment, L.P., and the other investors from time to time party thereto
*10.1	Safety Components International, Inc. 2001 Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001)
	*10.1.1	Form of Stock Option Agreement - Class A and B (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001)
	*10.1.2	Form of Stock Option Agreement - Class C (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2002)
*10.2	International Textile Group, Inc. Equity Incentive Plan
*10.3	International Textile Group, Inc. Stock Option Plan for Non-Employee Directors
*10.4	Employment Agreement, effective as of January 1, 2005, by and between International Textile Group, Inc. and Joseph L. Gorga
*10.5	Employment Agreement, effective as of January 1, 2005, by and between International Textile Group, Inc. and Gary L. Smith
*10.6	Employment Agreement, effective as of January 1, 2005, by and between International Textile Group, Inc. and John L. Bakane
*10.7	Employment Agreement, effective as of October 20, 2006, by and between International Textile Group, Inc. and Stephen B. Duerk (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on October 26, 2006)
*10.8	Employment Agreement, effective as of January 1, 2005, by and between International Textile Group, Inc. and Kenneth T. Kunberger
*10.9	Employment Agreement, effective as of January 1, 2005, by and between International Textile Group, Inc. and Thomas E. McKenna
*10.10	Employment Agreement, effective as of January 1, 2005, by and between International Textile Group, Inc. and J. Derrill Rice
*10.11	Form of Severance Letter with certain officers of International Textile Group, Inc.

- 60 -

*10.12	Form of the Company’s Indemnification Agreement entered into with certain officers and directors (incorporated by reference to Exhibit 10.30.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 8, 2005)
*10.13	Form of the Company’s Amended and Restated Indemnification Agreement entered into with certain officers and directors (incorporated by reference to Exhibit 10.10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005)
10.14	Description of arrangement regarding certain management services provided by W.L. Ross & Co. LLC to International Textile Group, Inc.
10.15	Asset Purchase Agreement between Culp, Inc., and International Textile Group, Inc., dated as of January 11, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 11, 2007)
10.16	Credit Agreement, dated as of December 29, 2006, by and among International Textile Group, Inc. and certain of its subsidiaries as borrowers, General Electric Capital Corporation, as agent, and the lenders and others party thereto
10.17	Amendment No. 1 to Credit Agreement, dated January 19, 2007, by and among International Textile Group, Inc., the other Borrowers and Credit Parties signatory thereto, General Electric Capital Corporation and the other Lenders signatory thereto
10.18	Amendment No. 2 to Credit Agreement, dated January 31, 2007, by and among International Textile Group, Inc., the other Borrowers and Credit Parties signatory thereto, General Electric Capital Corporation and the other Lenders signatory thereto
10.19	Amendment No. 3 to Credit Agreement, dated February 15, 2007, by and among International Textile Group, Inc., the other Borrowers and Credit Parties signatory thereto, General Electric Capital Corporation and the other Lenders signatory thereto
10.20	Limited Waiver and Amendment No. 4 to Credit Agreement, dated February 28, 2007, by and among International Textile Group, Inc., the other Borrowers and Credit Parties signatory thereto, General Electric Capital Corporation and the other Lenders signatory thereto
10.21	Amendment No. 5 to Credit Agreement, dated March 30, 2007, by and among International Textile Group, Inc., the other Borrowers and Credit Parties signatory thereto, General Electric Capital Corporation and the other Lenders signatory thereto
10.22	Term Loan Agreement, dated as of December 29, 2006, by and among Burlington Morelos S.A. de C.V., General Electric Capital Corporation, as agent, and the other lenders party thereto
10.23	Stock Exchange Agreement, dated as of March 8, 2007, by and between WLR Recovery Fund III, L.P., the other individuals listed on the signature page thereto and International Textile Group, Inc.
10.24	Purchase Agreement, dated November 27, 2006, by and between Automotive Safety Components International RO SRL and Parat Ro s.r.l. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 15, 2006)
10.25	Debt Exchange Agreement, dated as of March 2, 2007, by and among International Textile Group, Inc., and WLR Recovery Fund II, L.P.

- 61 -

14.1	International Textile Group, Inc. Standards of Business Conduct
21.1	Subsidiaries of International Textile Group, Inc.
31.1	Certification of CEO as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO as required by Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Management contract or compensatory plan or arrangement

- 62 -

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.

INTERNATIONAL TEXTILE GROUP, INC.
By:	/s/ Gary L. Smith
	Gary L. Smith
	Executive Vice President and Chief Financial Officer
Date:	April 23, 2007

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 and in the capacities and on the dates indicated.

Name and Signature	Title	Date
/s/ Joseph L. Gorga Joseph L. Gorga	Director, President and Chief Executive Officer	April 23, 2007
/s/ Wilbur L. Ross, Jr. Wilbur L. Ross, Jr.	Director, Chairman of the Board	April 23, 2007
/s/ Gary L. Smith Gary L. Smith	Director, Executive Vice President and Chief Financial Officer (Principal Financial Officer)	April 23, 2007
/s/ Samir M. Gabriel Samir M. Gabriel	Vice President and Controller (Principal Accounting Officer)	April 23, 2007
/s/ Stephen W. Bosworth Stephen W. Bosworth	Director	April 23, 2007
/s/ Michael J. Gibbons Michael J. Gibbons	Director	April 23, 2007
/s/ David K. Storper David K. Storper	Director	April 23, 2007
/s/ Daniel D. Tessoni Daniel D. Tessoni	Director	April 23, 2007
/s/ David L. Wax David L. Wax	Director	April 23, 2007
/s/ Pamela K. Wilson Pamela K. Wilson	Director	April 23, 2007

- 63 -

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES INDEX TO

CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2006, December 31, 2005, October 2, 2005 and October 3, 2004	F-4
Consolidated Statements of Operations for the year ended December 31, 2006, the three months ended December 31, 2005, the year ended October 2, 2005 and the forty-seven week period ended October 3, 2004	F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the year ended December 31, 2006, the three months ended December 31, 2005, the year ended October 2, 2005 and the forty-seven week period ended October 3, 2004	F-6
Consolidated Statements of Cash Flows for the year ended December 31, 2006, the three months ended December 31, 2005, the year ended October 2, 2005 and the forty-seven week period ended October 3, 2004	F-7
Notes to Consolidated Financial Statements	F-10
SUPPLEMENTAL SCHEDULE:
II Valuation and Qualifying Accounts

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

International Textile Group, Inc. and Subsidiary Companies:

We have audited the accompanying consolidated balance sheets of International Textile Group, Inc., and Subsidiary Companies as of December 31, 2006, and 2005, October 2, 2005 and October 3, 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for the year ended December 31, 2006, the three months ended December 31, 2005, the year ended October 2, 2005, and the forty–seven week period ended October 3, 2004. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We did not audit the financial statements of Safety Components International, Inc., for the period December 3, 2005 to December 31, 2005, which statements reflect total assets constituting 29 percent at December 31, 2005 and total revenues constituting 10 percent of the related consolidated totals for the three–month period ended December 31, 2005. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Safety Components International, Inc., is based solely on the report of the other auditors.

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. 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 audits, and the report of the other auditors, provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Textile Group, Inc., and Subsidiary Companies as of December 31, 2006 and 2005, October 2, 2005 and October 3, 2004, and the results of their operations and their cash flows for year ended December 31, 2006, the three months ended December 31, 2005, the year ended October 2, 2005, and the forty–seven week period ended October 2, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted the fair value method of accounting for stock-based compensation as required by Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

As discussed in Note 1 to the consolidated financial statements, as of December 31, 2006, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R), as of December 31, 2006.

/s/ KPMG LLP

Charlotte, North Carolina

April 23, 2007

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Safety Components International, Inc.

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders’ equity, and cash flows present fairly, in all material respects, the financial position of Safety Components International, Inc. and its subsidiaries at December 31, 2005, and the results of their operations and cash flows for the period from December 3, 2005 through December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As more fully discussed in Note 4, the Company is dependent on International Textile Group, Inc. for the financing of its operations.

/s/ PricewaterhouseCoopers LLP

Spartanburg, South Carolina

March 15, 2006, except for Notes 4, 6, 13, 14 and 15, as to which the date is April 12, 2007

F-3

INTERNATIONAL TEXTILE GROUP, INC.

AND SUBSIDIARY COMPANIES

Consolidated Balance Sheets

(Amounts in thousands, except share data)

	December 31, 2006			December 31, 2005			October 2, 2005		October 3, 2004
Assets
Current assets:
Cash and cash equivalents	$	34,402		$	8,735		$	3,828	$	4,110
Accounts receivable, less allowances of $9,451, $7,317, $6,509, and $7,600, respectively		104,016			120,138			109,117		142,660
Sundry notes and accounts receivable		16,717			13,618			10,311		11,532
Inventories		139,740			134,150			107,188		128,800
Deferred income taxes		—			2,198			—		—
Prepaid expenses		5,079			4,952			2,177		3,223
Other current assets		6,966			7,858			3,504		373
Total current assets		306,920			291,649			236,125		290,698
Investments in and advances to unconsolidated affiliates		2,265			4,021			4,557		587
Property, plant and equipment, net		161,291			69,199			21,554		7,382
Assets held for sale		2,053			—			—		—
Intangibles and deferred charges, net		5,000			2,464			1,772		1,631
Goodwill		2,740			2,740			2,740		—
Deferred income taxes		8,669			19,094			23,564		30,639
Other assets		3,875			1,999			1,260		785
Total assets	$	492,813		$	391,166		$	291,572	$	331,722
Liabilities and Stockholders’ Equity
Current Liabilities:
Current maturities of long-term debt	$	2,260		$	9,131		$	3,465	$	2,000
Short-term borrowings		8,934			988			1,975		—
Accounts payable		44,369			48,307			35,542		52,157
Accrued salaries and benefits		6,775			6,270			8,863		8,113
Sundry accounts payable and accrued liabilities		41,051			30,295			23,730		29,249
Deferred income taxes		39			—			301		5,945
Total current liabilities		103,428			94,991			73,876		97,464
Bank debt and other long-term obligations		105,377			57,581			62,698		74,031
Unsecured subordinated notes		67,458			—			—		19,548
Other liabilities		29,283			26,815			26,541		39,331
Total liabilities		305,546			179,387			163,115		230,374
Minority interest in subsidiaries		19,047			22,060			583		185
Stockholders’ equity:
Preferred stock (par value $0.01 per share; 100,000,000 shares authorized in 2006, 2005 and 2004; 0 shares issued and outstanding)		—			—			—		—
Common stock (par value $0.01 per share; 150,000,000, 25,000,000, 25,000,000 and 400,000 shares authorized at December 31, 2006 and 2005, October 2, 2005 and October 3, 2004, respectively; 17,479,972, 16,757,665, 16,761,956 and 10,000 shares issued and outstanding at December 31, 2006, December 31, 2005, October 2, 2005 and October 3, 2004, respectively)		175			168			168		—
Capital in excess of par value		132,935			108,823			60,958		38,325
Common stock held in treasury, 40,322 shares at cost		(411	)		(411	)		—		—
Retained earnings		23,346			73,401			66,748		62,838
Accumulated other comprehensive income, net of taxes		12,175			7,738			—		—
Total stockholders’ equity		168,220			189,719			127,874		101,163
Total liabilities and stockholders’ equity	$	492,813		$	391,166		$	291,572	$	331,722

See accompanying Notes to Consolidated Financial Statements

F-4

INTERNATIONAL TEXTILE GROUP, INC.

AND SUBSIDIARY COMPANIES

Consolidated Statements of Operations

(Amounts in thousands, except share data)

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005 (Restated for Discontinued Operations)			Forty-seven Weeks Ended October 3, 2004 (Restated for Discontinued Operations)
Net sales	$	720,916		$	125,422		$	633,466		$	548,954
Cost of goods sold		660,734			117,748			559,461			498,577
Gross profit		60,182			7,674			74,005			50,377
Selling and administrative expenses		70,138			10,065			59,257			36,958
Bad debt expense		2,624			255			64			(28	)
Expenses associated with certain share transactions		4,350			2,965			—			—
Stock-based compensation and related cash bonus expense		1,318			195			5,236			—
Start-up costs on international initiatives		4,595			344			1,268			—
Gain on disposal of assets		(769	)		(1,276	)		(2,432	)		(1,302	)
Settlement/curtailment gain on retiree medical plans		(321	)		—			(8,153	)		—
Provisions for special termination benefit		3,227			—			—			—
Provision for restructuring and impairment		11,602			(407	)		6,949			—
Income (loss) from operations		(36,582	)		(4,467	)		11,816			14,749
Other income (expense):
Interest income		1,509			661			534			113
Interest expense		(6,937	)		(947	)		(5,183	)		(4,341	)
Write-off of deferred financing fees		(1,054	)		—			—			(1,531	)
Other income		10,846			(22	)		901			303
		4,364			(308	)		(3,748	)		(5,456	)
Income (loss) from continuing operations before income taxes, equity in income (losses) of unconsolidated affiliates and minority interest		(32,218	)		(4,775	)		8,068			9,293
Total income tax (expense) benefit		(5,913	)		1,731			(2,187	)		(3,718	)
Equity in income (losses) of unconsolidated affiliates		(847	)		(690	)		2,714			166
Minority interest in (income) losses of consolidated subsidiaries		2,899			26			92			(110	)
Income (loss) from continuing operations		(36,079	)		(3,708	)		8,687			5,631
Income (loss) from discontinued operations, net of income tax (expense) benefit of $0, $(193), $1,016 and $(610), respectively		(13,976	)		342			(1,806	)		1,084
Extraordinary gain (loss), net of income taxes of $1,663 in 2005		—			—			(2,837	)		56,123
Net income (loss)	$	(50,055	)	$	(3,366	)	$	4,044		$	62,838
Net Income (loss) per common share, basic:
Income (loss) from continuing operations	$	(2.34	)	$	(0.30	)	$	0.89		$	0.62
Income (loss) from discontinued operations		(0.91	)		0.03			(0.18	)		0.12
Extraordinary gain (loss)		—			—			(0.30	)		6.16
	$	(3.25	)	$	(0.27	)	$	0.41		$	6.90
Net Income (loss) per common share, diluted:
Income (loss) from continuing operations	$	(2.34	)	$	(0.30	)	$	0.85		$	0.62
Income (loss) from discontinued operations		(0.91	)		0.03			(0.17	)		0.12
Extraordinary gain (loss)		—			—			(0.27	)		6.16
	$	(3.25	)	$	(0.27	)	$	0.41		$	6.90
Weighted average number of shares outstanding, basic		15,395			12,431			9,767			9,109
Weighted average number of shares outstanding, diluted		15,395			12,431			10,581			9,109

See accompanying Notes to Consolidated Financial Statements

F-5

INTERNATIONAL TEXTILE GROUP, INC.

AND SUBSIDIARY COMPANIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Loss

(Amounts in thousands, except share data)

	Members’ interests			Common stock				Preferred stock		Capital in excess of par value			Treasury stock amount			Retained earnings			Accumulated other comprehensive income			Total
				Shares		Amount
Formation of WLR Burlington Acquisition, LLC on November 10, 2003	$	6,916		—		$	—	$	—	$	—		$	—		$	—		$	—		$	6,916
Transfer of ownership interest in Nano-Tex LLC and Insuratex, Ltd.		(5,014	)	—			—		—		—			—			—			—			(5,014	)
Formation of WLR Cone Mills Acquisition, LLC on March 12, 2004		5,278		—			—		—		—			—			—			—			5,278
Contribution of capital upon assumption of subordinated notes by parent company		—		—			—		—		31,145			—			—			—			31,145
Conversion of members’ interests upon formation of International Textile Group, Inc. and merger of WLR Cone Mills Acquisition, LLC		(7,180	)	10,000			—		—		7,180			—			—			—			—
Net income		—		—			—		—		—			—			62,838			—			62,838
Balance at October 3, 2004		—		10,000			—		—		38,325			—			62,838			—			101,163
Stock dividend		—		13,416,405			134		—		—			—			(134	)		—			—
Issuances of common stock		—		1,536,459			15		—		12,891			—			—			—			12,906
Awards issued under ITGH Equity Incentive Plan		—		915,000			9		—		(9	)		—			—			—			—
Amortization of unearned compensation		—		—			—		—		3,102			—			—			—			3,102
Conversion of unsecured subordinated notes to common stock		—		884,092			10		—		6,649			—			—			—			6,659
Net income		—		—			—		—		—			—			4,044			—			4,044
Balance at October 2, 2005		—		16,761,956			168		—		60,958			—			66,748			—			127,874
Comprehensive loss for the three months ended December 31, 2005:
Net loss		—		—			—		—		—			—			(3,366	)		—			(3,366	)
Minimum pension liability adjustment, net of taxes		—		—			—		—		—			—			—			(296	)		(296	)
Foreign currency translation adjustment		—		—			—		—		—			—			—			162			162
Net comprehensive loss		—		—			—		—		—			—			—			—			(3,500	)
Amortization of unearned compensation		—		—			—		—		194			—			—			—			194
Forfeiture of restricted nonvested stock		—		(10,000	)		—		—		—			—			—			—			—
Contribution of capital upon change of control		—		—			—		—		1,000			—			—			—			1,000
Merger with Safety Components International, Inc. (SCI) :
SCI shares outstanding on December 2, 2005		—		5,385,147			—		—		46,671			(411	)		10,019			7,872			64,151
Conversion of ITGH shares (see Note 2)		—		(5,386,222	)		—		—		—			—			—			—			—
Balance at December 31, 2005		—		16,750,881			168		—		108,823			(411	)		73,401			7,738			189,719
Comprehensive loss for the twelve months ended December 31, 2006:
Net loss		—		—			—		—		—			—			(50,055	)		—			(50,055	)
Foreign currency translation adjustment		—		—			—		—		—			—			—			4,691			4,691
Minimum pension liability adjustment, net of taxes		—		—			—		—		—			—			—			296			296
Unrealized loss on derivatives		—		—			—		—		—			—			—			(295	)		(295	)
Net comprehensive loss		—		—			—		—		—			—			—			—			(45,363	)
Adjustment to initially apply FASB Statement No. 158, net of taxes		—		—			—		—		—			—			—			(255	)		(255	)
Exercise of stock options		—		122,000			1		—		1,254												1,255
Amortization of unearned compensation		—		—			—		—		865			—			—			—			865
Forfeiture of restricted nonvested stock		—		(4,748	)		—		—		—												—
Purchase of minority interest		—		(255	)		—		—		21,993			—			—			—			21,993
Stock dividend		—		612,094			6		—					—			—			—			6
Balance at December 31, 2006	$	—		17,479,972		$	175		—	$	132,935		$	(411	)	$	23,346		$	12,175		$	168,220

See accompanying Notes to Consolidated Financial Statements

F-6

INTERNATIONAL TEXTILE GROUP, INC.

AND SUBSIDIARY COMPANIES

Consolidated Statements of Cash Flows

(amounts in thousands)

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
OPERATIONS
Net income (loss)	$	(50,055	)	$	(3,366	)	$	4,044		$	62,838
Adjustments to reconcile net income (loss) to cash provided (used) by operations
Noncash portion of extraordinary (gain) loss		—			—			4,000			(56,123	)
Settlement/curtailment gain on retiree medical plans		(321	)		—			(8,153	)		—
Provision for special termination benefit		3,227			—			—			—
Provision for restructuring and impairment		18,646			(407	)		6,949			—
Bad debt expense		2,624			255			—			—
Depreciation and amortization of fixed assets		12,412			1,264			994			264
Amortization of intangibles and deferred financing costs		861			152			510			459
Amortization of stock-based compensation		865			194			3,102			—
Deferred income taxes		10,828			(164	)		1,431			(2,890	)
Equity in losses (earnings) of unconsolidated affiliates		847			690			(2,714	)		(166	)
Minority interest in income (losses) of consolidated subsidiaries		(2,899	)		(26	)		(92	)		110
Gain on disposal of assets		(12,790	)		(1,733	)		(2,432	)		(1,302	)
Write-off of deferred financing fees		1,054			—			—			1,531
Noncash interest expense		1,253			—			415			1,873
Foreign currency exchange gains		(267	)		(85	)		(531	)		(92	)
Payment of interest on payment-in-kind notes		(5	)		—			(386	)		(3	)
Change in operating assets and liabilities, net of acquisition of businesses
Accounts receivable		27,510			28,807			35,447			(30,813	)
Inventories		9,307			(3,352	)		25,440			8,268
Other current assets		1,050			(3,940	)		(2,058	)		166
Accounts payable and accrued liabilities		(22,531	)		(16,402	)		(23,771	)		2,316
Other liabilities		(2,010	)		1,388			(9,767	)		(4,009	)
Net cash provided (used) by operating activities		(394	)		3,275			32,428			(17,573	)
INVESTING
Acquisition of businesses, net of cash acquired		(21,797	)		—			(6,868	)		(89,645	)
Merger with Safety Components International, Inc.		—			6,207			—			—

F-7

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
Proceeds from sale of property, plant and equipment		4,483			589			2,992			2,352
Proceeds from sale of investment in joint venture		10,000			—			—			—
Capital expenditures		(77,816	)		(5,404	)		(14,118	)		(8,696	)
Net cash provided (used) in investing activities		(85,130	)		1,392			(17,994	)		(95,989	)
FINANCING
Increase (decrease) in checks issued in excess of deposits		1,643			1,317			(1,733	)		6,642
Net borrowings (repayments) under revolver loans		29,634			(2,242	)		(10,957	)		56,426
Proceeds from issuance of term loans		41,536			—			4,400			19,600
Repayment of term loans		(42,378	)		(1,367	)		(4,742	)		—
Proceeds from related party loans		1,453			—			—			—
Borrowings (repayments) of short-term bank notes		2,763			(986	)		1,975			—
Advance under capital lease obligation		—			—			1,016			—
Repayment of advance under capital lease obligation		—			—			(1,016	)		—
Repayment of capital lease obligations		(1,263	)		(120	)		(356	)		—
Payment of financing fees		(4,368	)		(15	)		(351	)		(3,554	)
Proceeds from issuance of common stock		—			—			8,906			—
Contribution of capital upon change of control		—			1,000			—			—
Proceeds from issuance of members’ interests		—			—			—			12,194
Tax benefit from exercise of stock options		283			—			—			—
Proceeds from exercise of stock options		972			—			—			—
Cash portion of transfer of ownership interests in Nano-Tex LLC and Insuratex, Ltd.		—			—			—			(8,775	)
Repayment of assumed bank debt		—			—			—			(13,925	)
Capital contributions from minority shareholders		14,211			2,449			490			—
Proceeds from issuance of unsecured subordinated notes		68,210			—			—			54,595
Redemption of payment-in-kind notes in lieu of interest		(2,000	)		—			(12,920	)		(5,597	)
Net cash provided (used) by financing activities		110,696			36			(15,288	)		117,606
Effect of exchange rate changes on cash and cash equivalents		495			204			572			66
Net change in cash and cash equivalents		25,667			4,907			(282	)		4,110
Cash and cash equivalents at beginning of period		8,735			3,828			4,110			—
Cash and cash equivalents at end of period	$	34,402		$	8,735		$	3,828		$	4,110

F-8

	Twelve Months Ended December 31, 2006		Three Months Ended December 31, 2005		Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
Supplemental disclosure of cash flow information:
Cash payments for income taxes, net of refunds	$	810	$	1,928	$	2,588	$	6,217
Cash payments for interest		6,553		1,156		5,150		2,775
Noncash investing and financing activities:
Conversion of unsecured subordinated notes to common stock		—		—		6,659		—
Capital lease obligations incurred to acquire assets		1,433		—		1,789		—
Acquisition of equipment using trade credits		2,451		—		—		—
Sale of property, plant and equipment for note receivable		—		1,500		—		—

See accompanying Notes to Consolidated Financial Statements

F-9

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES

Notes To Consolidated Financial Statements

Note 1 Summary of Significant Accounting Policies

(a) Nature of Business

Upon completion of the Merger (see Note 2), International Textile Group, Inc. (including, when the context requires, its consolidated subsidiaries, the “Company” or “ITG”) operated in seven segments as marketers and manufacturers of softgoods for apparel fabrics, automotive airbag fabrics, automotive airbag cushions, government uniforms, commission finishing, interior furnishings and development stage activities, with operations principally in North America, Europe, South Africa and China.

(b) Principles of Consolidation

The consolidated financial statements include the financial statements of International Textile Group, Inc. and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in affiliates in which the Company owns 20 to 50% of the voting stock or has significant influence are accounted for using the equity method. In addition, the Company evaluates its relationships with other entities to identify whether they are variable interest entities as defined by Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) Consolidation of Variable Interest Entities (“FIN 46(R)”) and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is included in the consolidated financial statements in accordance with FIN 46(R).

(c) Cash Equivalents

Cash and cash equivalents include time deposits and other short-term investments with an original maturity of three months or less. At times such amounts do exceed the F.D.I.C. limits.

(d) Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and bear interest in certain cases that is recognized as received. The Company continuously performs credit evaluations of its customers, considering numerous inputs including, but not limited to, customers’ financial position, past payment history, cash flows and management capability; historical loss experience; and economic conditions and prospects. The Company estimates its allowance for doubtful accounts based on a combination of historical and current information regarding the balance of accounts receivable, as well as the current composition of the pool of accounts receivable. The Company determines past due status on accounts receivable based on the contractual terms of the original sale. Accounts receivable that management believes to be ultimately uncollectible are written off upon such determination. The Company records sales returns as a reduction to sales, cost of sales, and accounts receivable and an increase to inventory based on return authorizations for off-quality goods. Returned products that are recorded as inventories are valued based upon expected realizability.

(e) Inventories

Inventories represent direct materials, labor and overhead costs incurred for products not yet delivered. Inventories are valued at the lower of cost or market. Cost of certain components of textile inventories is determined using the dollar value last-in, first-out (LIFO) method (see Note 4). All other inventories are valued principally using the first-in, first-out (FIFO) or average cost methods.

(f) Investments in Unconsolidated Affiliates

Investments in unconsolidated affiliates are accounted for by either the equity or cost methods, depending upon ownership levels. The equity method of accounting is used when the Company’s investment in voting stock gives it the ability to exercise significant influence over operating and financial policies of the investee. This method of accounting is used for unconsolidated affiliated companies in which the Company holds 20% or

F-10

more of the voting stock of the investee, but no more than 50%. Investments in less than 20% of the voting stock of an unconsolidated affiliated company are accounted for by the cost method. The Company’s equity in earnings and currency translation adjustments may be recorded on up to a one-quarter delay basis. These investments in unconsolidated affiliates are assessed periodically for impairment and are written down when the carrying amount is not considered fully recoverable.

(g) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Plant and equipment under capital leases are stated at the present value of minimum lease payments and amortization charges are included in depreciation expense. Depreciation and amortization of property, plant, and equipment is calculated over the estimated useful lives of the related assets principally using the straight-line method: 15 years for land improvements, 10 to 40 years for buildings and 3 to 12 years for machinery, fixtures, and equipment. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the underlying lease. Expenditures for repairs and maintenance are charged to expense as incurred. Renewals or betterments of significant items are capitalized.

(h) Intangible Assets

Goodwill represents the excess of cost over fair value of assets of businesses acquired in the bottom-weight woven apparel fabrics segment. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of FASB Statement No. 142, “Goodwill and Other Intangible Assets.” Intangible assets with estimable useful lives are amortized over their respective estimated useful lives. Costs incurred in connection with financing activities are deferred and amortized over the lives of the respective debt instruments using the straight-line method and are charged to interest expense. Total deferred financing costs deferred and included in “Intangibles and deferred charges, net” in the accompanying Consolidated Balance Sheets at December 31, 2006 and 2005 were $4.0 and $2.2 million, respectively. At December 31, 2006, December 31, 2005, October 2, 2005 and October 3, 2004, the accumulated amortization of deferred financing costs was $0.0 million, $0.7 million, $0.6 million and $0.1 million, respectively, and amortization expense is estimated to be $1.3 million in each of the 2007, 2008 and 2009 fiscal years. At December 31, 2006, “Intangibles and deferred charges, net” included certain Company patents which are amortized over estimated lives between 15 and 20 years. Accumulated amortization of patents at December 31, 2006 and 2005 was approximately $0.9 million and $0.7 million, respectively. Amortization of patents is expected to approximate $0.2 million per year for each of the five succeeding years. The Company continually monitors conditions that may affect the carrying value of its intangible assets. When conditions indicate potential impairment of such assets, the Company evaluates the estimated fair value of the assets. When the estimated fair value of an asset is less than the carrying value of the asset, the impaired asset is written down to its estimated fair value, and is charged to operations in the period in which impairment is determined. Management is currently not aware of any events that would indicate potential impairment of its intangible assets. Amortization expense for the 2006, 2005 and 2004 fiscal years was $0.9 million, $0.5 million and $0.5 million, respectively, and $0.2 million for the three months ended December 31, 2005.

(i) Assets Held for Sale and Discontinued Operations

At December 31, 2006, the Company had productive assets held for sale (property, plant and equipment related to discontinued operations) at an estimated fair value, net of disposal costs, of approximately $2.1 million (see Note 21). The Company allocates interest to discontinued operations based on debt that is required to be repaid as a result of the disposal transactions. Amounts allocated to and included in discontinued operations for the 2006, 2005 and 2004 fiscal years were $1.1 million, $0.9 million and $0.8 million, respectively, and $0.3 million for the three months ended December 31, 2005.

(j) Impairment of Long-lived Assets

When circumstances indicate, the Company evaluates the recoverability of its long-lived assets by comparing the estimated future undiscounted cash flows with the asset’s carrying amount to determine if a write-down to market value or discounted cash flow is required. Goodwill represents costs in excess of fair values assigned to

F-11

the underlying net assets of acquired businesses. Goodwill is not subject to systematic amortization, but rather is tested for impairment annually and whenever events and circumstances indicate that an impairment may have occurred. Impairment testing compares the carrying amount of the goodwill with its fair value. Fair value is estimated based on discounted cash flows. When the carrying amount of goodwill exceeds its fair value, an impairment charge would be recorded. The Company has chosen the last day of the third quarter of its fiscal year as the date to perform its annual goodwill impairment test. The Company reviews the estimated useful lives of intangible assets at the end of each reporting period. If events and circumstances warrant a change in the estimated useful life, the remaining carrying amount will be amortized over the revised estimated useful life.

(k) Pensions and Postretirement Benefits

The valuation of pension and other postretirement benefit plans requires the use of assumptions and estimates that are used to develop actuarial valuations of expenses, assets, and liabilities. These assumptions include discount rates, investment returns, projected benefits and mortality rates. The actuarial assumptions used are reviewed annually and compared with external benchmarks to assure that they fairly account for future obligations.

As of December 31, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 requires an employer to (a) recognize in its statement of financial position the funded status of a benefit plan measured as the difference between the fair value of plan assets and the benefit obligation, (b) recognize net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employer’s Accounting for Pensions or SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, (c) measure defined benefit plan assets and obligations as of the date of the employer’s statement of financial position and (d) disclose additional information in the notes to the financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The requirements of SFAS No. 158 are applied prospectively upon adoption. The table below shows the incremental effect of applying SFAS No. 158 on individual lines in the December 31, 2006 consolidated balance sheet (in thousands):

	Before Application of SFA S No. 158		Adjustments			After Application of SFAS No. 158
Liability for pension benefits	$	29,237	$	—		$	29,237
Liability for postretirement benefits		2,438		255			2,693
Total liabilities		31,675		255			31,930
Accumulated other comprehensive income		12,430		(255	)		12,175
Total stockholders’ equity		168,475		(255	)		168,220

The adoption of SFAS No. 158 had no material effect on the Company’s results of operations or cash flows.

(l) Insurance

Insurance liabilities are recorded based upon the claim reserves considering historical claims experience, demographic factors, severity factors, expected trend rates and other actuarial assumptions. To mitigate a portion of its insurance risks, the Company maintains insurance for individual claims exceeding certain dollar limits. Provisions for estimated losses in excess of insurance limits are provided at the time such determinations are made. The reserves associated with the exposure to these liabilities, as well as the methods used in such

F-12

evaluations, are reviewed by management for adequacy at the end of each reporting period and any adjustments are reflected in earnings.

(m) Revenue Recognition

Sales are recorded upon shipment or, in certain circumstances, upon the designation of specific goods for later shipment at a customer’s request with the related risk of ownership passing to such customer (“bill and hold” sales). The Company discourages the use of bill and hold sales in all situations except for sales of off-quality goods, commission finishing and certain sales contracts with the U.S. government. Under the Company’s written bill and hold policy, a standardized bill and hold agreement (a “BHA”) must be used for all such transactions. The BHA provides that the risks of ownership must have passed to the buyer and that the buyer has the expected risk of loss in the event of a decline in the market value of goods, the ordered goods must have been segregated from the Company’s other available for sale inventory and not be subject to being used to fill other orders, the product must be complete and ready for shipment as stated in the BHA, and the date by which the Company expects payment and whether the Company has modified its normal billing and credit terms for this buyer. The Company classifies amounts billed to customers for shipping and handling in net sales, and costs incurred for shipping and handling in cost of sales in the consolidated statement of income. The Company has considered the revenue recognition provisions of FASB Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

(n) Start-up Costs on International Initiatives

As the Company continues to implement its global expansion strategy, certain costs related to its activities are expensed as incurred and reported separately in operations as Start-up Costs on International Initiatives in the consolidated statements of income. Such costs primarily include travel costs, legal and consulting fees, and expenses incurred during the start-up phase of new operations that cannot be capitalized under United States generally accepted accounting principles.

(o) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets when, in the opinion of management, it is more likely than not that the deferred tax assets will not be realized.

(p) Derivative Instruments

The Company accounts for derivative instruments in accordance FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities and FASB Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. Under these statements, all derivatives are required to be recognized on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used are highly effective in offsetting changes in the fair values or cash flows of the hedged items. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. For cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings, with the ineffective portion, if any, being recognized in current earnings during the period of change. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change.

F-13

(q) Commitments and Contingencies

Liabilities for loss contingencies, including environmental remediation costs not within the scope of FASB Statement No. 143, Accounting for Asset Retirement Obligations, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Any recoveries of environmental remediation costs from third parties, which are probable of realization, are separately recorded as assets, and are not offset against the related environmental liability, in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts. The Company accrues for losses associated with environmental remediation obligations not within the scope of FASB Statement No. 143 when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environment remediation obligations are not discounted to their present value.

(r) Stock Based Compensation

The Company’s Equity Incentive Plan is described more fully in Note 17. Prior to fiscal 2006, the Company applied the intrinsic value method as prescribed in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations, in accounting for stock options granted under its stock option plans. Under the intrinsic value method, no compensation cost is recognized if the exercise price of the Company’s employee stock options was equal to or greater than the market price of the underlying stock on the date of the grant. Accordingly, no compensation cost was recognized in the accompanying consolidated statements of income prior to fiscal year 2006 on stock options granted to employees, since all options granted under the Company’s stock option plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

Effective January 1, 2006, SCI (as defined below) adopted FASB Statement No. 123(R), Share-Based Payment (“Statement 123(R)”). This statement replaces FASB Statement No. 123, Accounting for Stock-Based Compensation (“Statement 123”) and supersedes APB No. 25. Statement 123(R) requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. This statement was adopted using the modified prospective method of application, which requires companies to recognize compensation cost on a prospective basis. Therefore, prior years’ financial statements have not been restated. For stock-based awards granted in the future, if any, the Company will recognize compensation expense based on estimated grant date fair value using the Black-Scholes option-pricing model. SCI had no unvested awards as of January 1, 2006 and SCI did not grant, modify, repurchase or cancel any awards subsequent to SCI’s adoption of Statement 123(R) on January 1, 2006. Therefore, the adoption of Statement 123(R) had no effect on SCI’s financial position or results of operations for the fiscal year ended December 31, 2006. ITGH (as defined below) adopted Statement 123(R) upon the completion of the Merger (as defined below) with SCI on October 20, 2006. The $3.2 million fair value of vested stock options issued in connection with the Merger was included in the purchase price of SCI common stock exchanged for the minority interest of ITGH. (see Note 2) Unvested stock options issued in connection with the Merger are amortized over the remaining vesting periods as compensation expense based on the grant date fair value. These fair value estimates utilized the Black-Scholes option-pricing model with the following assumptions: risk-free interest rates of 4.74% to 4.77%, dividend yield of 0%, expected volatility of 43% to 47%, and expected lives of the options of 4.7 to 6.0 years.

In a change from previous standards, Statement 123(R) also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows. Therefore, excess tax benefits related to stock option exercises in 2005 are reflected in operating activities. Share-based compensation cost that has been included in income from continuing operations amounted to $1.3 million for the year ended December 31, 2006, including

F-14

related cash bonus expense of $0.5 million. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $0.3 million for the year ended December 31, 2006.

The following table illustrates the effect on net income (loss) for the fiscal year ended October 2, 2005 and the three months ended December 31, 2005 as if the Company had applied the fair value recognition provisions of Statement 123(R) to options granted under the Company’s stock plans prior to adoption of Statement 123(R) on January 1, 2006. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing model and amortized to expense over the options’ service periods with forfeitures recognized as they occurred, based on the following weighted-average assumptions: a risk-free interest rate of 4.15%; a dividend yield of 0%; and a weighted-average expected life of the options of 7 years.

	Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005
Net income (loss), as reported	$	(3,366	)	$	4,044
Add: Total stock-based employee compensation expense included in net income, net of tax		128			2,047
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of tax		(167	)		(2,487	)
Pro forma net income (loss )	$	(3,405	)	$	3,604
Per common share, basic and diluted:
Net income (loss ), as reported	$	(0.27	)	$	0.41
Pro forma net income (loss )	$	(0.27	)	$	0.37

(s) Foreign Currency Translation

Financial statements of certain of the Company’s foreign operations are prepared using the local currency as the functional currency. Translation of these foreign operations to United States dollars occurs using the current exchange rate on the date of the balance sheet for balance sheet accounts and a weighted average exchange rate over the applicable accounting period for results of foreign operations. Translation gains or losses are recognized in “accumulated other comprehensive income” as a component of stockholders’ equity in the accompanying Consolidated Balance Sheets. The Company has determined that the United States dollar is the appropriate functional currency for certain of its subsidiaries. Accordingly, the translation effects of these financial statements are included in the results of operations in “other (income) expense, net.”

(t) Fair Value of Financial Instruments

The consolidated financial statements include financial instruments, and the fair market value of such instruments may differ from amounts reflected on a historical basis. Financial instruments of the Company consist of cash deposits, accounts receivable, advances to affiliates, accounts payable, certain accrued liabilities and long-term debt. The carrying amount of the Company’s long-term debt at December 31, 2006, December 31, 2005, October 2, 2005 and October 3, 2004 approximated fair market value based on prevailing market rates. The Company’s other financial instruments generally approximate their fair values based on the short-term nature of these instruments.

(u) Segment Information

The Company reports its financial results in seven reportable segments: automotive airbag fabrics, automotive airbag cushions, bottom-weight woven apparel fabrics, government uniform fabrics, commission finishing, interior furnishings and development stage activities. The reporting of the Company’s operations in seven segments is consistent with how the Company is managed and how resources are allocated by the chief operating decision maker (“CODM”).

F-15

(v) Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Significant estimates made by management include allowances for doubtful accounts receivable, reserves for inventories, contingencies and other reserves and allowances for deferred tax assets. Management believes that its estimates included in the financial statements, including for these matters, are reasonable. However, actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.

(w) Research and Development Expenses

Research and development costs are charged to operations when incurred and are included in operating expenses. Costs associated with research and development for the 2006, 2005 and 2004 fiscal years were $7.3 million, $5.1 million and $4.6 million, respectively, and were $1.5 million for the three months ended December 31, 2005.

(x) Advertising Costs

Advertising costs are charged to operations when incurred. Advertising costs were approximately $1.4 million, $1.3 million and $0.8 million during the 2006, 2005 and 2004 fiscal years, respectively, and $0.3 million during the three months ended December 31, 2005, and were recorded as a component of selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.

(y) Fiscal Year and Change in Year End

The Company uses a calendar fiscal year from January 1 to December 31. Prior to completion of the Merger, the Company used a 52 – 53 week fiscal year that ended on the Sunday nearest September 30 (see Note 2).

(z) Recently Issued Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for income taxes by proscribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 applies to all tax positions related to income taxes subject to SFAS No. 109 and utilizes a two-step approach for evaluating those tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely that not to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied. Those tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period in which they meet the more-likely-than-not threshold or are otherwise resolved to qualify for recognition. De-recognition of previously recognized tax positions occurs when a company subsequently determines that a tax position no longer meets the recognition threshold. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for de-recognition of tax positions. The provisions of FIN 48 are effective beginning with the Company’s first quarter of 2007. The Company is currently in the process of evaluating the impact of FIN 48 on the Company’s results of operations, financial position and related disclosures. Based on the Company’s assessment to date, FIN 48 would have no cumulative material effect due to the existence of U.S. net operating loss carryforwards.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement (“Statement 157”). Statement 157 defines fair value, establishes a framework for the measurement of fair value, and enhances disclosures about fair value measurements. It does not require any new fair value measures and is effective for fair value measures already required or permitted by other standards for fiscal years beginning after November 15, 2007. The Company is required to adopt Statement 157 beginning on January 1, 2008. Statement 157 is required to be applied prospectively, except for certain financial instruments. Any transition adjustment will be recognized as an adjustment to opening retained earnings in the year of adoption. The Company is currently evaluating the impact of adopting Statement 157 on its results of operations and financial position.

F-16

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Years Misstatements When Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for annual financial statements of the first fiscal year ending after November 15, 2006. SAB 108 had no effect on the Company.

Note 2 Business and Basis of Presentation

On October 20, 2006, ITG Holdings, Inc. (“ITGH”) and Safety Components International, Inc. (“SCI”) completed the merger (the “Merger”) of ITGH with and into a wholly owned subsidiary of SCI (see “2006 Merger of ITGH and SCI” below). Upon the effective time of the Merger, ITGH became a wholly owned subsidiary of SCI and SCI changed its name to International Textile Group, Inc. (the “Company”). Subsequent to the Merger, ITGH was merged into the Company.

Formation of ITG Holdings, Inc.

On November 10, 2003, W.L. Ross & Co. LLC (“WLR”) completed the acquisition of substantially all the assets of Burlington Industries, Inc. out of chapter 11 bankruptcy proceedings. WLR created a separate legal entity to consummate the acquisition, WLR Burlington Acquisition LLC (later renamed ITG Holdings, Inc.), which was wholly owned by three investment funds managed by WLR (WLR Recovery Fund II, L.P. (“WLR II”), Absolute Recovery Hedge Fund, Ltd., and Absolute Recovery Hedge Fund L.P., collectively, the “WLR Funds”). The WLR Funds are affiliates of Mr. Wilbur L. Ross, Jr., the chairman of the board of the Company, and WLR. The WLR Funds contributed $6.9 million in capital and $36.1 million in unsecured subordinated notes to WLR Burlington Acquisition LLC, which then contributed such funds to its wholly owned subsidiary, Burlington Industries LLC. Using these funds, together with $30.0 million of bank financing, Burlington Industries LLC purchased the assets acquired in the purchase transaction. In addition, Burlington Industries LLC assumed certain liabilities in the amount of $95.9 million of Burlington Industries, Inc. as part of the purchase agreement, and incurred acquisition costs of $4.6 million. The purchase price plus assumed liabilities and acquisition costs resulted in a total purchase price of $173.5 million allocated to assets valued at $221.5 million, generating unallocated negative goodwill of $48.0 million recorded by Burlington Industries LLC as an extraordinary gain on November 10, 2003.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed by Burlington Industries LLC at the date of acquisition (in millions):

Current assets (including $21.4 million of cash)	$	188.5
Property and equipment (minority interest)		0.3
Intangible assets (minority interest)		1.1
Deferred income taxes on assets acquired		31.6
Total assets acquired		221.5
Current liabilities		60.8
Other long-term liabilities		35.1
Total liabilities assumed		95.9
Net assets acquired	$	125.6

The assets above included an ownership interest of approximately 51% in Nano-Tex LLC (a California advanced molecular technology limited liability company) and a 100% ownership interest in Insuratex, Ltd. (a Bermuda captive insurance company). On November 10, 2003, the Nano-Tex LLC ownership interest was transferred from Burlington Industries LLC to WLR Burlington Acquisition LLC and the Insuratex, Ltd. ownership interest was transferred from Burlington Industries LLC to WLR II. Such transfers were made at the carrying amounts of the assets and liabilities of these entities under common control and were recorded as a return of capital.

On March 12, 2004, WLR completed the acquisition of substantially all of the assets of Cone Mills Corporation out of chapter 11 bankruptcy proceedings. WLR created a separate legal entity, WLR Cone Mills Acquisition LLC, which was wholly owned by WLR II, to consummate the acquisition. WLR II contributed $5.3 million in capital and $18.5 million in unsecured subordinated notes to WLR Cone Mills Acquisition LLC, which then contributed such

F-17

funds to its wholly owned subsidiary, Cone Mills LLC. Using these funds, together with $18.8 million of bank financing, Cone Mills LLC purchased the assets acquired in the purchase transaction. In addition, Cone Mills LLC assumed certain liabilities in the amount of $55.7 million (includes approximately $13.9 million of assumed bank debt) from Cone Mills Corporation as part of the purchase agreement, and incurred acquisition costs of $2.5 million. The purchase price plus assumed liabilities and acquisition costs resulted in a total purchase price of $100.8 allocated to assets valued at $108.9 million, generating unallocated negative goodwill of $8.1 million recorded by Cone Mills LLC as an extraordinary gain on March 12, 2004.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed by Cone Mills LLC at the date of acquisition (in millions).

Current assets (including $4.3 million of cash)	$	106.8
Deferred income taxes on assets acquired		2.1
Total assets acquired		108.9
Current liabilities		50.0
Other long-term liabilities		5.7
Total liabilities assumed		55.7
Net assets acquired	$	53.2

Effective August 2, 2004, WLR Cone Mills Acquisition LLC was merged with and into WLR Burlington Acquisition LLC. Immediately following the merger, WLR Burlington Acquisition LLC converted into a Delaware corporation under the name International Textile Group, Inc., which was subsequently renamed ITG Holdings, Inc. (“ITGH”) upon completion of the Merger. According to the “Plan of Integration of WLR Burlington Acquisition LLC and WLR Cone Mills Acquisition LLC to Form International Textile Group, Inc.” (the “Plan of Integration”) all previously existing membership interests in WLR Cone Mills Acquisition LLC and WLR Burlington Acquisition LLC were converted immediately following the merger such that the WLR Funds owned 100% of the common stock in ITGH. In connection with this merger transaction, WLR also created International Textile Holdings, Inc. (“ITH”). In connection with the Plan of Integration, each WLR investment fund transferred its capital stock of ITGH to ITH, after which ITH became the sole stockholder of ITGH, and the majority interest in Nano-Tex LLC was transferred from ITGH to ITH at this date. Also on August 2, 2004, ITGH utilized borrowings from a new bank credit agreement to pay-off the bank loans of Burlington Industries LLC and Cone Mills LLC, and a portion of the unsecured subordinated notes described above were converted to Company common stock with the remaining balances paid-off by the issuance of new convertible subordinated notes.

The results of operations of WLR Burlington Acquisition LLC have been included in the consolidated financial statements since its formation on November 10, 2003. The results of operations of WLR Cone Mills Acquisition LLC have been included in the consolidated financial statements from March 12, 2004 until August 2, 2004, the date of the merger into WLR Burlington Acquisition LLC.

In March 2005, the Company agreed to settle a lawsuit with the Pension Benefit Guaranty Corporation, or PBGC, by issuing common stock of the Company valued at $4.0 million, plus $0.5 million of cash. The cost of this settlement was treated as a purchase price adjustment and was recorded as an extraordinary loss, net of tax in the 2005 fiscal year consolidated statement of income in accordance with United States generally accepted accounting principles.

2005 Acquisitions

In January 2005, the Company purchased certain assets of Cleyn & Tinker, the leading Canadian worsted wool manufacturer, including inventories, accounts receivables, and intellectual properties (including the Cleyn & Tinker tradename), for $10.2 million. The assets acquired failed to meet the definition of a business under FASB Statement No. 141, Business Combinations, which would have required recording the assets at fair values. Purchased assets were recorded at the purchase price as set out in the acquisition agreement.

In August 2005, the Company purchased certain assets from HLC Industries, Inc. representing its H. Landau division (a worldwide supplier of specification and commercial military uniform fabrics) for $6.9 million in cash.

F-18

The operating results of the H. Landau division from that date were included in the Company’s Carlisle Finishing business, which operates as a commission printing and finishing supplier for apparel and interior furnishings products. The purchase was treated as the purchase of a business under FASB Statement No. 141, and assets acquired included inventory valued at $3.9 million, intangible assets valued at $0.3 million, and goodwill valued at $2.7 million.

2005 SCI Stock Purchase by Affiliates of WLR

On September 23, 2005, Zapata Corporation (“Zapata”), the owner of 77.3% of SCI’s outstanding common stock, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with WLR Recovery Fund III, L.P. (“WLR III”) to sell to WLR III all of its shares of the SCI’s common stock. On September 26, 2005, Zapata, WLR III and WLR II (collectively referred to as the “WLR Recovery Funds”) entered into Amendment No. 1 and Joinder Agreement (“Amendment No. 1”), which joined WLR II as a party to the Stock Purchase Agreement. Amendment No. 1 provided that WLR II and WLR III would purchase 241,419 and 3,920,975 shares of the SCI’s common stock, respectively. The purchase price of $12.30 per share, or $51.2 million in the aggregate, was paid in immediately available funds at the closing of the transaction on December 2, 2005. SCI was an independent supplier of high quality automotive airbag fabric and airbag cushions for automotive airbag modules, with operations in North America, Europe, South Africa and China.

As provided in the Stock Purchase Agreement and after the closing of the transaction, SCI’s board of directors elected three WLR Recovery Funds nominees to SCI’s board of directors and Zapata then caused its own representatives to resign as directors of SCI. Upon closing of the stock purchase transaction, and in lieu of any special change of control bonus that was or might have been payable pursuant to employment agreements between SCI and certain of its officers, SCI paid bonuses in the aggregate amount of $1.4 million. In addition, in connection with the closing of the stock purchase transaction, Zapata made a capital contribution to SCI in the aggregate amount of $1.0 million for the purpose of enabling SCI to pay bonuses to SCI’s executive officers and other key employees for their efforts in connection with the attempts to sell SCI and to provide management with an appropriate incentive to remain with SCI during the pendency of the stock purchase transaction. In addition, SCI recognized expenses of approximately $0.6 million related to this stock purchase transaction. All of the bonus amounts and transaction expenses have been included in SCI’s income statement in expenses associated with certain share transactions.

Parras Cone Acquisition

On June 30, 2006, ITGH completed the acquisition of the remaining 50% equity interest of the Parras Cone joint venture not already owned by ITGH from Compania Industrial de Parras S.A. de C.V. for a purchase price of approximately $27.0 million and the pro rata assumption of debt. This acquisition increased current assets in the amount of $34.8 million (including $5.5 million of cash), property, plant and equipment in the amount of $17.0 million, current liabilities in the amount of $15.8 million and long-term liabilities in the amount of $8.8 million. The acquisition has been accounted for under FASB Statement No. 141, Business Combinations. The results of operations of Parras Cone have been included in the consolidated financial statements of the Company since June 30, 2006.

2006 Merger of ITGH and SCI

On October 20, 2006, as part of a negotiated transaction, ITGH and SCI completed the Merger of ITGH with and into a wholly owned subsidiary of SCI. Upon the effective time of the Merger, ITGH became a wholly owned subsidiary of SCI and SCI changed its name to International Textile Group, Inc. Subsequent to the Merger, ITGH was merged into International Textile Group, Inc. As a part of the Merger, shares of ITGH common stock were exchanged for shares of common stock of the SCI at a ratio of 1.4739 shares of ITGH common stock for one share of SCI common stock, resulting in the issuance of 11,363,783 additional shares of the Company’s common stock.

In connection with the completion of the Merger, the Company adopted the ITGH Equity Incentive Plan (the “Incentive Plan”) and the ITGH Stock Option Plan for Non-Employee Directors (the “Non-Employee Director Plan”) and provided that outstanding options thereunder were exercisable for shares of the Company’s common stock on the terms and conditions as were applicable to each award prior to the Merger, after applying the exchange ratio and related adjustments set forth in the merger agreement (the “Merger Agreement”). As a result, as of October 20, 2006, there were options to purchase 597,081 shares of the Company’s common stock outstanding under the

F-19

Incentive Plan, and options to purchase 33,587 shares of the Company’s common stock outstanding under the Non-Employee Director Plan. No future option grants are permitted to be made under either of these plans. In addition, of the 11,363,783 shares of common stock issued to the former ITGH stockholders, 612,220 shares are in the form of restricted stock that was issued in exchange for shares of ITGH restricted stock held by officers and employees and are subject to vesting criteria consistent with the terms of the equity awards originally made by ITGH.

Also in connection with the completion of the Merger, and pursuant to the terms of the agreement governing the Merger, the board of directors of SCI declared a common stock dividend of one-ninth (1/9th) of one share of common stock for each share of common stock outstanding immediately prior to the effective time of the Merger, which was payable to the holders of record of SCI’s common stock as of the close of business on October 20, 2006. The 612,094 shares of the SCI’s common stock issued pursuant to such common stock dividend are referred to as the “Dividend Shares.” In accordance with the terms and conditions of the Merger Agreement, the Dividend Shares are being held in escrow for a period of up to 18 months therefrom to satisfy potential claims for indemnification that may be made on behalf of the Company. Ten percent (10%) of the total number of shares of SCI common stock issued to ITGH stockholders in the Merger have been registered in the name of an escrow agent and placed in escrow to satisfy potential claims for indemnification on behalf of SCI under the Merger Agreement. As a result, those shares were not distributed to ITGH stockholders at the time of the Merger. During the time these shares are held in escrow, stockholders do not have the right to vote or transfer these shares.

Basis of Presentation

SCI has been subject to the informational and reporting requirements of the Securities Exchange Act of 1934 and has filed reports including financial and other information with the Securities and Exchange Commission (“SEC”) since 1996. Prior to the Merger, SCI’s common stock was traded on the Over-the-Counter Bulletin Board under the symbol “SAFY.” At all times prior to the Merger, ITGH was a privately-owned company that was not subject to the informational or reporting requirements of the Exchange Act of 1934. The Company’s common stock continues to be traded on the Over-the-Counter Bulletin Board, now trading under the symbol “ITXN.” Prior to the completion of the Merger, SCI reported its results on a calendar fiscal year basis. ITGH maintained a 52-53 week fiscal year that ended on the Sunday nearest September 30 of each year.

Immediately prior to the completion of the Merger, affiliates of WLR owned approximately 75.6% of SCI’s outstanding stock, and approximately 85.4% of ITGH’s outstanding stock. Immediately after the Merger, affiliates of WLR owned approximately 82% of the outstanding stock of the Company and the former stockholders of ITGH held approximately 65% of the common stock of the Company (approximately 56% owned by affiliates of WLR and 9% by other parties). The minority stockholders of SCI owned an approximately 9% interest in the combined Company immediately after the Merger.

FASB Statement No. 141, Business Combinations, states that a “business combination” excludes transfers of net assets or exchanges of equity interests between entities under common control. FASB Statement No. 141 also states that transfers of net assets or exchanges of equity interests between entities under common control should be accounted for similar to the pooling-of-interests method (“as-if pooling-of-interests”) in that the entity that receives the net assets or the equity interests initially recognizes the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. In accordance with Emerging Issues Task Force 02-5, Definition of ‘Common Control’ in Relation to FASB Statement No. 141, Business Combinations, WLR obtained control of ITGH in March 2004 and, as a result of the acquisition of control of SCI by WLR on December 2, 2005, common control of both companies existed commencing December 2, 2005 through and including the date of the Merger. Guidance issued by the SEC states that, in the context of a merger of two companies under common control, the predecessor company for financial statement presentation purposes in the transaction will generally be the entity first acquired or controlled by the parent of the entities that are to be combined. Due to the fact SCI and ITGH were under common control at the time of the Merger, the transfer of assets and liabilities of ITGH were accounted for at historical cost in a manner similar to a pooling of interests. For financial accounting purposes, the Merger is viewed as a change in reporting entity and, as a result, requires restatement of the entity’s financial statements for all periods prior to the year ended December 31, 2006, pursuant to FASB Statement No. 141 and SFAS No. 154. The new reporting entity reflects in its financial statements the results of each entity only during the relevant periods in which those entities were controlled by WLR. As a result, the financial statement presentation herein reflects ITGH as being the historical accounting entity, as WLR controlled ITGH prior to acquiring a controlling interest in SCI.

F-20

FASB Statement No. 141 specifies that the financial statements of the receiving entity should report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period. Results of operations for that period will thus comprise those of the previously separate entities combined from the beginning of the period to the date the transfer is completed and those of the combined operations from that date to the end of the period. Similarly, the receiving entity should present the statement of financial position and other financial information as of the beginning of the period as though the assets and liabilities had been transferred at that date. The Merger occurred on October 20, 2006 and, under these guidelines, the Company has reflected SCI’s results of operations in its statements of operations and cash flows for the fiscal year ended December 31, 2006 as if the Merger had occurred on January 1, 2006. Generally, financial statements and financial information presented for prior years should also be restated to furnish comparative information. In “as-if pooling-of-interests” accounting, financial statements of the previously separate companies for periods prior to the combination generally are restated on a combined basis to furnish comparative information. However, the SEC staff has indicated that, in “as-if pooling-of-interests” accounting, the financial statements of the previously separate entities should not be combined for periods prior to the date that common control was established. Accordingly, the consolidated balance sheet as of December 31, 2005 and the consolidated statements of operations, stockholders’ equity and cash flows for the Company’s three month transition period ended December 31, 2005 are restated to include SCI’s financial position information as of December 31, 2005 and its results of operations from the period from December 3, 2005 to December 31, 2005. Furthermore, the consolidated statements of operations, stockholders’ equity and cash flows for ITGH’s fiscal years ended October 2, 2005 and October 3, 2004 are not restated and therefore reflect only ITGH’s results of operations. The Company has reported herein transition period results of operations and cash flows for the three month period ended December 31, 2005 to reconcile the different fiscal year-ends of SCI and ITGH.

The Company accounted for the acquisition of the minority interest of ITGH using the purchase method of accounting in accordance with FASB Statement No. 141, Business Combinations, and FASB Technical Bulletin (“FTB”) No. 85-5, Issues Relating to Accounting for Business Combinations. Under these rules, the original minority interest effectively is purchased, and a new minority interest in a different subsidiary is created. Thus, for the portion of the Merger consideration that involved the exchange of SCI common stock for the minority interest of ITGH, the Company applied the purchase method of accounting, thereby recording a step up in basis of fixed assets in the amount of $7.1 million that was allocated to worldwide fixed assets based on their relative fair values. This amount included $3.9 million as the difference between the fair value of the minority interest’s 1,285,127 common shares of $18.8 million and the minority interest’s percentage of total stockholders’ equity at the acquisition date of $14.9 million, plus $3.2 million representing the fair value of vested stock options issued in connection with the Merger.

Pro Forma Financial Information

The following unaudited pro forma condensed combined financial information is designed to show how the 2006 Merger and the acquisition by the Company in 2006 of the 50% of Parras Cone not then-owned by the Company might have affected ITGH’s historical results of continuing operations (before extraordinary items) if the 2006 Merger and the acquisition of Parras Cone had occurred at an earlier time. The unaudited pro forma condensed combined statements of continuing operations (before extraordinary items) give effect to the 2006 Merger and the acquisition of Parras Cone as if they occurred on the first day of each period presented. The unaudited pro forma condensed combined financial information has been prepared by the management of the Company for illustrative purposes only and is not necessarily indicative of the condensed combined results of operations in future periods or the results that actually would have been realized had the 2006 Merger and the acquisition of Parras Cone been completed at the beginning of the specified periods or at any other time.

F-21

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS OF

ITG AND PARRAS CONE

For the Year Ended December 31, 2006

(amounts in thousands, except per share data)

	ITG Year Ended December 31, 2006			Parras Cone Acquisition			Pro Forma Adjustments Relating to Parras Cone Acquisition			Pro Forma
Net sales	$	720,916		$	29,667		$	—		$	750,583
Cost of goods sold		660,734			28,063			(4,284	)(1)		684,513
Gross profit		60,182			1,604			4,284			66,070
Selling and administrative expenses		72,441			2,744			(550	)(1)		74,635
Stock-based compensation and related cash bonus expense		1,318			—			—			1,318
Start-up costs on international initiatives		4,595			—			—			4,595
(Gain) loss on disposal of property, plant and equipment		(769	)		—			—			(769	)
Expenses associated with certain share transactions		4,350			—			—			4,350
Provision for special termination benefit		3,227			—			—			3,227
Provision for restructuring and impairment		11,602			—			—			11,602
Income (loss) from operations		(36,582	)		(1,140	)		4,834			(32,888	)
Other income (expense):
Interest income		1,509			90			—			1,599
Interest expense		(6,937	)		(543	)		(956	)(2)		(8,436	)
Write-off of deferred financing fees		(1,054	)		—			—			(1,054	)
Other income (expense) from		10,846			(884	)		—			9,962
Income (loss) from continuing operations before income taxes		(32,218	)		(2,477	)		3,878			(30,817	)
Income tax (expense) benefit		(5,913	)		(5,674	)		161	(3)		(11,426	)
Equity in earnings (losses) of unconsolidated affiliates		(847	)		—			1,076	(4)		229
Minority interest net income		2,899			—			—			2,899
Net income (loss) from continuing operations	$	(36,079	)	$	(8,151	)	$	5,115		$	(39,115	)
Net loss from continuing operations per common share, basic		—			—			—		$	(2.54	)
Net loss from continuing operations per common share, diluted		—			—			—		$	(2.54	)
Weighted average number of common shares outstanding, basic		—			—			—			15,395	(5)
Weighted average number of common shares outstanding, diluted		—			—			—			15,395	(5)

F-22

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS OF

ITGH, SCI AND PARRAS CONE

For the Quarter Ended December 31, 2005

(amounts in thousands, except per share data)

	ITGH Quarter Ended December 31, 2005			SCI Quarter Ended December 31, 2005			Combined ITGH and SCI			Parras Cone Acquisition			Pro Forma Adjustments Relating to Parras Cone Acquisition			Pro Forma
Net sales	$	112,903		$	51,932		$	164,835		$	6,550		$	—		$	171,385
Cost of goods sold		104,935			48,062			152,997			7,371			(1,986	)(1)		158,382
Gross profit		7,968			3,870			11,838			(821	)		1,986			13,003
Selling and administrative expenses		8,717			3,424			12,141			1,467			(275	)(1)		13,333
Bad debt expense		221			157			378			—			—			378
Stock-based compensation and related cash bonus expense		195			—			195			—			—			195
Start-up costs on international initiatives		344			—			344			—			—			344
(Gain) loss on disposal of property, plant and equipment		(1,303	)		27			(1,276	)		—			—			(1,276	)
Expenses associated with certain share transactions		—			2,965			2,965			—			—			2,965
Provision for restructuring and impairment		(407	)		—			(407	)		—			—			(407	)
Income (loss) from operations		201			(2,703	)		(2,502	)		(2,288	)		2,261			(2,529	)
Other income (expense):
Interest income		651			25			676			85			—			761
Interest expense		(865	)		(192	)		(1,057	)		(20	)		(477	)(2)		(1,554	)
Other income (expense)		—			(283	)		(283	)		487			—			204
Loss from continuing operations before income taxes		(13	)		(3,153	)		(3,166	)		(1,736	)		1,784			(3,118	)
Income tax (expense) benefit		257			841			1,098			—			80	(3)		1,178
Equity in earnings (losses) of unconsolidated affiliates		(687	)		—			(687	)		—			868	(4)		181
Minority interest net income		(49	)		225			176			—			—			176
Net loss from continuing operations	$	(492	)	$	(2,087	)	$	(2,579	)	$	(1,736	)	$	2,732		$	(1,583	)
Net loss from continuing operations per common share, basic		—			—			—			—			—		$	(0.10	)
Net loss from continuing operations per common share, diluted		—			—			—			—			—		$	(0.10	)
Weighted average number of common shares outstanding, basic		—			—			—			—			—			15,310	(5)
Weighted average number of common shares outstanding, diluted		—			—			—			—			—			15,310	(5)

F-23

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS OF

ITGH, SCI AND PARRAS CONE

For the Year Ended December 31, 2005

(amounts in thousands, except per share data)

	ITGH Year Ended December 31, 2005			SCI Year Ended December 31, 2005			Combined ITGH and SCI			Parras Cone Acquisition			Pro Forma Adjustments Relating to Parras Cone Acquisition			Pro Forma
Net sales	$	607,160		$	220,114		$	827,274		$	53,546		$			$	880,820
Cost of goods sold		535,890			196,693			732,583			50,030			(8,511	)(1)		774,102
Gross profit		71,270			23,421			94,691			3,516			8,511			106,718
Selling and administrative expenses		55,122			16,004			71,126			4,110			(1,025	)(1)		74,211
Stock-based compensation and related cash bonus expense		5,431			—			5,431			—						5,431
Start-up costs on international initiatives		1,612			—			1,612			—						1,612
(Gain) loss on disposal of property, plant and equipment		(3,508	)		141			(3,367	)		—						(3,367	)
Expenses associated with certain share transactions		—			2,965			2,965			—						2,965
Provision for restructuring and impairment		6,542			—			6,542			—						6,542
Income (loss) from operations		6,071			4,311			10,382			(594	)		9,536			19,324
Other income (expense):
Interest income		1,131			68			1,199			456						1,655
Interest expense		(4,860	)		(682	)		(5,542	)		(242	)		(1,916	)(2)		(7,700	)
Other income (expense) from		901			(606	)		295			1,164						1,459
Income from continuing operations before income taxes		3,243			3,091			6,334			784			7,620			14,738
Income tax (expense) benefit		(306	)		(907	)		(1,213	)		827			323	(3)		(63	)
Equity in earnings (losses) of unconsolidated affiliates		1,408			754			2,162			—			(1,944	)(4)		218
Minority interest net income		43			605			648			—			—			648
Net income from continuing operations	$	4,388		$	3,543		$	7,931		$	1,611		$	5,999		$	15,541
Net income from continuing operations per common share, basic		—			—			—			—			—		$	1.07
Net income from continuing operations per common share, diluted		—			—			—			—			—		$	1.04
Weighted average number of common shares outstanding, basic		—			—			—			—			—			14,486	(5)
Weighted average number of common shares outstanding, diluted		—			—			—			—			—			15,137	(5)

F-24

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS OF

ITGH, SCI AND PARRAS CONE

For the Year Ended December 31, 2004

(amounts in thousands, except per share data)

	ITGH Year Ended December 31, 2004			SCI Year Ended December 31, 2004			Combined ITGH and SCI			Parras Cone Acquisition			Pro Forma Adjustments Relating to Parras Cone Acquisition			Pro Forma
Net sales	$	644,030		$	247,883		$	891,913		$	66,684		$	—		$	958,597
Cost of goods sold		584,276			212,167			796,443			63,777			(7,191	)(1)		853,029
Gross profit		59,754			35,716			95,470			2,907			7,191			105,568
Selling and administrative expenses		46,924			19,974			66,898			4,227			(1,000	)(1)		70,125
(Gain) loss on disposal of property, plant and equipment		(1,529	)		283			(1,246	)		—			—			(1,246	)
Settlement/curtailment gain on retiree medical plans		(8,153	)		—			(8,153	)		—			—			(8,153	)
Income (loss) from operations		22,512			15,459			37,971			(1,320	)		8,191			44,842
Other income (expense):
Interest income		161			63			224			157			—			381
Interest expense		(5,123	)		(946	)		(6,069	)		(108	)		(1,916	)(2)		(8,093	)
Write-off of deferred financing fees		(1,531	)		—			(1,531	)		—			—			(1,531	)
Other income (expense)		303			1,404			1,707			2,725			—			4,432
Income from continuing operations before income taxes		16,322			15,980			32,302			1,454			6,275			40,031
Income tax (expense) benefit		(5,457	)		(5,771	)		(11,228	)		956			323	(3)		(9,949	)
Equity in earnings (losses) of unconsolidated affiliates		860			—			860			—			—	(4)		860
Minority interest net income		(110	)		39			(71	)		—			—			(71	)
Net income from continuing operations	$	11,615		$	10,248		$	21,863		$	2,410		$	6,598		$	30,871
Net income from continuing operations per common share, basic		—			—			—			—			—		$	2.34
Net income from continuing operations per common share, diluted		—			—			—			—			—		$	2.29
Weighted average number of common shares outstanding, basic		—			—			—			—			—			13,179	(5)
Weighted average number of common shares outstanding, diluted		—			—			—			—			—			14,047	(5)

(1) To eliminate management and marketing fees paid to the former 50% owner of Parras Cone, and reduced depreciation expense on fixed assets written-down in accordance with FASB Statement No. 141 upon acquisition of the remaining 50% ownership interest of Parras Cone on June 30, 2006.

(2) Represents pro forma interest expense to finance the acquisition of the remaining 50% interest in Parras Cone not already owned by ITG.

(3) To record income tax effects of pro forma income (loss).

F-25

(4) To eliminate equity in earnings (loss) of Parras Cone.

(5) Basic and diluted weighted average shares outstanding have been adjusted to reflect the Merger as if ITGH and SCI were combined on December 3, 2005, the earliest date of common control by WLR.

Note 3 Sundry Accounts Payable and Accrued Expenses (in thousands)

	December 31, 2006		December 31, 2005		October 2, 2005		October 3, 2004
Health insurance reserves	$	3,594	$	4,324	$	3,375	$	5,403
Income taxes payable		1,231		4,908		1,534		5,075
Current portion of pension obligation		5,865		—		—		—
Restructuring related reserves for severance and benefits		9,542		2,630		3,800		—
Checks issued in excess of deposits		2,960		1,317		3,254		6,642
All other		17,859		17,116		11,767		12,129
	$	41,051	$	30,295	$	23,730	$	29,249

F-26

Note 4 Inventories

Inventories are summarized as follows (in thousands):

	December 31, 2006			December 31, 2005			October 2, 2005			October 3, 2004
Inventories at FIFO:
Raw materials	$	22,805		$	18,866		$	9,372		$	14,488
Stock in process		37,981			36,966			31,159			38,452
Produced goods		76,440			72,435			61,317			63,778
Dyes, chemicals, and supplies		13,323			11,348			11,611			11,149
		150,549			139,615			113,459			127,867
Excess of FIFO over LIFO		(10,809	)		(5,465	)		(6,271	)		—
Excess of LIFO over FIFO		—			—			—			933
Total	$	139,740		$	134,150		$	107,188		$	128,800

Inventories valued using the LIFO method comprised approximately 83% of consolidated inventories at December 31, 2006, 94% at December 31, 2005, and 93% at October 2, 2005 and October 3, 2004.

Note 5 Investments in Unconsolidated Affiliates

Burlington Industries LLC and Parkdale America each owned 50% of Summit Yarn LLC and Summit Yarn Holdings (together, “Summit Yarn,” a joint venture formed to build and operate a cotton open-end and ring spun yarn manufacturing facility in Mexico). Burlington Industries LLC and Mafatlal Industries Limited each owned 50% of Mafatlal Burlington Industries Limited, a joint venture formed to build and operate a vertically integrated denim manufacturing facility in India. On August 2, 2004, as part of the Plan of Integration (see Note 2), Burlington Industries LLC transferred all of its equity interests or other rights in Summit Yarn and Mafatlal Burlington Industries Limited to Cone Denim LLC and Cone International Holdings, Inc., respectively. Cone Denim LLC is a wholly owned subsidiary of ITG and Cone International Holdings, Inc. is a wholly owned subsidiary of Cone Denim LLC. In March 2006, ITG exited its Indian joint venture, Mafatlal Burlington Industries Limited, because it did not align with ITG’s preferred partnership structure, which includes entering into joint venture arrangements where ITG maintains a controlling interest, and the right to market 100% of the denim produced at any such facility. Other income of $9.2 million in the 2006 fiscal year was a result of the gain on the sale of ITG’s 50% interest in this Indian joint venture during March 2006.

Cone Denim LLC and Compania Industrial de Parras S.A. de C.V. (“CIPSA”) owned a denim manufacturer in Mexico, Parras Cone de Mexico, S.A. de C.V. (Parras Cone), formed to build and operate a denim manufacturing facility in Parras, Mexico. Cone Denim LLC and CIPSA each owned a 50% interest in Parras Cone. WLR acquired designation rights to an ownership interest in CIPSA on March 12, 2004 and, on October 14, 2004, WLR exercised such rights and transferred the ownership interest, which has no assigned value, to Cone Denim LLC. On June 30, 2006, the Company completed the acquisition of the remaining 50% equity interest of the Parras Cone joint venture not already owned by the Company from CIPSA for a purchase price of approximately $27.0 million and the pro rata assumption of debt. The acquisition reflects purchase accounting adjustments under FASB Statement No. 141.

On September 1, 2005 the Company exercised an option to acquire 49% of the ownership interests of NxGen Technologies, LLC (“NxGen”), which is in the business of designing airbags, airbag systems and inflator units. The Company exercised this option in connection with NxGen’s entry into a License and Consulting Agreement with a major automotive supplier pursuant to which NxGen granted the supplier an exclusive, worldwide, royalty-bearing license to certain of NxGen’s patents and patent know-how. The supplier paid NxGen an initial license fee and it is required to make two additional payments, which will be treated as prepaid royalties for subsequent sales, if and when validation and sales targets are met. If sales exceed the volume corresponding to the prepaid royalties, the supplier will pay NxGen an additional royalty for each airbag system sold using the licensed patents and know-how. The Company will participate in NxGen’s subsequent profits and losses pro rata in accordance with its equity ownership.

F-27

Burlington Industries LLC had an ownership interest in Unifi Textured Polyester, LLC, a textured yarn joint venture, of approximately 15% that was accounted for using the equity method because the Company had significant influence over the operations of the entity, including control of 40% of the Board and certain additional rights that require unanimous votes to pass. In April 2005, the Company sold its entire interest in the Unifi joint venture for $0.9 million and recorded a gain on disposition of the same amount included in Other Income in the consolidated statement of income.

The aggregate summarized unaudited financial information of the Company’s investments in unconsolidated affiliates is set forth below (in thousands). The December 31, 2006 balance sheet information includes Summit Yarn and NxGen. The December 31, 2005 balance sheet information includes Summit Yarn, Parras Cone, Mafatlal Burlington Industries Limited and NxGen. The October 2, 2005 balance sheet information includes Summit Yarn, Parras Cone and Mafatlal Burlington Industries Limited. The October 3, 2004 balance sheet information includes Summit Yarn, Parras Cone, Mafatlal Burlington Industries Limited and Unifi Textured Polyester, LLC. The December 31, 2006 income statement information includes the results of operations of Summit Yarn and NxGen for the twelve months ended December 31, 2006, the results of operations of Mafatlal Burlington Industries Limited for the three months ended March 31, 2006, and the results of operations of Parras Cone for the six months ended June 30, 2006. The December 31, 2005 income statement information includes the results of operations of Summit Yarn, Mafatlal Burlington Industries Limited and Parras Cone for the three month period ended December 31, 2005 and the results of operations of NxGen for the one month period ended December 31, 2005. The income information for the fiscal year ended October 2, 2005 includes the results of operations of Summit Yarn, Mafatlal Burlington Industries Limited and Parras Cone. The 2004 income statement information includes the results of operations of Summit Yarn, Mafatlal Burlington Industries Limited and Unifi Textured Polyester, LLC for the period from November 10, 2003 to October 3, 2004, and the results of operations of Parras Cone for the period from March 12, 2004 to October 3, 2004.

	December 31, 2006			December 31, 2005			October 2, 2005		October 3, 2004
Current assets	$	13,064		$	52,403		$	61,204	$	92,563
Noncurrent assets		13,775			99,929			102,213		136,667
Current liabilities		4,595			19,176			28,684		27,300
Noncurrent liabilities		51			8,554			9,014		17,782
Net sales		45,115			19,507			321,755		351,211
Gross profit		2,292			550			17,717		1,339
Net income (loss)		(288	)		(1,537	)		5,771		(44,296	)

The Company assigned no values to long-term assets acquired in the 2004 business combinations (except for long-term assets applicable to minority interest) due to the existence of negative goodwill in accordance with United States generally accepted accounting principles (see Note 2). Accordingly, no value was assigned to investments in unconsolidated affiliates or to a note receivable from Summit Yarn with an outstanding balance of $5.6 million at November 10, 2003. At December 31, 2006, the Company’s recorded investment in Summit Yarn was $8.9 million less than its interest in Summit Yarn equity due to these purchase accounting adjustments. The Company received principal payments on this note of $0.3 million during the 2006 fiscal year, $0.7 million during the three months ended December 31, 2005, and $3.2 million and $0.5 million during the 2005 and 2004 fiscal years, respectively, which are recorded in cost of goods sold in the consolidated statements of income. The 2004 aggregate net loss shown in the above table is primarily related to the Unifi joint venture. The Company discontinues applying the equity method of accounting for its investments that are reduced to zero in accordance with APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. If such affiliates subsequently report net income, the equity method will resume after the Company’s share of that net income equals the share of net losses not recognized during the period the equity method was suspended.

F-28

Note 6 Property, Plant, and Equipment

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

	December 31, 2006		December 31, 2005		October 2, 2005		October 3, 2004
Land and land improvements	$	5,719	$	2,119	$	26	$	3
Buildings		49,569		22,557		2,695		498
Leasehold improvements		1,302		1,186		1,068		—
Machinery and equipment		162,528		87,285		16,306		7,145
Equipment under capital leases		4,459		2,671		2,687		—
		223,577		115,818		22,782		7,646
Less:
Accumulated depreciation		61,801		46,223		1,191		264
Accumulated amortization on capital leases		485		396		37		—
	$	161,291	$	69,199	$	21,554	$	7,382

No values were assigned to long-term assets acquired in the 2004 business combinations due to the existence of negative goodwill in accordance with United States generally accepted accounting principles. (see Note 2)

Note 7 Long-Term Debt

Long-term debt consisted of the following (in thousands):

	December 31, 2006			December 31, 2005			October 2, 2005			October 3, 2004
Revolving loans	$	57,710		$	43,231		$	45,473		$	56,426
Term loans		45,866			19,449			19,258			19,600
Unsecured subordinated notes		67,458			—			—			19,548
Capitalized lease obligations		2,781			2,543			1,432			—
Other notes payable		1,280			1,489			—			5
Total debt		175,095			66,712			66,163			95,579
Less: current portion of long-term debt		(2,260	)		(9,131	)		(3,465	)		(2,000	)
Total long-term portion of debt	$	172,835		$	57,581		$	62,698		$	93,579

On December 29, 2006 the Company and certain of its subsidiaries entered into a $165.0 million credit agreement with General Electric Capital Corporation and certain other signatories thereto (the “Bank Credit Agreement”). Also on December 29, 2006, the Company’s wholly owned subsidiary, Burlington Morelos S.A. de C.V. (the “Mexican Holding Company”), entered into a $15.0 million term loan agreement with General Electric Capital Corporation and certain other signatories thereto (the “Term Loan Agreement”). Both the Bank Credit Agreement and the Term Loan Agreement have maturity dates of December 29, 2009.

The Bank Credit Agreement provides for a revolving credit facility, including a letter of credit sub-facility, in the aggregate amount of up to $165.0 million (the “Revolving Credit Facility”). The Bank Credit Agreement also contains a provision for commitment increases of up to $50.0 million in the aggregate, in amounts of no less than $25.0 million per increase, subject to the satisfaction by the Company of certain conditions. Proceeds from borrowings under the Revolving Credit Facility were and may be used to (i) refinance certain indebtedness existing as of December 29, 2006, (ii) provide for working capital, capital expenditures and other general corporate purposes and (iii) fund certain expenses associated with the Bank Credit Agreement and the Term Loan Agreement.

The obligations of the Company (and certain of its subsidiaries) under the Bank Credit Agreement are secured by substantially all the Company’s (and such subsidiaries’) U.S. assets, a pledge by the Company of the stock of its U.S. subsidiaries (other than BST Holdings and its U.S. subsidiaries), a pledge by the Company of 65% of the stock of certain of its foreign subsidiaries (other than foreign subsidiaries of BST Holdings) and the accounts receivable of Automotive Safety Components International Limited (“UK ASCI”), a United Kingdom company, one of the

F-29

borrowers under the Credit Agreement and a wholly owned subsidiary of the Company. The obligations of the Mexican Holding Company under the Term Loan Agreement are secured by a pledge of substantially all the property, plant and equipment of its wholly-owned subsidiary, Parras Cone.

In the event that the availability (as defined in the Bank Credit Agreement) was to fall below certain levels, then the Company would be required to comply with a fixed charge coverage ratio set forth in the Bank Credit Agreement. The Term Loan Agreement contains a fixed charge coverage ratio and a minimum collateral coverage covenant, which are calculated quarterly. The respective agreements also contain customary reporting obligations and affirmative and negative covenants, including, but not limited to, restrictions on the uses of proceeds, capital changes, mergers and consolidations, dividend payments, capital expenditures, indebtedness, liens and acquisitions and investments. In addition, the Bank Credit Agreement, as amended, requires the Company to have obtained, and to have contributed to the borrowers under the Bank Credit Agreement, certain additional equity contributions at various times. A contribution of $50.0 million was received from certain entities affiliated with WLR on March 2, 2007, was recorded as equity and was used to partially repay revolving loans outstanding. In order to secure these obligations, the Company has received a commitment from certain entities affiliated with WLR, which entities, together with other entities affiliated with Mr. Ross, owned approximately 82.0% of the Company’s outstanding common stock at December 31, 2006. This commitment provides that these entities have agreed to fund any portion of the required equity contribution not otherwise obtained by the Company on or before the deadlines as set forth in the Bank Credit Agreement. As consideration for such commitment, the Company has agreed to pay such entities 1.0% (to be paid in additional shares of the Company’s common stock) of the amount that each such entity has committed to purchase, if necessary, and to reimburse all of their respective fees and expenses incurred in connection with such commitment and purchase, if necessary. Subsequent to December 31, 2006 and prior to filing this annual report on Form 10-K, the Company obtained a waiver from General Electric Capital Corporation, as agent under the Bank Credit Agreement, for non-compliance with a covenant relating to the timely delivery of the Company’s audited consolidated financial statements.

Borrowing availability under the Bank Credit Agreement is determined according to an asset-based formula that values the Company’s borrowing base (as defined) subject to an availability reserve and such other reserves as the agent may establish from time to time in its reasonable credit judgment. The interest rate on borrowings under the Bank Credit Agreement is variable, depending on the amount of the Company’s borrowings outstanding at any particular time. The Company may make borrowings based on either the base rate (defined in the Credit Agreement as the prime rate or the Federal Funds Rate plus 0.5%) or the LIBOR plus an applicable margin. At December 31, 2006, the interest rate on base rate loans was 9.25% and the margin applicable to LIBOR loans was 2.00%, and there was $57.7 million outstanding under the Bank Credit Agreement. Borrowings under the Term Loan Agreement bear interest at the LIBOR plus 4.75%. At December 31, 2006, there was $15.0 million outstanding under the Term Loan Agreement.

Pursuant to the terms of the Bank Credit Agreement, mandatory prepayments are required (i) if the Company sells assets that are part of its borrowing base and (ii) from time to time to the extent that the value of the borrowing base, based on updated appraisals, is lower than its value as of the Closing Date. In addition, beginning on May 29, 2008, the calculated value of the borrowing base will be reduced on a quarterly basis by an amount predetermined according to a 7-year straight-line amortization schedule.

Pursuant to the terms of the Term Loan Agreement, mandatory prepayments are required thereunder if Parras Cone sells assets that are part of the borrowing base thereunder. In addition, amortization payments by the Mexican Holding Company are required in the amount of $0.3 million per quarter beginning in March 2007, with a final payment of $12.3 million due at maturity.

Cone Denim (Jiaxing) Limited has obtained financing from the Bank of China to fund its capital expenditures in excess of partner equity contributions in accordance with applicable Chinese laws and regulations. The financing agreement provides for a $35.0 million term loan available in U.S. dollars to be used for the import of equipment to be used by this company. Outstanding borrowings under this facility were $22.1 million with a weighted average interest rate of 6.8% at December 31, 2006. The term loan is to be repaid in equal monthly installments over a 60 month period after a two-year grace period on the repayment of principal that commenced on the first drawdown date of June 19, 2006. Interest is based on three-month LIBOR plus a contractual spread of 1.3% or above, as negotiated by the parties per the agreement. The loan is secured by the land, building, machinery and equipment of the joint venture and contains limitations on asset disposals.

F-30

In addition, Jiaxing Burlington Textile Company, has obtained financing from China Construction Bank. Such funding is being used to finance machinery and equipment capital expenditure needs in excess of ITG’s equity contributions in accordance with applicable Chinese laws and regulations. The agreement provides for an $11.0 million term loan, available in either U.S. dollars or Chinese RMB at the option of the Company to be used for the import of equipment to be used by this company. The term loan is to be repaid in equal monthly installments over a 60 month period after a two-year grace period on the repayment of principal that commenced on August 31, 2006. Interest is calculated at six-month LIBOR plus 1.25% for U.S. dollar loans. Pricing for RMB loans is at the rate established by the China Central Bank. At December 31, 2006, $8.8 million in principal of U.S. dollar loans were outstanding with a weighted average interest rate of 6.6%. The loan is secured by the land, building, machinery and equipment and additional collateral is required in the form of letters of credit from the Company during the construction phase in the amount of draws on the loan. The agreement provides for financial reporting requirements and also contains limitations on asset disposals.

As of December 31, 2006, the Company had borrowed a total of $66.2 million original principal amount from WLR Recovery Fund II L.P. (“Fund II”), an affiliate of WLR, pursuant to five unsecured subordinated demand notes. The unsecured subordinated demand notes bear interest at 4.78%, which is compounded semiannually. Accrued but unpaid interest is converted to additional principal amounts on the last day of each month. The unsecured subordinated demand notes are classified as long-term because the Company has entered into a preferred stock commitment agreement with Fund II whereby in the event that Fund II demands payment, in whole or in part, of the notes at any time before April 1, 2008, then Fund II will, upon the request of ITG, receive shares of a newly created series of preferred stock of the Company in exchange for the aggregate amount of principal, together with accrued interest thereon, of the notes that are the subject of any such payment demand. On March 2, 2007, these notes, and accrued interest, were exchanged for Preferred Stock (as defined below). (see Note 24)

On August 2, 2004, the Company had borrowed a total of $25.0 million from the WLR Funds under certain unsecured convertible subordinated notes at an interest rate of 4.28%. Interest on the convertible subordinated notes was compounded semi-annually, and accrued but unpaid interest was converted to additional principal amounts on the last day of each month and otherwise from time to time upon demand of the WLR Funds. On May 4, 2005, the remaining outstanding balance of $6.7 million on the unsecured convertible subordinated notes was converted into 884,092 shares of common stock of the Company (before the adjustment to give effect to the conversion ratio in the Merger).

The Company’s Czech Republic subsidiary and HVB Bank Czech Republic, successor to Bank Austria, have amended its $7.5 million mortgage loan dated June 4, 1997. This amendment extended the expiration of the mortgage loan for five years to March 30, 2007, established an interest rate of 1.7% over EURIBOR (EURIBOR was 3.5% at December 31, 2006), requires monthly payments of interest and principal of approximately $0.1 million and provided that the loan thereunder is secured by the real estate assets of the Company’s subsidiary in the Czech Republic. The Company has guaranteed the repayment of up to $0.5 million of the obligations of this subsidiary with respect to this loan. At December 31, 2006, approximately $0.3 million was outstanding under the HVB loan.

During 2006, the Company’s China joint venture obtained loans from the joint venture’s minority interest partner and received proceeds of $1.4 million. These loans were issued within the terms of the China joint venture agreement which allows the Company and its minority interest partner to continue to fund the development of the China joint venture using a combination of loans and/or capital contributions. Because the terms of the loan agreements do not specify interest, the Company has discounted the loans using an annual interest rate of 10%, resulting in discounted interest of $0.5 million. At December 31, 2006, approximately $1.0 million was outstanding on these loans, which mature in 2010.

As of December 31, 2006, aggregate maturities of long-term debt for each of the next five years based on the contractual terms of the instruments were as follows: $2.3 million in 2007, $69.1 million in 2008, $71.3 million in 2009, $1.3 million in 2010 and $30.9 million in 2011. The 2008 maturities of $69.1 million include $67.5 million of principal and accrued interest on certain unsecured subordinated demand notes that were exchanged for shares of the Company’s Series A convertible preferred stock (the “Preferred Stock”) on March 2, 2007 (see Note 24).

F-31

The Company capitalizes interest cost as a component of the cost of construction in progress. Such capitalized interest is included in capital expenditures in the consolidated statements of cash flows. The following is a summary of interest cost incurred during 2006, 2005 and 2004:

	Twelve Months Ended December 31, 2006		Three Months Ended December 31, 2005		Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
Interest cost capitalized	$	771	$	119	$	—	$	—
Interest cost charged to income		7,988		1,207		6,063		5,138
Total interest cost incurred	$	8,759	$	1,326	$	6,063	$	5,138

Guarantees

FASB Interpretation No. 45 provides guidance on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued and specific disclosures related to product warranties. As of December 31, 2006, the Company and various consolidated subsidiaries of the Company were borrowers under various bank credit agreements (as described above) and a note payable to a bank in the Czech Republic (together, the “Facilities”). The Facilities are guaranteed by either the Company and/or various consolidated subsidiaries of the Company. The guarantees are in effect for the duration of the related Facilities.

The Company does not provide product warranties within the disclosure provisions of Interpretation No. 45.

Note 8 Leases

As of December 31, 2006, minimum future obligations under capital leases and noncancelable operating leases were as follows (in thousands):

	Capital leases		Operating leases
2007	$	1,105	$	4,454
2008		786		3,149
2009		620		2,818
2010		338		2,458
2011		282		2,422
Later years		—		5,202
Total minimum lease payments		3,131	$	20,503
Less interest portion of payments		350
Present value of future minimum lease payments	$	2,781

Capital leases are primarily for production machinery and equipment. Interest rates are imputed at 4.8% to 6.75%. Operating leases pertain to office facilities and a variety of machinery and equipment. Certain operating leases, principally for office facilities, contain escalation clauses for increases in operating costs, property taxes and insurance. For the 2006, 2005 and 2004 fiscal years, rental expense for all operating leases was $6.4 million, $6.9 million and $5.3 million, respectively. For the three months ended December 31, 2005, rental expense for all operating leases was $1.6 million.

F-32

Note 9 Other Income (Expense)

Other income (expense) consisted of the following (in thousands):

	December 31, 2006		December 31, 2005			October 2, 2005		October 3, 2004
Gain on sale of joint venture and other investments	$	9,210	$	—		$	901	$	303
Foreign currency translation gain (loss)		1,496		(484	)		—		—
Other		140		462			—		—
	$	10,846	$	(22	)	$	901	$	303

In March 2006, ITG sold its 50% interest in its Indian joint venture, Mafatlal Burlington Industries Limited. Other income of $9.2 million in the 2006 fiscal year was a result of the sale of ITG’s interest in this joint venture. In April 2005, the Company sold its Unifi Textured Polyester joint venture interest for $0.9 million. Other income of $0.3 million in the 2004 fiscal year was primarily due to the sale of a real estate investment and a gain on extinguishment of debt.

Note 10 Income Taxes

The Company is a majority owned subsidiary of International Textile Holdings, Inc. (“ITH”). ITH files a consolidated U.S. federal income tax return that includes the taxable income of the Company through October 20, 2006. After that date, ITH is no longer a member of the Company’s consolidated U.S. federal income tax group, because its ownership percentage of the Company dropped below 80% (see Note 2). The Company records U.S. federal income tax expense based on its share of federal consolidated net income through October 20, 2006. SCI and ITGH filed separate U.S tax returns through October 20, 2006. Subsequent to that date, the Company’s tax returns include the results of both entities. Foreign entities record income tax expense based on the applicable laws and requirements of their respective tax jurisdictions. The sources of income (loss) from continuing operations before income taxes, equity in income (loss) of unconsolidated affiliates, minority interest and extraordinary items were as follows (in thousands):

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
United States	$	(42,673	)	$	(5,183	)	$	84	$	2,988
Foreign		10,455			408			7,984		6,305
Total	$	(32,218	)	$	(4,775	)	$	8,068	$	9,293

F-33

Total income tax (benefit) was allocated as follows (in thousands):

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-Seven Weeks Ended October 3, 2004
Continuing operations	$	5,913		$	(1,731	)	$	2,187		$	3,718
Discontinued operations		—			193			(1,016	)		610
Extraordinary items		—			—			(1,663	)		—
Capital in excess of par value		(283	)		—			—			—
Other comprehensive income		167			(167	)		—			—
Total	$	5,797		$	(1,705	)	$	(492	)	$	4,328

Income tax expense (benefit) attributable to income from continuing operations consisted of (in thousands):

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-Seven Weeks Ended October 3, 2004
Current:
United States	$	(2,209	)	$	(2,509	)	$	1,116		$	4,588
Foreign		(2,701	)		1,179			(360	)		2,020
Total current		(4,910	)		(1,330	)		756			6,608
Deferred:
United States		7,552			(750	)		(664	)		(3,070	)
Foreign		3,271			349			2,095			180
Total deferred		10,823			(401	)		1,431			(2,890	)
	$	5,913		$	(1,731	)	$	2,187		$	3,718

F-34

Income tax expense for the 2006 and 2005 fiscal years is different from the amount computed by applying the statutory U.S. federal income tax rate of 35% to income before income tax expense and extraordinary gain as follows (in thousands):

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
U.S. federal tax at statutory rate	$	(11,276	)	$	(1,672	)	$	2,824		$	3,253
State income taxes, net of federal effect		(3,105	)		(39	)		(132	)		374
Foreign income taxed at other rates		(3,706	)		56			(824	)		42
Foreign affiliate sale with higher tax basis		(2,253	)		—			—			—
Other		1,051			71			319			49
Valuation allowances		25,202			(147	)		—			—
	$	5,913		$	(1,731	)	$	2,187		$	3,718

At December 31, 2006, the Company had $60.1 million in combined federal and state net operating loss carryforwards that expire from 2025 to 2026. When ITGH left the ITH federal consolidated group on October 20, 2006, the consolidated net operating loss (“NOL”) carryforward was allocated to each company according to the federal income tax regulations. Pursuant to these regulations, the NOL carryforward as allocated to ITG is $5.8 million lower than the NOL carryforward calculated as determined under a tax sharing agreement between the companies. Thus, ITH has agreed to pay ITGH the amount of the tax effect of this NOL, $1.9 million, if and when ITGH is required to pay the federal income tax liability caused by the $5.8 million reduction of ITGH’s NOL carryforward. Given the large NOL carryforward, it is not certain if ITGH will actually pay federal income taxes as this liability is contingent on ITGH having sufficient future positive federal taxable income to offset the NOL carryforward. Therefore, the receivable from ITH has not been recorded in the consolidated balance sheets.

At December 31, 2006, realization of the deferred tax assets is contingent on future taxable earnings in the respective tax jurisdictions. At December 31, 2006, based upon 2006 results and the downsizing of U.S. operations, it is management’s opinion that it is more likely than not that the results of future operations will not generate sufficient taxable income to realize the deferred tax assets, and the Company has established a $51.5 million deferred tax valuation allowance (including $27.4 million in foreign jurisdictions). The change in valuation allowance was $50.8 million arising principally from income tax expense from continuing operations and the acquisition of the remaining 50% interest of the Parras Cone joint venture.

At December 31, 2005, the Company had a $2.6 million U.S. federal income tax refund receivable and a $5.2 million federal net operating loss carryforward that expires in 2025. At December 31, 2005, it was management’s opinion that it was more likely than not that the results of future operations would generate sufficient taxable income to realize the deferred tax assets.

F-35

At December 31, 2006 and December 31, 2005, the Company’s gross foreign deferred assets, primarily Mexican fixed assets, were $36.0 million and $14.7 million, respectively. At December 31, 2006 and December 31, 2005, the Company’s foreign valuation allowance was $27.4 million and $0.6 million, respectively. The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset consisted of the following (in thousands):

	December 31, 2006						December 31, 2005
	Current			Noncurrent			Current			Noncurrent
Deferred Assets
Fixed assets	$	—		$	30,065		$	—		$	7,525
Bad debt reserves		3,076			—			1,584			—
Reserve for future expenses		494			—			349			—
Employee benefits		403			4,296			536			9,381
Unconsolidated affiliates		701			—			748			—
Net operating loss and credit carryforward		—			24,777			—			1,860
Other		249			626			1,214			1,326
Valuation allowances		(4,332	)		(47,121	)		—			(689	)
Subtotal		591			12,643			4,431			19,403
Deferred Liabilities
Inventory valuation		(541	)		—			(1,788	)		—
Nonpermanently invested foreign earnings		(49	)		(3,940	)		(445	)		—
Unconsolidated affiliates		—			—			—			—
Other		(40	)		(34	)		—			(133	)
Subtotal		(630	)		(3,974	)		(2,233	)		(133	)
Total	$	(39	)	$	8,669		$	2,198		$	19,270

	October 2, 2005					October 3, 2004
	Current			Noncurrent		Current			Noncurrent
Deferred Assets
Fixed assets	$	—		$	13,114	$	—		$	14,988
Bad debt reserves		1,351			—		1,755			—
Reserve for future expenses		—			—		—			—
Employee benefits		260			8,668		2,738			13,790
Unconsolidated affiliates		904			—		—			1,861
Net operating loss carryforward		—			1,614		—			—
Other		187			168		196			—
Subtotal		2,702			23,564		4,689			30,639
Deferred Liabilities
Inventory valuation		(3,003	)		—		(10,634	)		—
Nonpermanently invested foreign earnings		—			—		—			—
Other		—			—		—			—
Subtotal		(3,003	)		—		(10,634	)		—
Total	$	(301	)	$	23,564	$	(5,945	)	$	30,639

Prior to 2006, the Company anticipated that any U.S. income tax related to the repatriation of undistributed foreign earnings of its foreign operations not considered permanently invested will be partially offset by U.S. foreign income tax credits. In 2006, the Company anticipates that U.S. foreign income tax credits will no longer be utilizable due to large federal NOL carryforwards. SCI had unremitted earnings of foreign subsidiaries, which the Company has determined are permanently invested. No deferred tax has been recognized with regard to such earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the United States.

Note 11 Retirement and Other Postretirement Benefits

The Company’s U.S. wholly-owned subsidiary, Burlington Industries LLC, has a defined benefit pension plan that provides benefits to most of its U.S. employees, and certain employees in foreign countries, based on total employee contributions through September 30, 2003. On July 29, 2003, the plan was amended to provide that no further

F-36

employee contributions could be made to the plan after September 30, 2003 and that no service or participation after such date be recognized in calculating a pension benefit. The funding policy for this plan is to contribute periodically an amount based on the ERISA funding requirements as determined by the plan’s actuary. All participants are fully vested. Benefits consist of a pension payable for life following termination, or, at the option of the participant, a one-time lump sum cash payment equal to the discounted present value of the pension, based on the participant’s age and the amount of the employee’s contributions as determined under the provisions of the plan and applicable law.

In addition, the Company’s Burlington Industries LLC and Cone Denim LLC U.S. wholly-owned subsidiaries had contributory health care and dental plans for employees electing early retirement between the ages of 55 and 65, with dental care coverage continuing beyond the age of 65 under the Cone Denim plan. The Burlington Industries plans were closed to new members on November 10, 2003. The Cone Denim plan was available to most of its U.S. employees who elected participation through December 31, 2004, at which time it was closed to new members. On November 19, 2004, the Board of Directors approved the termination of the retiree health and dental plans effective September 30, 2005. The Burlington Industries and Cone Denim plans were merged into a new combined plan on January 1, 2005. As a result of the terminations, the Company recognized curtailment and settlement gains of $0.3 million and $8.2 million in the 2006 and 2005 fiscal years to reflect the reduction of the postretirement benefit liabilities recorded in the consolidated balance sheets. Burlington Industries LLC also has a noncontributory life insurance plan that was closed to new members in 1973. The Company’s policy is to fund the cost of the medical plans and the life insurance plan as expenses are incurred. The cost of postretirement benefits was accrued over the employees’ service lives.

Obligations and the funded status of the Company’s U.S. Plans (in thousands):

	Twelve Months Ended December 31, 2006						Three Months Ended December 31, 2005
	Pension Benefits			Postretirement Benefits			Pension Benefits			Postretirement Benefits
Change in benefit obligations :
Balance at beginning of period	$	(63,672	)	$	(3,523	)	$	(73,394	)	$	(4,038	)
Service cost		—			—			—			—
Interest cost		(3,108	)		(156	)		(856	)		(39	)
Contributions by plan participants		—			—			—			—
Benefits paid		16,906			411			11,460			554
Curtailment gain (loss )		(8,096	)		321			826			—
Settlement gain		—			—			—			—
Actuarial gains (losses )		577			69			(1,708	)		—
Balance at end of period		(57,393	)		(2,878	)		(63,672	)		(3,523	)
Change in fair value of plan assets:
Balance at beginning of period		41,977			1,280			51,822			1,430
Actual return on plan assets, net of plan expenses		3,085			73			1,615			15
Contributions by employer		—			12			—			389
Contributions by plan participants		—			—			—			—
Benefits paid		(16,906	)		(411	)		(11,460	)		(554	)
Balance at end of period		28,156			954			41,977			1,280
Funded status at end of year		(29,237	)		(1,924	)		(21,695	)		(2,243	)
Unrecognized net (gain) loss		—			—			462			214
Net amount recognized in the consolidated balance sheets	$	(29,237	)	$	(1,924	)	$	(21,233	)	$	(2,029	)

F-37

	Twelve Months Ended October 2, 2005						Twelve Months Ended October 3, 2004
	Pension Benefits			Postretirement Benefits			Pension Benefits			Postretirement Benefits
Change in benefit obligations :
Balance at beginning of period	$	(74,348	)	$	(12,833	)	$	(113,127	)	$	(15,527	)
Service cost		—			—			—			—
Interest cost		(3,901	)		(626	)		(4,116	)		(830	)
Merger of Cone Denim LLC		—			—			—			(2,372	)
Contributions by plan participants		—			(2,960	)		—			(4,970	)
Benefits paid		10,960			7,022			41,707			8,741
Curtailment gain (loss)		(2,145	)		1,449			—			—
Settlement gain		—			4,747			—			—
Actuarial gains (losses )		(3,960	)		(837	)		1,188			2,125
Balance at end of period		(73,394	)		(4,038	)		(74,348	)		(12,833	)
Change in fair value of plan assets :
Balance at beginning of period		57,264			1,718			91,594			2,118
Actual return on plan assets, net of plan expenses		3,368			771			7,377			(565	)
Contributions by employer		2,150			3,003			—			3,936
Contributions by plan participants		—			2,960			—			4,970
Benefits paid		(10,960	)		(7,022	)		(41,707	)		(8,741	)
Balance at end of period		51,822			1,430			57,264			1,718
Funded status		(21,572	)		(2,608	)		(17,084	)		(11,115	)
Unrecognized net (gain) loss		(56	)		202			(4,288	)		(1,877	)
Net amount recognized in the consolidated balance sheets	$	(21,628	)	$	(2,406	)	$	(21,372	)	$	(12,992	)

Amounts recognized in the consolidated balance sheets related to the U.S. plans consist of:

	December 31, 2006						December 31, 2005
	Pens ion Benefits			Postretirement Benefits			Pension Benefits			Postretirement Benefits
Current liabilities	$	(5,865	)	$	—		$	—		$	—
Noncurrent liabilities		(23,372	)		(1,924	)		(21,233	)		(2,029	)
	$	(29,237	)	$	(1,924	)	$	(21,233	)	$	(2,029	)
Accumulated other comprehensive income - net loss (gain)	$	—		$	168		$	—		$	—

	October 2, 2005						October 3, 2004
	Pension Benefits			Postretirement Benefits			Pension Benefits			Postretirement Benefits
Current liabilities	$	—		$	(722	)	$	—		$	—
Noncurrent liabilities		(21,628	)		(1,684	)		(21,372	)		(12,992	)
	$	(21,628	)	$	(2,406	)	$	(21,372	)	$	(12,992	)
Accumulated other comprehensive income - net loss (gain)	$	—		$	—		$	—		$	—

F-38

Components of net expense (benefit) and other amounts recognized in other comprehensive income for the U.S. plans were as follows for the 2006, 2005 and 2004 periods (in thousands):

	Pension Benefits
	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
Net Expense Benefit
Service cost	$	—		$	—		$	—		$	—
Interest cost		3,108			856			3,901			4,116
Expected return on plan as sets, net of plan expenses		(2,134	)		(715	)		(3,632	)		(4,277	)
Net periodic expense (benefit)		974			141			269			(161	)
Recognized curtailment loss (gain)		7,036			(826	)		—			—
Recognized settlement gains		(5	)		289			—			—
Net expense (benefit)		8,005			(396	)		269			(161	)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net loss (gain)		(463	)		—			—			—
Total recognized in net income and other comprehensive income	$	7,542		$	(396	)	$	269		$	(161	)

	Postretirement Benefits
	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
Net Expense Benefit
Service cost	$	—		$	—		$	—		$	5
Interest cost		156			39			626			825
Expected return on plan as sets , net of plan expenses		(97	)		(26	)		(56	)		317
Net periodic expense (benefit)		59			13			570			1,147
Recognized curtailment loss					—			—			—
Recognized settlement gains		—			—			—			—
Net expense (benefit)		59			13			570			1,147
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net loss (gain)		168			—			—			—
Total recognized in net income and other comprehensive income	$	227		$	13		$	570		$	1,147

At December 31, 2006, the Company had no liabilities recorded in the consolidated balance sheet related to the U.S. retiree health and dental plans. The funded status of the U.S. medical plans for early retirees at October 2, 2005 represented the estimated liability of the Company for claims incurred but not reported estimated to be paid during the 2006 fiscal year. At October 2, 2005, the U.S. medical plans for early retirees and the life insurance plan were

F-39

underfunded with an accumulated postretirement benefit obligation (APBO) of $0.8 million and $3.2 million, respectively, and plan assets of $0.1 million and $1.3 million, respectively.

Weighted average assumptions used to determine net cost of the U.S. plans for the 2006, 2005 and 2004 periods were:

	Pension Benefits
	Twelve Months Ended December 31, 2006		Three Months Ended December 31, 2005		Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
Discount rate	5.42	%	5.25	%	5.25	%	5.50	%
Long-term rate of return on plan assets	8.00	%	8.00	%	8.00	%	8.00	%
Long-term rate of compensation increase	N/A		N/A		N/A		N/A
	Postretirement Benefits
	Twelve Months Ended December 31, 2006		Three Months Ended December 31, 2005		Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
Discount rate	5.75	%	5.75	%	5.25	%	6.05	%
Long-term rate of return on plan assets	8.00	%	8.00	%	8.00	%	8.00	%
Long-term rate of compensation increase	N/A		N/A		N/A		N/A

The discount rate is determined by projecting the plan’s expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The expected return is based on historical returns as well as general market conditions.

Weighted average asset allocations in the U.S. plans by asset category were as follows:

	December 31, 2006				December 31, 2005
	Pension Benefits		Postretirement Benefits		Pension Benefits		Postretirement Benefits
Equity securities	50	%	32	%	60	%	30	%
Debt securities	50	%	44	%	40	%	52	%
Cash and cash equivalents	—	%	24	%	—	%	18	%
	October 2, 2005				October 3, 2004
	Pension Benefits		Postretirement Benefits		Pension Benefits		Postretirement Benefits
Equity securities	50	%	28	%	49	%	—	%
Debt securities	47	%	50	%	44	%	90	%
Cash and cash equivalents	3	%	22	%	7	%	10	%

F-40

The objective of the Company’s investment policies and strategies for the U.S. pension plan is to achieve a targeted return over the long term that increases the ratio of assets to liabilities at a level of risk deemed appropriate by the Company while maintaining compliance with the Employee Retirement Income Security Act of 1974 (ERISA), common law fiduciary responsibilities and other applicable regulations and laws. The investment objective is measured over rolling one-, three- and five-year periods. The pension plan invests primarily in passive investments and predominantly in the equity asset class to maximize return on assets. Investment in additional asset classes with differing rates of returns, return variances and correlations is utilized to reduce risk by providing diversification relative to equities. Additionally, the Company diversifies investments within asset classes to reduce the impact of losses in single investments. The pension plan’s asset allocation policy is the principal method for achieving its targeted return. The asset allocation targets are 60% equity securities and 40% debt securities, with alternative investments and variances allowed within certain ranges. Actual asset allocation is monitored monthly relative to established policy targets and ranges. A variance from these ranges triggers a review and rebalancing toward the target allocation with due consideration given to the liquidity of the investments and transaction costs. For the U.S. postretirement benefit plans, the Company seeks high current income and liquidity by investing primarily in a diversified portfolio of high-quality cash, equity and debt securities.

The Company expects to contribute up to $20.0 million to its U.S. pension plan in fiscal year 2007. The Company does not expect to make a contribution to its U.S. postretirement benefit plan in fiscal year 2007.

The following benefit payments are expected to be paid in the following fiscal years related to the Company’s U.S. plans (in thousands). The expected benefit payments are based on the same assumptions used to measure the Company’s benefit obligations at December 31, 2006.

	Pension Benefits		Postretirement Benefits
2007	$	34,584	$	469
2008		4,058		385
2009		3,370		358
2010		3,149		339
2011		3,156		317
2012 to 2016		10,871		1,230

In addition, the Company’s wholly-owned Mexican subsidiaries have recorded liabilities for post-employment benefit plans that have no plan assets in the amount of $0.7 million. The measurement date used to determine pension and postretirement benefit measures for the Company’s plans is December 31. Amounts recognized in accumulated other comprehensive income (loss) for all plans consist of $(0.3) million, $0 and $0 for the 2006, 2005 and 2004 fiscal years, respectively. The estimated net loss for the postretirement benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $0 million.

Note 12 Defined Contribution and Deferred Compensation Plans

The Company has 401(k) Savings Plans for all U.S. employees (and certain employees in foreign countries) that provides for discretionary employer contributions. The 401(k) Savings Plans provide for Company contributions of cash on a sliding scale based on the level of the employee’s contribution. During the twelve months ended December 31, 2006, the three months ended December 31, 2005, and the 2005 and 2004 fiscal years, cash contributions of $3.2 million, $0.9 million, $3.4 million and $2.9 million, respectively were made by the Company to the 401(k) Savings Plans and charged to operations.

Deferred Compensation

The Company uses SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” to account for its deferred compensation plan assets and classifies such assets as trading securities. Accordingly, the Company recognizes gains and losses on its deferred compensation assets into other (income) expense in its results of operations for the current period.

The Company established the Safety Components International, Inc. Executive Deferral Program (the “Deferral Program”) for the benefit of certain key executive employees of SCI. The Deferral Program provides for participants

F-41

to defer any portion of their cash compensation until some future point in time. The participants’ contributions to the Deferral Program are immediately 100% vested. Under the provisions of the Deferral Program, a trust was established to maintain the amounts deferred by the participants. The trust invests participants’ contributions in securities selected by the participants from a list of approved types of securities. Seventy-five percent of the purchase price of the securities was paid with amounts equal to participant deferrals and twenty-five percent was paid with additional Company funds; however, if the participant elects to receive a distribution from his or her plan account, the Company’s contribution to the purchase price must first be repaid. The Company does not pay interest on participants’ accounts, so participants do not receive additional compensation from the Company in the form of interest paid at above market rates. The Company amended the Deferral Program in 2005 to comply with new regulations promulgated in connection with the American Jobs Creation Act of 2004. This amendment had no impact on the Deferral Program’s assets or the participants’ contributions. The assets of the trust are included in “other current assets” and the related amounts due to the participants are included in “sundry accounts payable and accrued expenses” in the accompanying consolidated balance sheets. The amounts included in “other current assets” are $1.0 million and $2.9 million, and the amounts included in “sundry accounts payable and accrued expenses” were $0.8 million and $2.5 million at December 31, 2006 and 2005, respectively.

Note 13 Commitments and Contingencies

Asbestos materials exist at certain of the Company’s facilities, and applicable regulations would require the Company to handle and dispose of these items in a special manner if these facilities were to undergo certain major renovations or if they were demolished. Financial Accounting Standards Board (“FASB”) Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”) provides additional guidance on the recognition and/or disclosure of liabilities related to legal obligations to perform asset retirement activity pursuant to SFAS No. 143, “Accounting for Asset Retirement Obligations.” In accordance with FIN 47, the Company has not recognized a liability associated with these obligations, except as described below, because the fair value of such liabilities cannot be reasonably estimated due to the absence of any plans to renovate, demolish or otherwise change the use of these facilities. The Company expects to maintain these facilities by repair and maintenance activities that would not involve the removal of any of these items and has not identified any need for major renovations caused by technology changes, operational changes or other factors. The Company will recognize a liability in the period in which sufficient information becomes available to reasonably estimate its fair value in accordance with FIN 47.

The Company has designated one of its plants as held-for-sale, and this plant contains some degree of asbestos that would require removal in a special manner. The Company has recorded a reserve for estimated costs to remove the asbestos at December 31, 2006, which is not considered material to the consolidated balance sheet as of that date.

During 2005, the Company’s Board of Directors approved plans to build a technologically advanced 28 million yard vertical denim plant and a dyeing and finishing plant for synthetic fabrics and commission finishing in the city of Jiaxing, Zhejiang Province, China. The denim operation is a joint venture partnership called Cone Denim (Jiaxing) Limited, which is 51% owned by a subsidiary of the Company. The dyeing and finishing operation, Jiaxing Burlington Textile Company Limited, is wholly owned by the Company. At December 31, 2006, the Company had contributed approximately $27.0 million, and had obtained bank financing in China, to construct these facilities estimated to cost approximately $62.0 million. The dyeing and finishing plant and the denim plant are expected to be completed in calendar year 2007. In April 2006, ITG announced its intention to build a 28 million yard vertical denim plant in Nicaragua. The Company expects Cone Denim de Nicaragua to begin operations in calendar year 2008. Additionally, the Company has entered into an agreement to build a technologically advanced cotton-based fabrics and garment manufacturing complex in Da Nang, Vietnam (ITG—Phong Phu Ltd., Co. Joint Venture). ITG - Phong Phu Ltd., Co. Joint Venture is 60% owned by ITG and 40% owned by Phong Phu Corporation. This integrated complex is expected to be operational in calendar year 2008 with an initial dyeing and finishing capacity for fabrics of 30 million yards annually.

As of December 31, 2006, the Company had capital expenditure commitments not reflected as liabilities on the balance sheet of $12.6 million related to Cone Denim (Jiaxing), $4.3 million related to Jiaxing Burlington Textile Company and $3.1 million related to the construction of the Cone Denim de Nicaragua plant. In addition, the Company has other commitments for capital expenditures and to purchase raw materials in the amount of $30.3 million at December 31, 2006. These commitments were not reflected as liabilities on the balance sheet because the Company had not received the related goods or taken title to the assets. As of December 31, 2006, the Company has commitments for funding of its joint venture in South Africa through the combination of machinery and equipment contributions and related in-kind services of approximately $0.7 million and, with respect to the China joint venture

F-42

agreement, the intention, but not an obligation, for funding its share of this China joint venture through possible loans or capital contributions of up to $1.9 million.

The Company and its subsidiaries have sundry claims and other lawsuits pending against them arising in the ordinary course of business. The Company may also be liable for environmental contingencies with respect to environmental cleanups. The Company makes provisions in its financial statements for litigation and claims based on the Company’s assessment of the possible outcome of such litigation and claims, including the possibility of settlement. It is not possible to determine with certainty the ultimate liability of the Company in the matters described above, if any, but in the opinion of management, their outcome should have no material adverse effect upon the financial condition or results of operations of the Company.

Note 14 Derivative Instruments

The Company from time to time utilizes derivative financial instruments to manage changes in cotton and natural gas prices as well as foreign currency exposures. The principal objective of such contracts is to minimize the risks and/or costs associated with financial and global operating activities. The Company does not utilize financial instruments for trading or other speculative purposes. The counterparties to these contractual arrangements are a diverse group of major financial institutions with which the Company may also have other financial relationships. These counterparties expose the Company to the risk of credit loss in the event of nonperformance. However, the Company does not anticipate nonperformance by the other parties.

Cotton is the primary raw material for the Company’s denim fabric manufacturing operations. The Company has an established cotton purchasing program to ensure an uninterrupted supply of appropriate quality and quantities of cotton, to cover committed and anticipated fabric sales and to manage margin risks associated with price fluctuations on anticipated cotton purchases. Derivative instruments used by the Company for cotton purchases are primarily forward purchase contracts and, to a lesser extent, futures and option contracts. The Company qualifies for the “normal purchases exception” under FASB Statements No. 133 and 138 related to its cotton purchase contracts. At December 31, 2006, the fair market value of ITG’s commodity derivative portfolio was $0.1 million.

The Company also uses from time to time forward exchange contracts to purchase Mexican Pesos with U.S. Dollars and U.S. Dollars with Euros. The Company monitors its risk associated with the volatility of certain foreign currencies against its functional currency, the U.S. dollar. The Company uses certain derivative financial instruments to reduce exposure to volatility of foreign currencies. The Company has formally documented all relationships between its derivative financial instruments and corresponding transactions, as well as risk management objectives and strategies for undertaking various derivative financial instruments. Derivative financial instruments are not entered into for trading or speculative purposes. The Company is currently not accounting for these derivative financial instruments using the cash flow hedge accounting provisions of SFAS No. 133, as amended; therefore, the changes in fair values of these derivative financial instruments are included in the consolidated statements of operations.

Certain operating expenses at the Company’s Mexican facilities are paid in Mexican pesos. To reduce exposure to fluctuations in the U.S. dollar and Mexican peso exchange rates, the Company entered into forward contracts and collars at various times during 2006 to buy Mexican pesos for periods and amounts consistent with the related, underlying forecasted cash outflows. At December 31, 2006, the Company had notional value of outstanding forward exchange contracts of $6.8 million and foreign exchange collars ranging from $6.7 million to $6.9 million. Changes in the derivatives’ fair values are recorded in the consolidated statements of operations as other (income) expense.

Certain intercompany sales at the Company’s Greenville, South Carolina facility are denominated and settled in Euros and its operating expenses are paid in U.S. dollars. To reduce exposure to fluctuations in the Euro and U.S. dollar exchange rates, the Company entered into forward contracts in January 2006 to buy U.S. dollars with Euros for periods and amounts consistent with the related, underlying forecasted sales. At December 31, 2006, the Company had outstanding forward exchange contracts that mature between January 2007 and December 2007 to purchase U.S. dollars with an aggregate notional amount of approximately $10.4 million. The fair values of these contracts at December 31, 2006 totaled approximately $(0.7) million, which is recorded as a liability on the Company’s consolidated balance sheet in accrued and other current liabilities. Changes in the derivatives’ fair values are recorded in the consolidated statements of operations as other (income) expense.

F-43

Gains and losses on derivatives are recognized immediately and reported in cost of goods sold ($0.8 million loss in the 2006 fiscal year, $0.2 million gain in the three months ended December 31, 2005, $0.4 million gain in the 2005 fiscal year and $0.5 million loss in the 2004 fiscal year).

Note 15 Business and Credit Concentrations

The primary materials used in the production of the Company’s products include cotton, wool, nylon and polyester. In addition, the Company relies heavily on naturally occurring resources such as fuel, as well as certain chemicals, in the production of its products. The materials and other resources used in the production of the Company’s products are subject to fluctuations in price and availability. For instance, cotton prices and availability vary from season to season depending upon the crop yields. The price of nylon and polyester is influenced by demand, manufacturing capacity and costs, petroleum prices and the cost of polymers used in producing polyester. The Company attempts to pass along certain of these raw material price increases to its customers in order to protect its profit margins. Its success in so doing is dependent upon market dynamics present at the time of any price increases. The Company’s inability to pass on the effects of any such material price increases to its customers may materially adversely affect the Company’s results of operations, cash flows or financial position.

Decreased material or resource availability could impair the Company’s ability to meet its production requirements on a timely basis. Increases in prices of materials or the resources used in the production of products have historically not been able to be, and in the future may not be able to be, passed along to customers of the Company through increases in prices of the Company’s products. If any production delays occur, or if any increases in these prices cannot be passed along to the Company’s customers, it could have a potentially adverse effect on the Company’s results of operations or cash flows.

The raw materials for the Company’s automotive safety fabric operations largely consist of synthetic yarns provided by Invista, Inc. (“Invista”), Pharr Yarns, LLC (“Pharr Yarns”), and Polyamide High Performance GmbH (“PHP”). The primary yarns include nylon, polyester and Nomex. Invista and PHP are the leading suppliers of airbag fabric yarn to both the Company and the airbag cushion market generally. In particular, Invista supplies a majority of the nylon yarn used in the Company’s airbag fabric operations pursuant to purchase orders or releases on open purchase orders. The loss of Invista as a supplier could have a material adverse effect on the Company.

The customer base of the Company’s automotive safety business is highly concentrated, and this division relies on key contractual relationships with several large Tier 1 suppliers. The most significant customers to this division, in alphabetical order, are Autoliv, Inc., Key Safety Systems, Inc., the Takata Group and TRW Automotive Holdings Corp. The loss of any key customer, its direction to a significant number of its contractors to purchase fabric from a producer other than the Company or a material slowdown in the business of one of the key customers could have a material adverse effect on the Company’s results of operations, cash flows or financial position.

The Company’s apparel and textile solutions business is dependent on the success of, and its relationships with, its largest customers. None of the Company’s customers accounted for 10% or more of the Company’s total direct net sales in its 2006 fiscal year. However, the Company estimates that one large customer of the denim fabrics division (Levi Strauss & Co.) directly and indirectly accounted for approximately 12% of the Company’s net sales in the 2006 fiscal year. Levi Strauss is able to direct certain of its garment producers to purchase denim (or other fabric) directly from the Company for use in Levi Strauss products. Although Levi Strauss is not directly liable in any way for the payment by any of those contractors for fabric purchased, the Company believes that continued sales to these customers are dependent upon the Company maintaining a stronger supplier/customer relationship with Levi Strauss, as well as Levi Strauss’ continued success in the marketplace.

Note 16 Stockholders’ Equity

Preferred Stock

The Company had 100,000,000 shares of preferred stock authorized and no shares issued at December 31, 2006. The Company’s board of directors is authorized to provide for the issuance of the preferred stock in the future, with voting powers, dividend rate, redemption terms, repayment, conversion terms, restrictions, rights and such other preferences and qualifications as shall be stated in the resolutions adopted by the board of directors at time of issuance.

F-44

Common Stock

On October 20, 2006, SCI completed the previously announced Merger between ITGH and a wholly-owned subsidiary of SCI. As a part of the Merger, shares of ITGH common stock were exchanged for shares of common stock of SCI at a ratio of 1.4739 shares of ITGH common stock for one share of SCI’s common stock, resulting in the issuance of 11,363,783 additional shares (the “Additional Shares”) of SCI’s common stock. In connection with the Merger, ITGH became a wholly-owned subsidiary of SCI, and SCI changed its name to “International Textile Group, Inc.” Also in connection with the completion of the Merger, and pursuant to the terms of the agreement governing the Merger, the board of directors of SCI declared a common stock dividend of one-ninth (1/9th) of one share of common stock for each share of common stock outstanding immediately prior to the Effective Time, resulting in 612,094 shares (the “Dividend Shares”) being payable to the holders of record of the SCI’s common stock as of the close of business on October 20, 2006. In accordance with the terms and conditions of the Merger, ten percent of the Additional Shares and the Dividend Shares are being held in escrow for a period of up to 18 months to satisfy potential claims for indemnification that may be made. Under U.S. generally accepted accounting principles, the effect of the Dividend Shares will not be recorded in the Company’s consolidated financial statements unless the shares are released from escrow.

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income were as follows (in thousands):

	December 31, 2006			December 31, 2005			October 2, 2005		October 3, 2004
Foreign currency translation adjustments	$	12,725		$	8,034		$	—	$	—
Minimum pension liability adjustment		—			(296	)		—		—
Postretirement benefit plans		(255	)		—			—		—
Unrealized losses on derivatives		(295	)		—			—		—
Total	$	12,175		$	7,738		$	—	$	—

Note 17 Stock-Based Compensation

Under the Company’s Equity Incentive Plan, the Company is authorized to award restricted nonvested shares of common stock, options to purchase common stock, or Performance Unit/Share awards that are dependent upon achievement of specified performance goals and are payable in common stock and cash. During fiscal year 2005, 915,000 shares of ITGH restricted nonvested common stock were granted with a grant date fair value of $6.78 per share and vesting requirements of 50% in the 2005 fiscal year and 12.5% in each of the subsequent four fiscal years. During fiscal year 2005, 925,000 stock options were granted with an exercise price of $6.78 per share and vesting requirements of 40% in the 2005 fiscal year and 15% in each of the subsequent four fiscal years. Stock options granted have a maximum term of 10 years. In connection with the completion of the Merger, the Company adopted the ITGH Equity Incentive Plan (the “Incentive Plan”) and the ITGH Stock Option Plan for Non-Employee Directors (the “Non-Employee Director Plan”) and provided that outstanding share options thereunder were exercisable for shares of the Company’s common stock on the terms and conditions as were applicable to each award prior to the Merger, after applying the exchange ratio and related adjustments set forth in the merger agreement. As a result, as of October 20, 2006, there were options to purchase 597,081 shares of the Company’s common stock outstanding under the Incentive Plan, and options to purchase 33,587 shares of the Company’s common stock outstanding under the Non-Employee Director Plan, each having an exercise price of $10.10 per share. No future option grants are permitted to be made under either of these plans. In addition, of the 11,363,783 shares of common stock issued to the former ITGH stockholders, 612,220 shares (with a converted grant date fair value of $9.99 per share) are shares of restricted stock that were issued in exchange for shares of ITGH restricted stock held by officers and employees and are subject to vesting criteria consistent with the terms of the equity awards originally made by ITGH.

F-45

The weighted-average fair value of unvested stock options granted at the date of the Merger was $6.87 and was estimated at the date of grant using a Black Scholes option pricing model with the following weighted average assumptions: expected volatility of 43%, a risk free interest rate of 4.76%, dividend yields of 0%; and a remaining expected life of the options of 4.7 years. The Company’s policy is to issue shares upon exercise of stock options from newly issued shares.

F-46

Activity related to restricted common stock for the periods indicated was as follows:

	Number of Shares		Weighted Average Grant- Date Fair Value
Nonvested at October 3, 2004	—		$	—
Granted	620,700			9.99
Vested	(310,365	)		9.99
Forfeited	—			—
Nonvested at October 2, 2005	310,335			9.99
Granted	—			—
Vested	—			—
Forfeited	(6,784	)		9.99
Nonvested at December 31, 2005	303,551			9.99
Granted	—			—
Vested	(75,452	)		9.99
Forfeited	(4,748	)		9.99
Nonvested at December 31, 2006	223,351		$	9.99

ITGH stock option activity for the periods indicated was as follows:

	Number of Shares		Weighted Average Exercise Price
Balance at October 3, 2004	—		$	—
Granted	654,782			10.10
Exercised	—
Forfeited	—			—
Expired	—
Balance at October 2, 2005	654,782			10.10
Granted	—			—
Exercised	—			—
Forfeited	(13,435	)		10.10
Expired	—			—
Balance at December 31, 2005	641,347			10.10
Granted	3,358			10.10
Exercised	—
Forfeited	(18,268	)		10.10
Expired	—
Balance at December 31, 2006	626,437		$	10.10

At December 31, 2006, the weighted average remaining contractual life of outstanding ITGH options was 4.5 years. At December 31, 2006, December 31, 2005 and October 2, 2005, the number of ITGH options exercisable was 342,693, 256,539 and 256,539, respectively, and the weighted average exercise price of those options was $10.10. At December 31, 2006, aggregate intrinsic values of ITGH stock options were as follows: outstanding options, $1.4 million; options currently exercisable, $0.8 million; and options expected to vest, $0.6 million.

F-47

On May 18, 2001, the Safety Components International, Inc. 2001 Stock Option Plan (the “SCI Option Plan”) became effective. The SCI Option Plan provided for the issuance of options to purchase up to an aggregate of 900,000 shares of SCI’s common stock to key officers, employees, directors and consultants of SCI or its affiliates. Options to purchase a total of 510,100 shares of common stock at a fair market price of $8.75 per share (subject to adjustment in certain circumstances), which vest ratably over a period of three years from the date of grant on May 18, 2001, were granted by the Compensation Committee to 22 employee participants and to the outside directors under the SCI Option Plan. Additional options to purchase 190,000 shares of common stock at a fair market price of $6.71 per share, which vest ratably over a period of three years from the date of grant on April 1, 2002, were granted by the Compensation Committee to employees and outside directors. All options expire on October 31, 2010. At the time all outstanding options were granted, the Company applied the principles of APB Opinion No. 25 in accounting for employee stock option plans (the intrinsic value method). All stock options granted had an exercise price equal to the fair market value of the underlying common stock at the date of grant. Accordingly, under APB Opinion No. 25, no compensation cost was recognized in the Company’s financial statements in prior periods. During the quarter ended September 27, 2003, a change of control occurred and, as a result, under the provisions of the SCI Option Plan all options vested immediately and the exercise prices of a certain subset of the options were automatically changed to $0.01 per share (the “modified options”). This change in exercise price constituted a modification of the SCI Option Plan. Additionally, the modification resulted in an increased value for the modified options (the “incremental fair value”). The fair values of the original options were based upon the Black-Scholes option-pricing model, and were estimated on the date of grant with the following assumptions used for grants in fiscal years 2003 and 2002, respectively: risk free interest rate of 4.79 and 5.45 percent; zero percent dividends; expected lives of 6.0 years for each grant; and expected volatility of 80.9 and 188.0 percent. The fair values of the options granted at May 18, 2001 and April 1, 2002 were $4.26 and $6.44 per share, respectively. As a result of the change of control described above, the incremental fair value of the modified options is estimated immediately before their terms are modified and on the date of modification. The fair values for the modified options were also based on the Black-Scholes option-pricing model, with the following assumptions used: risk free interest rate of 0.99 percent; zero percent dividends; expected life of 0.5 years; expected volatility of 83.7 percent; and an exercise price of $0.01 and $8.75. The incremental fair value of the modified options was $7.38. Under the SCI Option Plan, 352,600 shares remain available for future awards.

SCI stock option activity for the periods indicated was as follows:

	Number of Shares		Weighted Average Exercise Price
Balance at December 2, 2005	264,900		$	8.24
Granted	—			—
Exercised	—			—
Forfeited	—			—
Expired	—			—
Balance at December 31, 2005	264,900			8.24
Granted	—			—
Exercised	(122,000	)		7.96
Forfeited	142,900			8.47
Expired	—			—
Balance at December 31, 2006	—		$	—

The 122,000 options exercised in 2006 had an aggregate intrinsic value of $0.8 million.

Total stock based compensation expense charged to income was as follows (in thousands):

F-48

	Twelve Months Ended December 31, 2006		Three Months Ended December 31, 2005		Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
A mortization of restricted stock	$	739	$	194	$	3,102	$	—
Cash bonuses to cover the income tax effects of individuals’ restricted stock grants		453		1		2,134		—
Stock option expense		126		—		—		—
Total	$	1,318	$	195	$	5,236	$	—

Unrecognized compensation cost at December 31, 2006 was $1.7 million for stock options and $2.1 million for restricted common stock awards. These costs are expected to be recognized over a weighted average period of 2.75 years. Unrecognized compensation cost related to restricted common stock was $2.9 million at December 31, 2005 and $3.1 million at October 2, 2005.

Note 18 Reconciliation to Diluted Earnings per Share

The following data show the amounts used in computing earnings per share and the effect on net income (loss) from continuing operations and the weighted average number of shares of dilutive potential common stock (in thousands). The weighted average number of shares for all periods has been adjusted to reflect the conversion of ITGH shares at the exchange ratio of 1.4739 resulting from the Merger.

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
Income (loss) from continuing operations	$	(36,079	)	$	(3,708	)	$	8,687	$	5,631
Effect of dilutive securities:
Convertible notes		—			—			274		—
Numerator for diluted earnings per share	$	(36,079	)	$	(3,708	)	$	8,961	$	5,631
Weighted-average number of common shares used in basic earnings per share		15,395			12,431			9,767		9,109
Effect of dilutive securities:
Convertible notes		—			—			814
Weighted-average number of common shares and dilutive potential common shares used in diluted earnings per share		15,395			12,431			10,581		9,109

F-49

The following shares that could potentially dilute basic earnings per share in the future were not included in the diluted earnings per share computations because their inclusion would have been antidilutive (in thousands).

	December 31, 2006	December 31, 2005	October 2, 2005	October 3, 2004
Contingently issuable shares in escrow	1,291	—	—	—
Stock options	110	391	—	—
Nonvested stock	95	109	—	—
Convertible notes	—	—	—	480
	1,496	500	—	480

Note 19 Related Party Transactions

The Company pays fees to W.L. Ross & Co. LLC for management services each quarter. Such fees amounted to $2.0 million in 2006, $0.5 million in the three months ended December 31, 2005, $2.0 million in fiscal year 2005, and $0.0 in fiscal year 2004.

On December 2, 2005, as described in Note 2, Zapata made a capital contribution to the Company in the aggregate amount of $1.0 million for the purpose of the Company paying bonuses to the Company’s executive officers and other key employees for their efforts in connection with the attempts to sell the Company and to provide management with an appropriate incentive to remain with the Company during the pendency of the stock purchase transaction.

The Company enters into various related party transactions in the normal course of business with its unconsolidated affiliated companies (see Note 5). The Company purchased denim and yarn from Parras Cone under a transfer pricing arrangement that was a part of the Commercial Agreement between Parras Cone, Cone Denim LLC and its joint venture partner, CIPSA, prior to the acquisition of the remaining 50% interest in Parras Cone on June 30, 2006. Purchases of denim and yarn from Parras Cone were $12.7 million and $11.3 million for the years ended October 2, 2005 and October 3, 2004, respectively. Purchases of denim and yarn for the three month period ended December 31, 2005 were $0.3 million. During the first six months of the fiscal year ended December 31, 2006, purchases were $1.6 million. The Company received $5.0 million and $3.3 million in marketing fees from Parras Cone and $1.8 million and $0.5 million in management fees for production management, cotton buying, administrative support and engineering services for the years ended October 2, 2005 and October 3, 2004, respectively (including $0.8 million received in fiscal year 2005 as prepayment of management fees for fiscal year 2006). Marketing fees and management fees received from Parras Cone for the quarter ended December 31, 2005 were $0.9 million and $0.3 million respectively. During the period ended December 31, 2006, marketing fees from Parras Cone were $2.3 million and management fees were $0.6 million. At October 2, 2005 and October 3, 2004, the Company had amounts due to Parras Cone recorded in accounts payable of $0.3 million and $3.4 million, respectively. Amounts due to Parras Cone recorded in accounts payable for the year ended December 31, 2005 were $0.5 million. During the 2005 fiscal year ended October 2, 2005, the Company purchased raw materials in the amount of $29.2 million and $6.0 million from Summit Yarn LLC and Unifi Textured Polyester, LLC, respectively, and had accounts payable due to Summit Yarn LLC of $1.1 million. Purchases of raw materials from Summit Yarn, LLC were $5.7 million for the quarter ended December 31, 2005 and had accounts payable due of $1.1 million. Purchases of raw materials from Summit Yarn, LLC for the year ended December 31, 2006 were $31.0 million and accounts payable due were $2.3 million. During the 2004 fiscal year ended October 3, 2004, the Company purchased raw materials in the amount of $35.8 million and $10.6 million from Summit Yarn LLC and Unifi Textured Polyester, LLC, respectively, and had accounts payable due of $2.0 million and $1.4 million, respectively.

Note 20 Segment and Other Information

In 2006, the Company had seven reportable segments for which separate financial information was available and upon which operating results are evaluated on a timely basis to assess performance and to allocate resources: automotive airbag cushions, automotive airbag fabrics, bottom-weight woven apparel fabrics, government uniform fabrics, interior furnishings, commission finishing and development stage. The automotive airbag cushions segment consists of airbag cushions that are produced by cutting and assembling airbag fabric and components. The automotive airbag fabrics segment consists of fabrics sold to airbag manufacturers as well as a wide array of fabrics

F-50

for consumer and industrial uses. The bottom-weight woven apparel fabrics segment includes woven denim fabrics, synthetic fabrics, and worsted and worsted wool blend fabrics. The government uniform fabrics segment includes woven worsteds, wool blend and printed cotton fabrics primarily for both dress and battle fatigue U.S. military uniforms. Products included in the interior furnishings segment are contract fabrics and upholstery for the residential and commercial markets. The commission finishing segment performs commission textile printing and finishing services for customers primarily focusing on decorative interior furnishings and specialty prints. The development stage segment includes start-up costs on international initiatives in China (denim and synthetic apparel fabrics and commission finishing plants), Nicaragua (denim apparel fabrics) and Vietnam (cotton knit apparel fabrics). The all other segment includes transportation services and other miscellaneous items that do not meet segment reporting guidelines and thresholds.

Sales, income (loss) from continuing operations before income taxes and total assets for the Company’s reportable segments are presented below (in thousands). The data presented for the automotive airbag cushions and automotive airbag fabrics reportable segments relates to SCI and has been included with the Company’s results beginning December 3, 2005 (see Note 2). The Company evaluates performance and allocates resources based on profit or loss before interest, restructuring charges, certain unallocated corporate expenses, other income (expense) and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at cost. Intersegment net sales for the periods ended December 31, 2006, December 31, 2005, October 2, 2005 and October 3, 2004 were primarily attributable to bottom-weight woven apparel fabrics segment sales of $9.7 million, $2.3 million, $11.2 million and $6.2 million, respectively, and automotive fabrics segment sales of $12.0 million, $0.7 million, $0 and $0, respectively.

F-51

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005			Forty-seven Weeks Ended October 3, 2004
Net Sales:
Automotive Airbag Cushions	$	173,183		$	10,053		$	N/A		$	N/A
Automotive Airbag Fabrics		57,326			3,161			N/A			N/A
Bottom-weight Woven Apparel Fabrics		409,013			88,288			529,319			451,322
Government Uniform Fabrics		44,522			12,165			46,328			48,072
Interior Furnishings		36,418			8,805			41,115			35,854
Commission Finishing		21,683			5,879			27,481			19,596
Development Stage		0			0			0			0
All Other		386			67			401			339
		742,531			128,418			644,644			555,183
Intersegment sales		(21,615	)		(2,996	)		(11,178	)		(6,229	)
	$	720,916		$	125,422		$	633,466		$	548,954
Income (loss) from Continuing Operations Before Income Taxes, Equity in Income (losses) of Unconsolidated Affiliates and Minority Interest:
Automotive Airbag Cushions	$	5,653		$	(533	)	$	N/A		$	N/A
Automotive Airbag Fabrics		(1,992	)		(724	)		N/A			N/A
Bottom-weight Woven Apparel Fabrics		2,387			291			23,894			21,230
Government Uniform Fabrics		4,245			2,123			4,911			969
Interior Furnishings		656			64			(4,136	)		(2,398	)
Commission Finishing		(2,431	)		(268	)		(246	)		1,189
Development Stage		(4,595	)		(344	)		(1,268	)		0
Total reportable segments		3,923			609			23,155			20,990
Corporate expenses		(21,098	)		(3,599	)		(9,739	)		(7,543	)
Expenses associated with certain share transactions		(4,350	)		(2,965	)		—			—
Stock-based compensation and related cash bonus expense		(1,318	)		(195	)		(5,236	)		—
Gain on disposal of assets		769			1,276			2,432			1,302
Restructuring and impairment charges		(11,602	)		407			(6,949	)		—
Special termination benefit charges		(3,227	)		—			—			—
Settlement/curtailment gain on retiree medical plans		321			—			8,153			—
Other income (expense)		4,364			(308	)		(3,748	)		(5,456	)
	$	(32,218	)	$	(4,775	)	$	8,068		$	9,293

F-52

	December 31, 2006		December 31, 2005		October 2, 2005		October 3, 2004
Total Assets
Automotive Airbag Cushions	$	81,441	$	76,382	$	N/A	$	N/A
Automotive Airbag Fabrics		31,425		32,742		N/A		N/A
Bottom-weight Woven Apparel Fabrics		216,395		169,891		185,678		224,812
Government Uniform Fabrics		20,191		17,173		25,819		17,654
Interior Furnishings		11,790		8,143		7,713		8,738
Commission Finishing		5,936		12,433		7,300		6,123
Development Stage		85,743		6,441		921		—
All Other		16,044		26,836		28,950		33,749
Corporate		23,848		41,125		35,191		40,646
	$	492,813	$	391,166	$	291,572	$	331,722

The following items are included in income (loss) before income taxes (in thousands):

	Twelve Months Ended December 31, 2006			Three Months Ended December 31, 2005			Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
Equity in Income (Loss) of Equity Method Investees
Apparel	$	(834	)	$	(687	)	$	2,714	$	166
Corporate		(13	)		(3	)		0		0
	$	(847	)	$	(690	)	$	2,714	$	166
Depreciation and Amortization
Automotive Airbag Cushions	$	5,837		$	525		$	N/A	$	N/A
Automotive Airbag Fabrics		1,945			155			N/A		N/A
Bottom-weight Woven Apparel Fabrics		2,520			243			514		141
Government Uniform Fabrics		212			23			50		14
Interior Furnishings		208			47			40		1
Commission Finishing		40			9			17		15
Development Stage		81			6			1		—
All Other		245			45			29		17
Corporate		1,324			223			343		76
	$	12,412		$	1,276		$	994	$	264

F-53

The following items are included in the determination of total assets (in thousands):

	Twelve Months Ended December 31, 2006		Three Months Ended December 31, 2005		Twelve Months Ended October 2, 2005		Forty-seven Weeks Ended October 3, 2004
Investments in and Advances to Equity Method Investees
Apparel Fabrics	$	2,041	$	3,784	$	4,557	$	587
Corporate		224		237		—		—
	$	2,265	$	4,021	$	4,557	$	587
Capital Expenditures
Automotive Airbag Cushions	$	4,800	$	658	$	N/A	$	N/A
Automotive Airbag Fabrics		1,152		53		N/A		N/A
Bottom-weight Woven Apparel Fabrics		7,217		360		6,233		5,147
Government Uniform Fabrics		1,153		31		439		229
Interior Furnishings		251		133		473		61
Commission Finishing		558		2		237		645
Development Stage		61,182		2,417		246		—
All Other		1,897		7		1,304		482
Corporate		3,490		1,743		6,975		2,132
	$	81,700	$	5,404	$	15,907	$	8,696

The following table presents sales and long-lived asset information by geographic area as of and for the fiscal years ended December 31, 2006, October 2, 2005 and October 3, 2004 and the three months ended December 31, 2005 (in thousands). The geographic sales dollars are determined generally based on the ultimate destination of the product.

	December 31, 2006		December 31, 2005		October 2, 2005		October 3, 2004
Net Sales:
United States	$	355,024	$	78,544	$	397,755	$	337,889
Mexico		128,869		14,016		108,544		99,609
Germany		92,675		4,745		—		—
Other Foreign		144,348		28,117		127,167		111,456
Long-lived Assets:	$	720,916	$	125,422	$	633,466	$	548,954
United States	$	45,759	$	37,617	$	20,019	$	6,988
Mexico		31,401		6,559		1,218		363
China		55,223		4,504		297		31
Other Foreign		30,961		20,519		20		—
	$	163,344	$	69,199	$	21,554	$	7,382

Note 21 Restructuring Activities and Discontinued Operations

2005 Restructuring Plan

During the fiscal year ended October 2, 2005, the Company began a number of restructuring activities to address difficult market dynamics, including increased Asian imports of apparel products, all with the goal of improving long-term return on investment. As a result of these restructuring activities, the Company recorded restructuring and impairment charges of $6.9 million during the 2005 fiscal year. The major elements of these activities included:

• capacity and workforce reductions in North Carolina and Virginia, including the closing of the Cliffside denim plant in the bottom-weight woven apparel fabrics segment; and

F-54

• consolidation of upholstery and contract jacquards fabrics operations in North Carolina (interior furnishings segment).

The closings, consolidations and workforce reductions outlined above resulted in the elimination of approximately 1,100 jobs in the United States with severance benefits paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service. These activities resulted in a pre-tax charge for restructuring of $7.1 million during the 2005 fiscal year as adjusted by $(0.5) million during the three months ended December 31, 2005 and $(0.6) during the 2006 fiscal year. The components of these charges included the establishment of a $4.2 million reserve for severance and COBRA benefits in the 2005 fiscal year as reduced by $0.5 million, non-cash pension curtailment and settlement charges of $2.1 million in the 2005 fiscal year as reduced by $0.6 million, and $0.4 million in fiscal year 2005 and $0.4 million in the 2006 fiscal for costs paid to relocate and convert equipment to new facilities that was charged to operations as incurred. The Company also recorded an impairment charge of $0.2 million and $0.1 million during fiscal year 2005 and the three months ended December 31, 2005, respectively, related to equipment located at its Cliffside, North Carolina operation.

Following is a summary of activity related to the 2005 restructuring reserves (in millions):

	Severance and COBRA Benefits
2005 restructuring charge	$	4.2
Payments		(0.4	)
Balance at October 2, 2005		3.8
Payments		(1.2	)
Balance at December 31, 2005		2.6
Adjustments		(0.5	)
Payments		(1.9	)
Balance at December 31, 2006	$	0.2

2006 Restructuring Plans

In May 2006, the Company entered into an agreement pursuant to which it agreed to close its Reidsville, North Carolina weaving plant in the interior furnishings segment and transition all future production of U.S. produced mattress fabrics to a leased facility as part of an agreement with Tietex International. The Company received proceeds from the related sale of plant assets of $3.9 million. This restructuring resulted in the elimination of approximately 60 jobs in the United States with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $0.5 million during the 2006 fiscal year. The components of this charge included the establishment of a $0.2 million reserve for severance and COBRA benefits ($0.1 million of payments made as of December 31, 2006), $0.3 million for contract cancellations and costs paid to relocate and convert equipment to new facilities that are charged to operations as incurred.

In August 2006, the Company announced that it would transition production from its Hurt, Virginia dyeing and finishing plant in the bottom-weight woven apparel fabrics segment to other domestic facilities. Synthetic fabric production is being transitioned to the Company’s finishing plant located in Burlington, North Carolina. The Company intends to transfer its worsted finishing operations to its Raeford facility, which presently produces yarn for the worsted fabric. The transition of products and the closing of the Hurt facility is expected to be completed by the third fiscal quarter of 2007. This restructuring resulted in the elimination of approximately 675 jobs, mostly in the United States, with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $3.5 million during the 2006 fiscal year. The components of this charge included the establishment of a $2.7 million reserve for severance and COBRA benefits ($0.4 million of cash payments made as of December 31, 2006) and $0.3 million for costs paid to relocate and convert equipment to new facilities that are charged to operations as incurred. The Company also recorded an impairment charge of $0.5 million during fiscal year 2006 related to equipment located at these facilities.

F-55

In November 2006, the Company announced that it would transition from a 7-day continuous operation to a 3-shift/5-day operation at its White Oak denim plant located in Greensboro, North Carolina (bottom-weight woven apparel fabrics segment). In conjunction with this transition the plant will stop producing open-end yarns in order to further focus on being a niche supplier of premium denims. This restructuring resulted in the elimination of approximately 260 jobs in the United States with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $0.9 million during the 2006 fiscal year for the establishment of a reserve for severance and COBRA benefits (no cash payments made as of December 31, 2006).

In December 2006, the Company announced that it would be transitioning certain administrative functions from its Greenville, South Carolina location, and that it would be undertaking the consolidation of certain manufacturing operations in Germany. Expected costs associated with this restructuring resulted from the planned elimination and/or relocation of approximately 12 jobs in the United States and the planned elimination of approximately 30 jobs in Germany with severance benefits to be paid over periods of up to six months from the date of termination, depending on the affected employee’s length of service to the Company. As a result, the Company recognized a pre-tax charge for restructuring of $1.1 million during the 2006 fiscal year for the establishment of a $1.1 million reserve for severance and benefits, with substantially all of these amounts expected to be paid in 2007. Of the $1.1 million reserve, approximately $0.9 million pertains to the Company’s automotive airbag cushions segment.

Discontinued Operations

In December 2006, the Board of Directors of ITG committed to a plan to exit certain Burlington House businesses within the interior furnishings segment and instructed management to seek potential buyers and negotiate sales of the related product lines or assets. The businesses being exited produced decorative fabrics and mattress fabrics as well as warps and package-dyed yarns for sale to other manufacturers with all production facilities located in Burlington, North Carolina and its surrounding vicinity. The Company recorded a related pre-tax restructuring charge of $2.3 million for severance and COBRA benefits, $0.5 million for costs paid to relocate and convert equipment to new facilities that are charged to operations as incurred as well as pre-tax asset impairment charges totaling $3.7 million. The Company announced in January 2007 that it had reached an agreement to sell certain assets of the mattress fabrics product line by entering into an asset purchase agreement dated January 11, 2007 with Culp, Inc. for $2.5 million in cash and 798,582 shares of Culp’s common stock. Amounts of revenue and pretax income (loss) reported in discontinued operations related to these businesses are $70.8 million and $(14.0) million for the year ended December 31, 2006, $22.0 million and $0.5 million for the three months ended 2005, $90.6 million and $(2.8) million for fiscal 2005 and $88.6 million and $1.7 million for fiscal 2004, respectively. The results of operations related to the Burlington House division are presented as discontinued operations in the consolidated statements of operations for all periods presented. Property, plant and equipment related to the discontinued operations meet the criteria for classification as “Assets held for sale” in the December 31, 2006 consolidated balance sheet under FASB Statement No. 144. The consolidated statements of operations for the fiscal years ended October 2, 2005 and October 3, 2004 have been restated to reflect discontinued operations.

Following is a summary of activity related to the 2006 restructuring reserves (in millions):

	Severance and COBRA Benefits
2006 restructuring charges	$	7.2
Payments		(0.5	)
Balance at December 31, 2006	$	6.7

The 2006 restructuring activity also resulted in pension curtailment charges of $5.6 million recognized in continuing operations and $0.8 million included in discontinued operations during the 2006 fiscal year.

F-56

Note 22 Early Retirement Incentive

In December 2006, the Company announced an early retirement incentive plan for certain salaried employees over age 55. In addition to receiving a severance benefit in accordance with the terms of the Company’s formal severance plan, all employees who elected to participate prior to the deadline of December 29, 2006 would also receive two months additional severance pay plus would be allowed to participate as active employees for one year in the Company’s medical and dental plan after termination. The related benefits accrued under this plan were not considered to be restructuring charges since the plan was voluntary. As a result, ITG recognized a pre-tax charge for early retirement incentive of $3.2 million during the December quarter of the 2006 fiscal year. The components of this charge included the establishment of a $2.6 million reserve for severance and COBRA benefits (no cash payments made as of December 31, 2006) and a non-cash pension curtailment charge of $0.6 million.

Note 23 Unaudited Quarterly Results

Unaudited quarterly financial information for the periods ended December 31, 2006 and 2005 are set forth below (in thousands, except per share data).

F-57

	Quarter Ended
	March 31, 2006		June 30, 2006			September 30, 2006			December 31, 2006
Year Ended December 31, 2006
Net sales	$	186,555	$	185,843		$	187,056		$	161,462
Gross profit		18,656		18,516			15,774			7,236
Income (loss) from:
Continuing operations		3,844		(4,834	)		(12,357	)		(22,732	)
Discontinued operations		5		(2,185	)		805			(12,601	)
Net income (loss)		3,849		(7,019	)		(11,552	)		(35,333	)
Income (loss) per share, basic:
Continuing operations	$	0.25	$	(0.32	)	$	(0.80	)	$	(1.47	)
Discontinued operations		0.00		(0.14	)		0.05			(0.81	)
Net income (loss)	$	0.25	$	(0.46	)	$	(0.75	)	$	(2.28	)
Income (loss) per share, diluted:
Continuing operations	$	0.23	$	(0.32	)	$	(0.80	)	$	(1.47	)
Discontinued operations		0.00		(0.14	)		0.05			(0.81	)
Net income (loss)	$	0.23	$	(0.46	)	$	(0.75	)	$	(2.28	)
	Quarter Ended
	March 31, 2005		June 30, 2005			September 30, 2005			December 31, 2005 (1)
Year Ended December 31, 2005
Net sales	$	184,307	$	166,102		$	143,848		$	125,422
Gross profit		24,334		24,826			14,142			7,674
Income (loss) before extraordinary item from:
Continuing operations		4,557		5,776			(5,453	)		(3,708	)
Discontinued operations		165		(726	)		(943	)		342
Net income (loss)		1,885		5,050			(6,396	)		(3,366	)
Income (loss) per share, basic:
Continuing operations	$	0.50	$	0.57		$	(0.50	)	$	(0.30	)
Discontinued operations		0.02		(0.07	)		(0.09	)		0.03
Income (loss) before extraordinary item	$	0.52	$	0.50		$	(0.59	)	$	(0.27	)
Income (loss) per share, diluted:
Continuing operations	$	0.44	$	0.55		$	(0.50	)	$	(0.30	)
Discontinued operations		0.02		(0.07	)		(0.09	)		0.03
Income (loss) before extraordinary item	$	0.46	$	0.48		$	(0.59	)	$	(0.27	)

(1) The results of operations of SCI have been combined with ITGH’s results beginning December 3, 2005. Results of operations prior to that date include only ITGH’s results. See Note 2 for description of the Merger and the impact of accounting rules and basis of presentation.

The following table presents the results of operations of ITGH for the three month periods ended December 31, 2005 and December 31, 2004, respectively, combined with the results of operations of SCI for the one month periods then ended.

F-58

INTERNATIONAL TEXTILE GROUP, INC. AND SUBSIDIARY COMPANIES

Consolidated Statements of Operations

(amounts in thousands, except per share data)

	Three Months Ended December 31, 2005			Pro Forma Three Months Ended December 31, 2004
				(Unaudited)
Net sales	$	125,422		$	155,392
Cost of goods sold		117,748			143,143
Gross profit		7,674			12,249
Selling and administrative expenses		10,320			14,755
Expenses associated with certain share transactions		2,965			—
Stock-based compensation and related cash bonus expense		195			—
Start-up costs on international initiatives		344			—
Gain on disposal of assets		(1,276	)		(227	)
Settlement/curtailment gain on retiree medical plans		—			(8,153	)
Provision for restructuring and impairment		(407	)		—
Income (loss) from operations		(4,467	)		5,874
Other income (expense):
Interest income		661			67
Interest expense		(947	)		(1,334	)
Other income (expense)		(22	)		1,126
		(308	)		(141	)
Income (loss) from continuing operations before income taxes, equity in income (losses) of unconsolidated affiliates and minority interest		(4,775	)		5,733
Total income tax (expense) benefit		1,731			(2,178	)
Equity in income (losses) of unconsolidated affiliates		(690	)		619
Minority interest in losses of consolidated subsidiaries		26			—
Income (loss) from continuing operations		(3,708	)		4,174
Income (loss) from discontinued operations, net of income tax (expense) benefit of $(193) and $170, respectively		342			(302	)
Net income (loss)	$	(3,366	)	$	3,872
Net income (loss) per common share, basic:
Income (loss) from continuing operations	$	(0.30	)	$	0.38
Income (loss) from discontinued operations		0.03			(0.03	)
	$	(0.27	)	$	0.35
Net income (loss) per common share, diluted:
Income (loss) from continuing operations	$	(0.30	)	$	0.35
Income (loss) from discontinued operations		0.03			(0.03	)
	$	(0.27	)	$	0.32
Weighted average number of shares outstanding, basic		12,431			10,891
Weighted average number of shares outstanding, diluted		12,431			12,364

F-59

Note 24 Subsequent Events

Debt and Preferred Stock Financing

On March 2, 2007, the Company entered into a Debt Exchange Agreement (the “Debt Exchange Agreement”) with WLR II. Pursuant to the Debt Exchange Agreement, the Company, which was a successor obligor with respect to approximately $68 million of indebtedness owed to WLR II (see Note 7), repaid and had discharged its obligations under such indebtedness in exchange for the issuance of an aggregate of 2,719,695 shares of Preferred Stock of the Company.

Also on March 2, 2007, the Company issued and sold an aggregate of 2,000,000 shares of Preferred Stock at a price of $25.00 per share, for a total purchase price of $50.0 million.

On March 8, 2007, the Company announced that it had entered into a Stock Exchange Agreement with WLR III and certain other parties thereto, pursuant to which the Company has agreed to acquire (the “Acquisition”) all of the outstanding shares of BST US Holdings, Inc. (“BST Holdings”) in exchange for the issuance of $84.0 million of Preferred Stock. BST Holdings owns the BST Safety Textiles business (“BST”). BST, based in Maulburg, Germany, is a leading international manufacturer of flat and one piece woven fabrics for automotive air bags as well as narrow fabrics for seat belts and military and technical uses. Completion of the Acquisition occurred in April 2007. The Company does not currently have access to all of the information necessary to disclose the results of operations or a condensed balance sheet for BST at this time.

F-60

International Textile Group, Inc.

and Subsidiary Companies

Schedule II

Schedule II - Valuation and Qualifying Accounts (in thousands)

			Additions
	Beginning Balance		Charged (Credited) to Costs and Expenses			Due to Mergers and Acquisitions		Deductions/ Write-Offs			Ending Balance
For the Forty-seven Weeks ended October 3, 2004:
Allowance for doubtful accounts and anticipated returns	$	3,850	$	(28	)	$	5,000	$	(1,222	)	$	7,600
Valuation allowance for deferred tax assets		—		—			—		—			—
	$	3,850	$	(28	)	$	5,000	$	(1,222	)	$	7,600
For the period from October 4, 2004 to October 2, 2005:
Allowance for doubtful accounts and anticipated returns	$	7,600	$	64		$	—	$	(1,155	)	$	6,509
Valuation allowance for deferred tax assets		—		—			—		—			—
	$	7,600	$	64		$	—	$	(1,155	)	$	6,509
For the period from October 3, 2005 to December 31, 2005:
Allowance for doubtful accounts and anticipated returns	$	6,509	$	255		$	512	$	41		$	7,317
Valuation allowance for deferred tax assets		—		20			669		—			689
	$	6,509	$	275		$	1,181	$	41		$	8,006
For the period from January 1, 2006 to December 31, 2006:
Allowance for doubtful accounts and anticipated returns	$	7,317	$	2,624		$	—	$	(490	)	$	9,451
Valuation allowance for deferred tax assets		689		23,613			27,190		(39	)		51,453
	$	8,006	$	26,237		$	27,190	$	(529	)	$	60,904

EX-2.1

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

Dated as of August 29, 2006

by and among

SAFETY COMPONENTS INTERNATIONAL, INC.,

SCI MERGER SUB, INC.

and

INTERNATIONAL TEXTILE GROUP, INC.

TABLE OF CONTENTS

		Page
ARTICLE I        The Merger		1
Section 1.1	The Merger	1
Section 1.2	Closing	1
Section 1.3	Effective Time	2
Section 1.4	Effects of the Merger	2
Section 1.5	Certificate of Incorporation and By-laws of the Surviving Corporation	2
Section 1.6	Board of Directors of the Surviving Corporation	2
Section 1.7	Certificate of Incorporation and By-laws of SCI	2
Section 1.8	Pre-Merger SCI Stock Dividend	3
ARTICLE II        Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates		4
Section 2.1	Effect on Capital Stock	4
Section 2.2	Exchange of Certificates	5
Section 2.3	Dissenting Shares	8
Section 2.4	ITG Stock Options	8
ARTICLE III        Representations and Warranties		10
Section 3.1	Representations and Warranties of ITG	10
Section 3.2	Representations and Warranties of SCI and Merger Sub	27
ARTICLE IV        Covenants Relating to Conduct of Business		43
Section 4.1	Conduct of Business	43
ARTICLE V        Additional Agreements		46
Section 5.1	Preparation of the Form S-4 and SCI Proxy Statement	46
Section 5.2	ITG Stockholder Consent; Notice to ITG Stockholders	47
Section 5.3	Access to Information; Confidentiality	47
Section 5.4	Reasonable Best Efforts	47
Section 5.5	Indemnification, Exculpation and Insurance	48
Section 5.6	Fees and Expenses	50
Section 5.7	Public Announcements	50
Section 5.8	Tax Treatment	50
Section 5.9	Inclusion of Fairness Opinion	50

-i-

TABLE OF CONTENTS

(continued)

		Page
ARTICLE VI        Conditions Precedent		50
Section 6.1	Conditions to Each Party’s Obligation To Effect the Merger	50
Section 6.2	Conditions to Obligations of SCI and Merger Sub	51
Section 6.3	Conditions to Obligations of ITG	52
ARTICLE VII        Termination, Amendment and Waiver		53
Section 7.1	Termination	53
Section 7.2	Amendment	54
Section 7.3	Extension; Waiver	54
ARTICLE VIII        SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION		54
Section 8.1	Survival of Representations and Warranties; Indemnification Limitations	54
Section 8.2	Indemnification	55
ARTICLE IX        General Provisions		60
Section 9.1	Authorization	60
Section 9.2	Notices	61
Section 9.3	Definitions	62
Section 9.4	Interpretation	70
Section 9.5	Counterparts	70
Section 9.6	Entire Agreement; No Third-Party Beneficiaries	70
Section 9.7	Governing Law	70
Section 9.8	Assignment	70
Section 9.9	Severability	70

-ii-

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of August 29, 2006 (this “Agreement”), is made and entered into by and among Safety Components International, Inc, a Delaware corporation (“SCI”), SCI Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of SCI (“Merger Sub”), and International Textile Group, Inc., a Delaware corporation (“ITG”).

RECITALS:

A. The Special Committee of the Board of Directors of SCI (the “SCI Special Committee”) and the Special Committee of the Board of Directors of ITG (the “ITG Special Committee”) have each approved this Agreement and the merger of Merger Sub with and into ITG (the “Merger”), upon the terms and subject to the conditions set forth in this Agreement;

B. The SCI Special Committee has recommended to the Board of Directors of SCI that it approve this Agreement and the Merger and, upon such recommendation, the Board of Directors of SCI has so approved this Agreement and the Merger. The ITG Special Committee has recommended to the Board of Directors of ITG that it approve this Agreement and the Merger and, upon such recommendation, the Board of Directors of ITG has so approved this Agreement and the Merger;

C. SCI, Merger Sub and ITG desire to make certain representations and warranties and enter into certain covenants in connection with the Merger and also to prescribe various conditions to the consummation thereof; and

D. For Federal income tax purposes, it is intended that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the rules and regulations promulgated thereunder and that this Agreement constitute a plan of reorganization;

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties hereto agree as follows:

ARTICLE I

THE MERGER

Section 1.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the “DGCL”), Merger Sub shall be merged with and into ITG at the Effective Time. At the Effective Time, the separate existence of Merger Sub shall cease and ITG shall continue as the surviving corporation in the Merger (as such, the “Surviving Corporation”).

Section 1.2 Closing. The closing of the Merger (the “Closing”) will take place at 10:00 a.m. on a date to be specified by the parties (the “Closing Date”), which shall be no later than the second Business Day after satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), unless another time or date is agreed to by the parties hereto. The Closing will be held at the offices of Jones Day in Atlanta, Georgia.

1

Section 1.3 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on or after the Closing Date, the parties shall file a certificate of merger in respect of the Merger (the “Certificate of Merger”) executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State, or at such later time as is specified in the Certificate of Merger (the time the Merger becomes effective being hereinafter referred to as the “Effective Time”).

Section 1.4 Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, all property of ITG and Merger Sub shall vest in the Surviving Corporation, and all liabilities and obligations of ITG and Merger Sub shall become liabilities and obligations of the Surviving Corporation.

Section 1.5 Certificate of Incorporation and By-laws of the Surviving Corporation.

(a) The Certificate of Incorporation of ITG, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law, except that, as of the Effective Time, the Certificate of Incorporation of ITG shall be amended to reflect that the name of the Surviving Corporation shall be “ITG, Inc.”

(b) The By-laws of ITG, as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law, except that, as of the Effective Time, the By-laws of ITG shall be amended to reflect that the name of the Surviving Corporation shall be “ITG, Inc.”

Section 1.6 Board of Directors of the Surviving Corporation. The directors of ITG immediately prior to the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

Section 1.7 Certificate of Incorporation and By-laws of SCI.

(a) On or prior to the date hereof, the SCI Special Committee (and the Board of Directors of SCI, upon the recommendation of the SCI Special Committee) has approved the amendment and restatement of the Certificate of Incorporation of SCI in the form attached to this Agreement as Exhibit A, with such amendment and restatement to be effective as of the Effective Time (the “SCI Charter Amendment”), and the Merger, and has recommended to the stockholders of SCI that the SCI Charter Amendment be adopted by the stockholders of SCI. SCI acknowledges and agrees that such approval and recommendation by the SCI Special Committee constitutes the approval of the sole “Continuing Director,” as such term is used and defined in Article Sixth of SCI’s Certificate of Incorporation, as amended, to the SCI Charter Amendment and the Merger for purposes of said Article Sixth and, therefore, the voting provisions of Article Sixth, Section 1 of SCI’s Certificate of Incorporation are not applicable to any of the transactions contemplated by this Agreement.

2

(b) On or prior to the date hereof, the SCI Special Committee (and the Board of Directors of SCI, upon the recommendation of the SCI Special Committee) has approved an amendment to the By-laws of SCI, effective as of the Effective Time, to reflect that the name of SCI shall, at the Effective Time, be changed to “International Textile Group, Inc.”

Section 1.8 Pre-Merger SCI Stock Dividend. Prior to the Effective Time, the SCI board of directors shall declare a common stock dividend, payable to holders of record of SCI Common Stock immediately prior to the Effective Time, of one-ninth (1/9^th) of one share of SCI Common Stock for each share of SCI Common Stock outstanding on such record date (with the total number of shares of SCI Common Stock so payable pursuant to such stock dividend to be rounded up to the nearest whole number). Such stock dividend shall be payable immediately prior to the Effective Time, subject to and in accordance with the terms hereof. The additional shares of SCI Common Stock so payable pursuant to such stock dividend are referred to herein as the “SCI Dividend Shares”. As promptly as practicable following the Closing Date, SCI will cause to be deposited with the Escrow Agent a certificate or certificates representing the SCI Dividend Shares (the SCI Dividend Shares so held by the Escrow Agent referred to as the “SCI Escrow Shares”), which certificates will be registered in the name of the Escrow Agent and will be held by the Escrow Agent on behalf of the record holders of the SCI Common Stock immediately prior to the Effective Time in an escrow fund for the purpose of satisfying any Indemnity Claims on behalf of SCI pursuant to Section 8.2 (the SCI Escrow Shares, together with any dividends thereon (whether payable in additional shares of SCI Common Stock, cash or other property), and any earnings on any such cash dividends, added thereto and held pursuant to the Escrow Agreement, being referred to herein as the “SCI Escrow Fund”). The SCI Escrow Fund will be held and distributed in accordance with the terms of the Escrow Agreement. The SCI Stockholder Representative shall have all voting rights with respect to the SCI Escrow Shares for so long as such shares are held in the SCI Escrow Fund, provided that, at any meeting of stockholders of SCI and with respect to any proposal put to a vote of the holders of SCI Common Stock, the SCI Stockholder Representative shall vote, or withhold such vote of, the SCI Escrow Shares then held in the SCI Escrow Fund in the same proportion as all other outstanding shares of SCI Common Stock (excluding the ITG Escrow Shares and shares of SCI Common Stock held by Affiliates of WL Ross & Co. LLC) that are voted in respect of such proposal.

3

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT

CORPORATIONS; EXCHANGE OF CERTIFICATES

Section 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of ITG or the holder of any shares of capital stock of Merger Sub:

(a) Capital Stock of Merger Sub. Each issued and outstanding share of capital stock of Merger Sub shall remain issued, outstanding and unchanged as a validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.

(b) Cancellation of Treasury Stock. Each issued and outstanding share of common stock, par value $0.01 per share, of ITG (“ITG Common Stock”) that is directly owned by ITG, SCI or Merger Sub shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(c) Conversion of ITG Common Stock. Each issued and outstanding share (other than shares to be canceled in accordance with Section 2.1(b)) of ITG Common Stock (including shares of ITG Common Stock that are shares of “Restricted Stock” under the ITG Stock Plan) shall be converted into the right to receive, subject to the terms of this Agreement and the Escrow Agreement, fully paid and nonassessable shares of the common stock, par value $0.01, of SCI (“SCI Common Stock”) at a ratio (the “Exchange Ratio”) of one share of SCI Common Stock for every 1.4739 shares of ITG Common Stock (the shares of SCI Common Stock into which the ITG Common Stock are to be so converted being referred to herein as the “Merger Consideration”). Shares of SCI Common Stock so received in respect of shares of ITG Common Stock that at the Effective Time are shares of “Restricted Stock” under the ITG Stock Plan shall, following the Effective Time, be subject to any restrictions or limitations on transfer and vesting with respect thereto that were applicable to such shares of ITG Common Stock immediately prior to the Effective Time. As of the Effective Time, all such shares of ITG Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any such shares shall cease to have any rights with respect thereto, except the right, subject to Section 2.1(d) below, to receive the Merger Consideration and any cash in lieu of fractional shares of SCI Common Stock to be issued or paid in consideration therefor upon surrender of such certificate in accordance with Section 2.2, without interest.

(d) ITG Escrow Fund. As promptly as practicable following the Closing Date, SCI shall cause to be deposited with the Escrow Agent a certificate or certificates issued in the name of the Escrow Agent representing a number of shares of SCI Common Stock (rounded up to the nearest whole number) equal to one-tenth (1/10^th) of the total number of shares of SCI Common Stock otherwise payable to the holders of ITG Common Stock as the Merger Consideration at the Effective Time (such shares being referred to herein as the “ITG Escrow Shares,” and the ITG Escrow Shares, together with any dividends thereon (whether payable in additional shares of SCI Common Stock, cash or other property), and any earnings on any such cash dividends, added thereto and held pursuant to the Escrow Agreement, being referred to herein as the “ITG Escrow Fund”). The ITG Escrow Fund will be held by the Escrow Agent, on behalf of the holders of ITG Common Stock immediately prior to the Effective Time, for the purpose of satisfying any Indemnity Claims on behalf of ITG pursuant to Section 8.2. The ITG Escrow Fund will be held and distributed in accordance with the terms of the Escrow Agreement. The ITG Stockholder Representative shall have all voting rights with respect to the ITG Escrow Shares for so long as such shares are held in the ITG Escrow Fund, provided that, at any

4

meeting of stockholders of SCI and with respect to any proposal put to a vote of the holders of SCI Common Stock, the ITG Stockholder Representative shall vote, or withhold such vote of, the ITG Escrow Shares then held in the ITG Escrow Fund in the same proportion as all other outstanding shares of SCI Common Stock (excluding the SCI Escrow Shares and shares of SCI Common Stock held by Affiliates of WL Ross & Co. LLC) that are voted in respect of such proposal. The Merger Consideration, less the ITG Escrow Shares, is referred to herein as the “Closing Date Merger Consideration.”

(e) Anti-Dilution Provisions. In the event SCI or ITG changes (or establishes a record date for changing) the number of shares of SCI Common Stock or ITG Common Stock, respectively, issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, recapitalization, subdivision, reclassification, combination, exchange of shares or similar transaction with respect to the outstanding SCI Common Stock or ITG Common Stock, and the record date therefor shall be prior to the Effective Time, then the Exchange Ratio shall be proportionately adjusted to reflect such stock split, stock dividend, recapitalization, subdivision, reclassification, combination, exchange of shares or similar transaction. In addition, in the event SCI or ITG pays (or establishes a record date for payment of) an extraordinary dividend on, or makes any other extraordinary distribution in respect of, the SCI Common Stock or ITG Common Stock, respectively, then the Exchange Ratio shall be appropriately adjusted to reflect such dividend or distribution. Notwithstanding the foregoing, no such adjustment shall be made in respect of the dividend of SCI Common Stock contemplated by and described in Section 1.8 above.

Section 2.2 Exchange of Certificates.

(a) Exchange Agent. Prior to the Effective Time, SCI shall enter into an agreement with such bank or trust company as may be designated by SCI and be reasonably satisfactory to ITG (the “Exchange Agent”), which shall provide that SCI shall deposit with the Exchange Agent as of the Effective Time, for the benefit of the holders of shares of ITG Common Stock, for exchange in accordance with this Article II, through the Exchange Agent, certificates representing the shares of SCI Common Stock included in the Closing Date Merger Consideration issuable pursuant to Section 2.1 in exchange for outstanding shares of ITG Common Stock. SCI shall make available to the Exchange Agent from time to time as required after the Effective Time cash necessary to pay dividends and other distributions in accordance with Section 2.2(c) on shares of SCI Common Stock included in the Closing Date Merger Consideration, and to make payments in lieu of any fractional shares of SCI Common Stock in accordance with Section 2.2(e).

(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of ITG Common Stock (the “Certificates”) whose shares were converted into the right to receive the Merger Consideration pursuant to Section 2.1: (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in

5

such form and have such other provisions as SCI may reasonably specify) and (ii) instructions for use in surrendering the Certificates in exchange for certificates representing the Closing Date Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor: (i) a certificate representing that number of whole shares of SCI Common Stock that such holder has the right to receive pursuant to the provisions of Section 2.1(c) in respect of such Certificate, less the pro rata portion (based upon the number of shares of ITG Common Stock represented by such Certificate in relation to the total number of shares of ITG Common Stock issued and outstanding immediately prior to the Effective Time) of ITG Escrow Shares attributable to the shares of ITG Common Stock formerly represented by such Certificate, (ii) certain dividends or other distributions on shares of SCI Common Stock, if any, included as a part of the Closing Date Merger Consideration in accordance with Section 2.2(c), (iii) cash in lieu of any fractional share of SCI Common Stock in accordance with Section 2.2(e), and (iv) distributions of the pro rata portion of the ITG Escrow Fund distributable in respect of the shares of ITG Common Stock formerly represented by such Certificate, subject to and in accordance with the terms of the Escrow Agreement, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of ITG Common Stock that is not registered in the transfer records of ITG, a certificate representing the proper number of shares of SCI Common Stock included in the Closing Date Merger Consideration may be issued to a person other than the person in whose name the Certificate so surrendered is registered, and the pro rata portion of the ITG Escrow Fund issuable in respect of such Certificate may be issued in the name of a person other than the person in whose name the Certificate so surrendered is registered, in each case, only if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such issuance shall pay any transfer or other taxes required by reason of the issuance of shares of SCI Common Stock to a person other than the registered holder of such Certificate or establish to the satisfaction of SCI that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.2(b), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive (i) upon such surrender, the Closing Date Merger Consideration that the holder thereof has the right to receive pursuant to the provisions of this Article II, certain dividends or other distributions, if any, on shares included in the Closing Date Merger Consideration in accordance with Section 2.2(c), cash in lieu of any fractional share of SCI Common Stock in accordance with Section 2.2(e) and (ii) subject to and in accordance with the terms of the Escrow Agreement, the pro rata portion of the ITG Escrow Fund attributable to shares of ITG Common Stock formerly represented by such Certificate. No interest shall be paid or will accrue on any cash payable to holders of Certificates pursuant to the provisions of this Article II.

(c) Distributions with Respect to Unsurrendered Certificates. No dividends or other distributions with a record date after the Effective Time with respect to SCI Common Stock included as a part of the Closing Date Merger Consideration shall be paid to the holder of any unsurrendered Certificate with respect to the shares of SCI Common Stock represented thereby, and no cash payment in lieu of fractional shares of SCI

6

Common Stock shall be paid to any such holder pursuant to Section 2.2(e), until the holder of record of such Certificate shall surrender such Certificate in accordance with this Article II. Subject to the effect of applicable escheat or similar laws, following surrender of any such Certificate there shall be paid to the holder of the certificate representing whole shares of SCI Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of SCI Common Stock included as a part of the Closing Date Merger Consideration, and the amount of any cash payable in lieu of a fractional share of SCI Common Stock to which such holder is entitled pursuant to Section 2.2(e) and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole shares of SCI Common Stock included as a part of the Closing Date Merger Consideration.

(d) No Further Ownership Rights in ITG Common Stock. The shares of SCI Common Stock included as a part of the Closing Date Merger Consideration and issued upon the surrender for exchange of Certificates in accordance with the terms of this Article II (including any cash paid pursuant to this Article II), together with the ITG Escrow Shares and any other amounts payable out of the ITG Escrow Fund in accordance with the terms of the Escrow Agreement, shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the shares of ITG Common Stock previously represented by such Certificates, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of ITG Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Exchange Agent for any reason, they shall be canceled and exchanged as provided in this Article II.

(e) No Fractional Shares.

(i) No certificates or scrip representing fractional shares of SCI Common Stock shall be issued upon the surrender for exchange of Certificates formerly representing ITG Common Stock. No dividend or distribution of SCI shall relate to such fractional share interests and such fractional share interests will not entitle the owner thereof to vote or to any rights of a shareholder of SCI.

(ii) Notwithstanding any other provision of this Agreement, each holder of shares of ITG Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of SCI Common Stock (after taking into account all Certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount, less the amount of any withholding taxes that may be required thereon, equal to such fractional part of a share of SCI Common Stock multiplied by the per share closing price of SCI Common Stock on the Closing Date, as such price is quoted on the OTC-BB maintained by NASD.

7

(f) No Liability. None of SCI, Merger Sub, ITG, the Exchange Agent or the Escrow Agent shall be liable to any person in respect of any Merger Consideration, any dividends or distributions with respect thereto, or any cash in lieu of fractional shares of SCI Common Stock, in each case delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate shall not have been surrendered prior to three years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration, any dividends or distributions payable to the holder of such Certificate or any cash payable in lieu of fractional shares of SCI Common Stock pursuant to this Article II, would otherwise escheat to or become the property of any Governmental Entity), any such Merger Consideration, dividends or distributions in respect thereof or such cash shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto.

(g) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by SCI, the posting by such person of a bond in such reasonable amount as SCI may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificate the Closing Date Merger Consideration and any unpaid dividends and distributions in respect thereof and any cash in lieu of fractional shares of SCI Common Stock, in each case pursuant to this Agreement.

(h) Distributions Pursuant to the Escrow Agreement. No distribution of ITG Escrow Shares or other amounts out of the ITG Escrow Fund shall be made by the Escrow Agent in respect of shares represented by any Certificate unless and until the holder thereof has complied with the provisions of this Section 2.2 entitling such holder to receive its share of the Closing Date Merger Consideration in respect of such Certificate.

Section 2.3 Dissenting Shares.

(a) Notwithstanding anything in this Agreement to the contrary, shares of ITG Common Stock issued and outstanding immediately prior to the Effective Time held by any person who has the right to demand, and who properly demands, an appraisal of such shares (the “Dissenting Shares”) in accordance with Section 262 of the DGCL (or any successor provision) shall not be converted into the right to receive the Merger Consideration unless such holder fails to perfect or otherwise loses such holder’s right to such appraisal, if any. If, after the Effective Time, such holder fails to perfect or loses any such right to appraisal, each such share of ITG Common Stock of such holder shall be treated as a share of ITG Common Stock that had been converted as of the Effective Time into the right to receive, subject to Section 2.1(d) above, the Merger Consideration in accordance with Section 2.1(c). At the Effective Time, any holder of Dissenting Shares shall cease to have any rights with respect thereto, except the rights provided in Section 262 of the DGCL (or any successor provision) and as provided in the immediately preceding sentence.

8

(b) ITG shall provide to SCI prompt notice of any demands received by ITG for appraisal of ITG Common Stock and shall keep ITG reasonably informed with respect to all negotiations and proceedings with respect to any such demands.

Section 2.4 ITG Stock Options.

(a) As soon as practicable following the date of this Agreement, the Compensation Committee of the Board of Directors of ITG shall adopt such resolutions or take such other actions as may be required to effect the following:

(i) to adjust the terms of all outstanding options to purchase shares of ITG Common Stock (each, an “ITG Stock Option”), whether vested or unvested, as necessary to provide that, at the Effective Time, each ITG Stock Option outstanding immediately prior to the Effective Time shall be amended and converted into an option to acquire, on the same (except as provided in this Section 2.4) terms and conditions as were applicable under the ITG Stock Option, the number of shares of SCI Common Stock (rounded down to the nearest whole share) determined by dividing the number of shares of ITG Common Stock subject to such ITG Stock Option immediately prior to the Effective Time by the Exchange Ratio, at an exercise price per share of SCI Common Stock equal to (A) the exercise price per share of ITG Common Stock otherwise purchasable pursuant to such ITG Stock Option immediately prior to the Effective Time multiplied by (B) the Exchange Ratio (each, as so adjusted, an “Adjusted Option”); provided, that such exercise price shall be rounded up to the nearest whole cent; and

(ii) to make such other changes to the International Textile Group, Inc. Equity Incentive Plan (the “ITG Stock Plan”) as ITG may reasonably determine in good faith to be appropriate to give effect to the Merger and the terms of this Section 2.4.

(b) The adjustments provided herein with respect to any ITG Stock Options shall be and are intended to be effected in a manner which is consistent with Sections 409A and 424(a) of the Code.

(c) At the Effective Time, by virtue of the Merger and without the need of any further corporate action (other than that described in Section 2.4(a) above), each ITG Stock Option outstanding at the Effective Time shall be converted into an option relating to SCI Common Stock following the Effective Time so as to substitute SCI Common Stock for ITG Common Stock purchasable thereunder (subject to the adjustments required by this Section 2.4 after giving effect to the Merger). Prior to the Effective Time, SCI shall take all necessary actions for the conversion of ITG Stock Options, including the reservation for issuance of shares of SCI Common Stock in a number at least equal to the number of shares of SCI Common Stock that will be subject to the Adjusted Options.

9

(d) As soon as practicable following the Effective Time, SCI shall prepare and file with the SEC a registration statement on Form S-8 (or another appropriate form) registering a number of shares of SCI Common Stock equal to the number of shares subject to the Adjusted Options. Such registration statement shall be kept effective (and the current status of the prospectus or prospectuses required thereby shall be maintained) at least for so long as any Adjusted Options or any unsettled awards granted under the ITG Stock Plan after the Effective Time, may remain outstanding.

(e) As soon as practicable after the Effective Time, SCI shall deliver to the holders of ITG Stock Options appropriate notices setting forth such holders’ rights pursuant to the ITG Stock Plan and the agreements evidencing the grants of such ITG Stock Options and that such ITG Stock Options and agreements shall be assumed by SCI and shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 2.4 after giving effect to the Merger).

(f) Except as otherwise expressly provided in this Section 2.4 and except to the extent required under the respective terms of ITG Stock Options, all restrictions or limitations on transfer and vesting with respect to ITG Stock Options awarded under the ITG Stock Plan or any other plan, program or arrangement of ITG or any of its Subsidiaries, to the extent that such restrictions or limitations shall not have already lapsed, and all other terms thereof, shall remain in full force and effect with respect to such options after giving effect to the Merger and the assumption by SCI as set forth above.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1 Representations and Warranties of ITG. Except as expressly set forth in the disclosure schedule delivered by ITG to SCI prior to the execution of this Agreement (the “ITG Disclosure Schedule”), ITG represents and warrants to SCI and Merger Sub as follows:

(a) Organization, Standing and Corporate Power. Each of ITG and its Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and authority to carry on its business as now being conducted. Each of ITG and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each additional jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions in which the failure to be so qualified or licensed or to be in good standing individually or in the aggregate is not reasonably likely to have a Material Adverse Effect on ITG. ITG has made available to SCI prior to the execution of this Agreement complete and correct copies of its Certificate of Incorporation and By-laws, as amended to date. The respective minute books of ITG and its Subsidiaries accurately reflect all material corporate actions of their respective stockholders, members, owners, directors and/or managers, as applicable.

10

(b) Subsidiaries. Section 3.1(b) of the ITG Disclosure Schedule sets forth each Subsidiary of ITG as of the date hereof and its jurisdiction of incorporation or formation. All of the outstanding shares of capital stock of, or other equity interests in, each Subsidiary of ITG have been validly issued and are fully paid and non-assessable and are owned directly or indirectly by ITG, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, “Liens”) and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests. Except for the capital stock or other ownership interests of its Subsidiaries, as of the date hereof, ITG does not beneficially own directly or indirectly any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.

(c) Capital Structure. The authorized capital stock of ITG consists of 25,100,000 shares, including 25,000,000 shares of ITG Common Stock and 100,000 shares of preferred stock, par value $0.01 per share. As of the date of this Agreement, (i) no shares of ITG preferred stock were issued and outstanding, (ii) 16,749,456 shares of ITG Common Stock were issued and outstanding (including 902,500 shares of ITG Common Stock that are shares of “restricted stock” issued pursuant to the ITG Stock Plan), with the holders of, and amounts of, such ITG Common Stock set forth in Section 3.1(c) of the ITG Disclosure Schedule, (iii) no shares of ITG Common Stock were held by ITG in its treasury, (iv) 2,009,935 shares of ITG Common Stock were reserved for issuance pursuant to the ITG Stock Plan (including 895,500 shares reserved for issuance pursuant to ITG Stock Options currently outstanding under such ITG Stock Plan), with the holders of, and amount and exercise price, of such outstanding ITG Stock Options set forth in Section 3.1(c) of the ITG Disclosure Schedule and (v) an ITG Stock Option to purchase 50,000 shares of ITG Common Stock has been issued pursuant to The ITG Stock Option Plan for Nonemployee Directors and is outstanding, with the holder of, and amount and exercise price, of such outstanding ITG Stock Option set forth in Section 3.1(c) of the ITG Disclosure Schedule. All of the issued and outstanding shares of ITG Common Stock have been duly authorized and are validly issued, fully paid, and non-assessable. Except as set forth above or in Section 3.1(c) of the ITG Disclosure Schedule, (x) there are not issued, reserved for issuance or outstanding (A) any shares of capital stock or other voting securities of ITG, (B) any securities of ITG or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of, or other ownership interests in, ITG or any of its Subsidiaries, (C) any warrants, calls, options or other rights to acquire from ITG or any Subsidiary of ITG, and no obligation of ITG or any Subsidiary of ITG to issue, any capital stock or other voting securities of, or other ownership interests in, or any securities convertible into or exchangeable or exercisable for capital stock or other voting securities of, or other ownership interests in, ITG or any of its Subsidiaries and (y) as of the date of this Agreement, there are not any outstanding obligations of ITG or any Subsidiary of ITG to repurchase, redeem or otherwise acquire any such securities or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. Except as set forth in Section 3.1(c) of the ITG Disclosure Schedule, ITG is not a party to any voting agreement with respect to the voting of any such securities.

11

(d) Power and Authority; Due Authorization. ITG has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by ITG and the consummation by ITG of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of ITG, subject to receipt of the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of ITG Common Stock to adopt and approve this Agreement and the Merger (the “ITG Stockholder Approval”). This Agreement has been duly executed and delivered by ITG and, assuming the due authorization, execution and delivery by each of the other parties hereto, constitutes the valid and binding obligation of ITG, enforceable against ITG in accordance with its terms.

(e) Noncontravention; Governmental Approvals. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under the Certificate of Incorporation or By-laws of ITG. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of ITG or any of its Subsidiaries under, (i) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, obligation, instrument, permit, concession, franchise, license or similar authorization applicable to ITG or any of its Subsidiaries or their respective properties or assets or (ii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to ITG or any of its Subsidiaries or their respective properties or assets, other than any such conflicts, violations, defaults, rights, losses or Liens that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect on ITG. No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with, any Federal, state, local or foreign government, any court, administrative, regulatory or other governmental agency, commission, body or authority or any non-governmental self-regulatory agency, commission, body or authority (each a “Governmental Entity”) is required by ITG or any of its Subsidiaries in connection with the execution and delivery of this Agreement by ITG or the consummation by ITG of the Merger or the other transactions contemplated by this Agreement, except for (i) the filing of a premerger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and any applicable filings and approvals under similar foreign antitrust or competition laws and regulations and (ii) such other consents, approvals, orders or authorizations the failure of which to be made or obtained, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect on ITG.

(f) Information Supplied. None of the information supplied or to be supplied by ITG specifically for inclusion in the registration statement on Form S-4 to be filed with the Securities and Exchange Commission (the “SEC”) by SCI in respect of the SCI

12

Common Stock to be issued pursuant to the Merger (such registration statement, including both the prospectus and the proxy statement to be furnished to the holders of the SCI Common Stock included therein, in each case, together with any amendments or supplements thereto, being referred to as the “Form S-4”) will, at the time the Form S-4 becomes effective under the Securities Act of 1933 (the “Securities Act”), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.

(g) Financial Statements.

(i) The consolidated financial statements (including, in each case, any notes thereto) set forth in Section 3.1(g) of the ITG Disclosure Schedule (the “ITG Financial Statements”) were prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) applied (except as may be indicated in the notes thereto) on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto), and each presented fairly in all material respects the consolidated financial condition, results of operations and cash flows of ITG and its consolidated Subsidiaries as of the respective dates thereof and for the respective periods indicated therein (subject, in the case of unaudited interim statements, to normal year-end adjustments which did not or would not, individually or in the aggregate, be material).

(ii) As of July 2, 2006, ITG did not have any liabilities, obligations or loss contingencies of any nature (whether absolute, accrued, contingent or otherwise) of a type required by GAAP to be reflected in the October 2, 2005 audited consolidated balance sheet of ITG and its Subsidiaries, or in the notes thereto, which are not fully reflected or reserved against therein or fully disclosed in a note thereto, other than any such liabilities, obligations and loss contingencies which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ITG.

(h) Absence of Certain Changes or Events. Since July 2, 2006, except as (i) specifically contemplated by this Agreement or (ii) disclosed in Section 3.1(h) of the ITG Disclosure Schedule, ITG and its Subsidiaries have conducted their respective businesses in the ordinary course consistent with past practice and, since such date, there has not been (A) any Material Adverse Effect with respect to ITG, (B) any event or development that would, individually or in the aggregate, reasonably be expected to prevent or materially delay the performance of this Agreement by ITG, or (C) any action taken by ITG or any of its Subsidiaries during the period from July 2, 2006 through the date of this Agreement that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a breach of Section 4.1.

(i) Legal Proceedings. There are no pending or, to ITG’s Knowledge, threatened, legal, administrative or arbitration proceedings, claims, actions or, to ITG’s Knowledge, governmental investigations or inquiries of any nature (collectively, an “ITG Proceeding”) which ITG has received written notice of, or to ITG’s Knowledge, which

13

ITG has received oral notice of, against ITG or any ITG Subsidiary or to which ITG or any ITG Subsidiary’s assets are or may be subject, either (i) challenging the validity or propriety of any of the transactions contemplated by this Agreement, or (ii) which reasonably could be expected to adversely affect the ability of ITG to perform under this Agreement, or have a Material Adverse Effect on ITG.

(j) Compliance with Applicable Laws.

(i) ITG and each ITG Subsidiary is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, Permits, ordinances, rules, guidelines, policies, judgments, orders or decrees applicable to it, its properties and assets, its business, its conduct of business and its relationship with its employees (collectively, “Laws”), and neither ITG nor any ITG Subsidiary has received any written notice to the contrary that has not been resolved, except for such instances of noncompliance as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on ITG.

(ii) ITG and each ITG Subsidiary has all material permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations (collectively, the “Permits”) with, all Governmental Entities that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted in all material respects. All such Permits are in full force and effect and, to the Knowledge of ITG, no suspension or cancellation of any such Permit is threatened or will result from the consummation of the transactions contemplated by this Agreement, subject to obtaining the approvals set forth in Section 3.1(e) and such exceptions as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on ITG.

(iii) Neither ITG nor any ITG Subsidiary has received any written notification from any Governmental Entity or industry regulator that has not been resolved (i) asserting that ITG or any ITG Subsidiary is not in compliance with any Laws in any material respect; (ii) revoking or suspending any Permit that is material to the operations of ITG or any ITG Subsidiary; (iii) requiring or threatening to require ITG or any ITG Subsidiary, or indicating that ITG or any ITG Subsidiary may be required, to enter into a cease and desist order, agreement or memorandum of understanding with any Governmental Entity purporting to restrict or limit the operations of ITG or any ITG Subsidiary in any material respect; or (iv) directing, restricting or limiting, or purporting to direct, restrict or limit, the operations of ITG or any ITG Subsidiary in any material respect (any such notice, communication, memorandum, agreement or order described in this sentence is hereinafter referred to as a “Regulatory Agreement”). Neither ITG nor any ITG Subsidiary has received any Regulatory Agreement that has not been resolved nor has ITG or any ITG Subsidiary consented to or entered into any Regulatory Agreement that is currently in effect.

14

(k) Voting Requirements. The ITG Stockholder Approval is the only vote of the holders of any class or series of ITG’s capital stock necessary to approve and adopt this Agreement and the transactions contemplated hereby.

(l) State Takeover Statutes. The ITG Special Committee, and the Board of Directors of ITG (upon the recommendation of the ITG Special Committee), has unanimously approved the terms of this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement. The provisions of Section 203 of the DGCL do not apply to SCI or its Affiliates in connection with the Merger and the other transactions contemplated by this Agreement and, to the Knowledge of ITG, no other state takeover statute is applicable to the Merger or the other transactions contemplated hereby.

(m) Brokers. No broker, investment banker, financial advisor or other person, other than SunTrust Robinson Humphrey, the fees, commissions and expenses of which will be paid by ITG, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses, in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of ITG.

(n) Opinion of Financial Advisor. The Special Committee of the Board of Directors of ITG has received the opinion of SunTrust Robinson Humphrey, dated the date of this Agreement, to the effect that, as of such date, the Exchange Ratio is fair from a financial point of view to the stockholders of ITG (other than the Controlling Entity and its Affiliates, to whom SunTrust Robinson Humphrey expresses no opinion), a signed copy of which has been delivered to SCI, it being understood that neither SCI nor Merger Sub may rely upon such opinion. Such opinion of SunTrust Robinson Humphrey constitutes the opinion of an “Independent Financial Advisor,” as such term is used and defined in Section 7.2(b) of each of the Shareholders Agreement, dated as of May 2, 2005, among ITG and its shareholders party thereto, and the Shareholders Agreement, dated as of June 8, 2005, between ITG and the Pension Benefit Guaranty Corporation.

(o) Employee Benefits.

(i) Section 3.1(o) of the ITG Disclosure Schedule sets forth a true and complete list of each “employee benefit plan,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and any other executive compensation plan or agreement, bonus plan, incentive compensation plan, stock option or other equity compensation plan, deferred compensation plan or agreement, severance pay and other change of control agreement, employee stock purchase plan, and fringe benefit plan sponsored, maintained, or contributed to by ITG or any of its Subsidiaries for the benefit of any current or former employee of ITG or a Subsidiary of ITG (such plans are collectively referred to as the “ITG Benefit Plans” or “ITG Plans”). Section 3.1(o) of the ITG Disclosure Schedule identifies, in separate categories, ITG Benefit Plans that are (i) subject to Sections 4063 and 4064 of ERISA (“ITG Multiple Employer Plans”), (ii) multiemployer plans (as defined in Section

15

4001(a)(3) of ERISA) (“ITG Multiemployer Plans”) or (iii) welfare plans providing continuing benefits after the termination of employment (other than health plan continuation coverage as required by Section 4980B of the Code and at the former employee’s own expense). As of the date of this Agreement and at all times since August 2, 2004, ITG has not had any ERISA Affiliates other than the Subsidiaries. For purposes of this Agreement, with respect to either ITG or SCI, the term “ERISA Affiliate” shall mean any trade or business (whether or not incorporated) other than ITG (or SCI, as the case may be), which is treated with ITG (or SCI, as the case may be) as a single employer under Section 414(b), (c), (m) or (o) of the Code.

(ii) Each ITG Benefit Plan is in writing and ITG has previously furnished to SCI or made available to SCI a true and complete copy of each ITG Plan document, including all amendments thereto, and (if applicable) a true and complete copy of (i) each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the most recently filed Internal Revenue Service (“IRS”) Form 5500, including all attachments thereto, (iv) the most recently received IRS determination letter for each such ITG Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such ITG Plan. Neither ITG nor any Subsidiary has any express or implied commitment (i) to create or incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual or (iii) to modify, change or terminate any ITG Plan, other than with respect to a modification, change or termination required by ERISA or the Code.

(iii) Except as set forth on Schedule 3.1(o) of the ITG Disclosure Schedule, with respect to all employees and former employees (including their dependents and spouses) of ITG and its Subsidiaries, neither ITG nor any Subsidiary of ITG currently has or has ever had in the past three years, any obligation to contribute to (or any other liability with respect to) any funded or unfunded “employee welfare benefit plan,” as defined in Section 3(1) of ERISA, whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retirees or current or future former employees (including dependents and spouses), except for continued medical benefit coverage for former employees, their spouses and other eligible dependents at their expense as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or similar state laws.

(iv) Each of the ITG Benefit Plans has been maintained in all material respects in accordance with its terms and all provisions of applicable laws and regulations. All amendments and actions required to bring each of the ITG Benefit Plans into conformity in all material respects with all of the applicable provisions of ERISA and other applicable laws and regulations have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Closing Date. To the Knowledge of ITG and the ITG Subsidiaries there has been no violation of ERISA with respect

16

to the filing of applicable returns, reports, documents and notices regarding any of the ITG Benefit Plans with the Secretary of Labor or the Secretary of the Treasury or the furnishing of such notices or documents to the participants or beneficiaries of the ITG Benefit Plans which could result in any material liability to ITG or any ITG Subsidiary.

(v) Each ITG Benefit Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (“ITG Pension Plan”) and which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (or, in the case of a plan maintained pursuant to the adoption of a master or prototype plan document, the sponsor of the master or prototype plan has obtained from the National Office of the IRS an opinion letter to the effect that the form of the master or prototype document is acceptable for the establishment of a qualified retirement plan); and, notwithstanding any disclosure in Section 3.1(o) of the ITG Disclosure Schedule or elsewhere, to the Knowledge of ITG, nothing has occurred that would adversely affect the qualified status of such ITG Plan.

(vi) Except as set forth on Schedule 3.1(o) of the ITG Disclosure Schedule, neither ITG nor any Subsidiary or any organization to which any is a successor or parent corporation, has divested any business or entity maintaining or sponsoring a defined benefit pension plan having unfunded benefit liabilities (within the meaning of Section 4001(a)(18) of ERISA) or transferred any such plan to any person or entity other than ITG or any Subsidiary during the period beginning on August 2, 2004 and ending on the Closing Date. There has been no “reportable event” as that term is defined in Section 4043 of ERISA and the regulations thereunder with respect to any of the ITG Benefit Plans subject to Title IV of ERISA which would require the giving of notice, or any event requiring notice to be provided under Section 4063(a) of ERISA.

(vii) Neither ITG nor any Subsidiary of ITG has engaged in a transaction with respect to any ITG Benefit Plan that has subjected or could reasonably be expected to subject ITG or any Subsidiary of ITG to a tax or penalty imposed by either Section 4975 of the Code or Section 406 or 502 of ERISA in an amount which would be material. Neither ITG nor any Subsidiary of ITG is currently liable or has previously incurred any liability for any material tax or penalty arising under Chapter 43 of Subtitle D of the Code or Section 502 of ERISA, and no fact or event exists which could reasonably be expected to give rise to any such liability. Neither ITG nor any Subsidiary of ITG has been required to post any security under Section 307 of ERISA or Section 401(a)(29) of the Code; and no fact or event exists which could reasonably be expected to give rise to any such lien or requirement to post any such security.

(viii) As of the date of this Agreement there is no pending or, to the Knowledge of ITG, threatened litigation relating to the ITG Benefit Plans, other than routine claims for benefits in the ordinary course of plan administration.

17

(ix) All contributions and premiums required by law or by the terms of any ITG Benefit Plan or any agreement relating thereto have been timely made (without regard to any waivers granted with respect thereto) and, except as disclosed on Section 3.1(o) of the ITG Disclosure Schedule, no accumulated funding deficiencies exist in any of the ITG Benefit Plans subject to Section 412 of the Code.

(x) The liabilities of each ITG Benefit Plan that has been terminated or otherwise wound up, have been fully discharged or are being fully discharged in compliance with applicable law.

(xi) All material benefit plans, contracts and arrangements covering non-U.S. employees (“Non-U.S. ITG Benefit Plans”) are listed in Section 3.1(o) of the ITG Disclosure Schedule. Each Non-U.S. ITG Benefit Plan as to which ITG or a Subsidiary of ITG is the plan sponsor or a contributing employer (excluding any governmental social insurance schemes or plans) has been maintained in substantial compliance with its terms and in all material respects with the requirements of the laws and regulations of any applicable jurisdiction. Except as disclosed in Section 3.1(o) of the ITG Disclosure Schedule, neither ITG nor any of its Subsidiaries has any current or projected material liability in respect of post-employment or post-retirement health or medical benefits for non-U.S. employees. All contributions, payments or liabilities accrued under each Non-U.S. ITG Benefit Plan, determined in accordance with prior funding and accrual practices, as adjusted to include proportional accruals for the period ending on the Closing Date, will be discharged and paid or remitted and accrued in any case consistent with prior practice, (A) on or prior to the Closing Date or (B) in the case of a funded Non-U.S. ITG Benefit Plan in respect to which payments are required to be made to an insurance company, trust or support fund or other independent entity, within such time as ITG or its Subsidiary normally makes such payments.

(xii) Each trust maintained or contributed to by ITG or a Subsidiary which is intended to be qualified as a voluntary employees’ beneficiary association exempt from federal income taxation under Section 501(a) and 501 (c)(9) of the Code has received a favorable determination letter from the IRS that it is so qualified and so exempt, and to the Knowledge of ITG and its Subsidiaries no fact or event has occurred since the date of such determination by the IRS that could reasonably be expected to adversely affect such qualified or exempt status.

(xiii) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement will (A) result in any payment (including, without limitation, severance, retention bonus or golden parachute) becoming due to any current or former director, employee or independent contractor of ITG or any Subsidiary, (B) increase any benefits otherwise payable under any ITG Benefit Plan, or (C) result in the acceleration of the time of payment or vesting of any benefit. No payments or benefits under any ITG Benefit Plan or other agreement with ITG or any Subsidiary of ITG will be

18

considered an excess parachute payment under Section 280G of the Code or result in a deduction limitation under Section 162(m) of the Code.

(xiv) Section 3.1(o) of the ITG Disclosure Schedule sets forth each ITG Benefit Plan that is subject to Section 409A of the Code.

(p) Environmental Matters.

(i) The use by ITG and its Subsidiaries and, to the Knowledge of ITG, the use by any predecessor entities, of properties, and the occupancy and operation thereof is, and at all times has been, in material compliance with, and has not been and is not in material violation under, any Environmental Law, other than any such instances of noncompliance that have been previously resolved, and instances of noncompliance to the extent such instances of noncompliance are reserved against on the most recent balance sheet included in the ITG Financial Statements.

(ii) ITG and its Subsidiaries have (1) completed and filed all reports and filings in a materially timely fashion, (2) obtained all material required approvals and licenses, and (3) generated, maintained and retained all required data, documentation and records required by the Environmental Laws or any code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder.

(iii) Neither ITG nor any of its Subsidiaries nor, to the Knowledge of ITG, any predecessor entity has permitted the emission, spill, release, or discharge or disposal (whether intentional or not) of a Hazardous Substance or disposal of Solid Waste on properties it currently owns or has formerly owned or operated, nor, to the Knowledge of ITG, is there a basis for any ITG Proceeding by any person or governmental authority alleging a violation of or liability under any Environmental Law, including, without limitation, relating to migration of Hazardous Substances from any property currently or formerly owned or operated by ITG or its Subsidiaries or any predecessor entities, in any such case, that is reasonably likely to result in any material liability to ITG or any of its Subsidiaries or any of their respective shareholders or other owners under any applicable Environmental Law or any common law.

(iv) Neither ITG nor its Subsidiaries nor, to the Knowledge of ITG, any predecessor entity has received any notice or communication from any third party, governmental authority or private citizen acting in the public interest asserting a claim or threatening to assert a claim that has not been resolved concerning the violation or potential or alleged violation of, or failure to comply with, any Environmental Law in any material respect.

(v) Neither ITG nor its Subsidiaries nor, to the Knowledge of ITG, any predecessor entity has transported or arranged for the treatment, storage, or disposal of any Hazardous Substances in connection with the business of ITG,

19

any of its Subsidiaries or any predecessor entity (including, without limitation, for disposal to disposal facilities not owned or operated by ITG, any ITG Subsidiary or any predecessor entities to ITG or any ITG Subsidiary) that is reasonably likely to lead to any material liability to ITG or any of its Subsidiaries or any of their respective shareholders under any applicable Environmental Law or any common law.

(q) Real Property; Real Property Leases.

(i) Section 3.1(q)(i) of the ITG Disclosure Schedule contains a brief description of all real property owned by ITG and any of its Subsidiaries (the “Owned Real Property”). Each of ITG and its Subsidiaries, as applicable, has good and marketable fee simple title (free and clear of any Liens other than Permitted Liens) to the Owned Real Property.

(ii) Section 3.1(q)(ii) of the ITG Disclosure Schedule sets forth a list of each lease or similar agreement under which ITG or any of its Subsidiaries is lessee of, or holds or operates, any real property owned by any third person and which provide for future annual payments of more than $240,000 and which may not be canceled upon ninety (90) or fewer days’ notice without any liability, penalty or premium, other than a nominal cancellation fee or charge (collectively, the “Real Property Leases” and the property leased under such Real Property Leases is referred to herein, together with the Owned Real Property, as the “Real Property”). Each of ITG and its Subsidiaries, as applicable, enjoys, peaceful and undisturbed possession of the premises leased by them under the Real Property Leases. The Real Property Leases are in full force and effect and no event has occurred which, with the giving of notice or the passage of time or both would constitute a default of, or violation by, the tenant thereunder. To the Knowledge of ITG, no default of, or violation by, the landlord has occurred under any of representations, covenants or other terms of the Real Property Leases nor has any event occurred which, with the giving of notice or the passage of time or both would constitute a default of, or violation by, the landlord thereunder.

(r) Taxes. Except as set forth in Section 3.1(r) of the ITG Disclosure Schedule:

(i) Each Affiliated Group has timely filed or caused to be filed all material foreign, federal, state and local income, franchise, excise, real and personal property and other Tax returns and reports (including, but not limited to, those filed on a consolidated, combined or unitary basis) for each taxable period during which any of ITG and its Subsidiaries was a member of the group, or requests for extensions to file such returns and reports have been timely filed.

(ii) All of the foregoing returns and reports are true, correct, and complete in all material aspects. All material Taxes owed by any Affiliated Group (whether or not shown on any tax return) have been timely paid for each taxable period during which any of ITG and its Subsidiaries was a member of the group or are reserved against on the most recent balance sheet included in the ITG Financial Statements.

20

(iii) Each Affiliated Group has declared on their Tax returns all positions taken therein that could give rise to a substantial underpayment of United States Federal Income Tax within the meaning of Section 6662 of the Code (or any corresponding provision of state or local laws) for each taxable period during which any of ITG and its Subsidiaries was a member of the group. Each Affiliated Group has paid, or made adequate provision in accordance with GAAP in the applicable Financial Statements for, all material Taxes payable in respect of all periods ending on or prior to the date of this Agreement and will have made or provided for all material Taxes payable in respect of all periods ended on or prior to the Effective Time.

(iv) No director or officer (or employee responsible for Tax matters) of ITG and its Subsidiaries have been notified in writing by any jurisdiction that the jurisdiction believes that any Affiliated Group which ITG and its Subsidiaries was a member of the group were required to file any Tax return that was not filed. Neither ITG nor its Subsidiaries have been a member of a group with which they have filed or been included in a combined, consolidated or unitary income Tax return other than a group the common parent of which was International Textile Holdings, Inc. (“Holdco”).

(v) All material deficiencies proposed as a result of any audits have been paid or settled. There are no material claims or assessments pending against any Affiliated Group for any taxable period during which any of ITG and its Subsidiaries was a member of the group for any alleged deficiency in any Tax, and neither ITG nor any of its Subsidiaries have been notified in writing of any proposed material Tax claims or assessments against any Affiliated Group for any taxable period during which any of ITG and its Subsidiaries was a member of the group. Any Affiliated Group for any taxable period during which any of ITG and its Subsidiaries was a member of the group have complied with all applicable laws relating to the payment, collection and withholding of material amounts on account of Taxes, have duly and timely withheld, collected and paid over to the appropriate taxing authority all material amounts required to be so withheld and paid under all applicable laws, and have duly and timely filed all material Tax returns with respect to such withheld Taxes, within the time prescribed under any applicable law. ITG and its Subsidiaries have made available to SCI true and complete copies of all Tax returns of ITG and its Subsidiaries for taxable periods ending within three (3) years of the date of this Agreement.

(vi) Neither ITG nor any of its Subsidiaries has any material liability for the Taxes of any person (other than ITG and its Subsidiaries) (A) under Reg. 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by contract, or (D) otherwise.

21

(vii) Any tax-sharing agreement of which ITG and its Subsidiaries is a party to is terminated as of the Closing Date and shall have no further effect for any taxable year (whether the current year, a future year, or a past year).

(viii) Holdco shall include the income of ITG and its Subsidiaries (including any deferred items triggered into income by Reg. 1.11502-13 and any excess loss account taken into income under Reg. 1.1502-19) on Holdco’s consolidated federal income tax returns for all periods through the end of the Closing Date and pay any federal income taxes attributable to such income. ITG and its Subsidiaries shall furnish Tax information to Holdco for inclusion in Holdco’s federal consolidated income tax return for the period that includes the Closing Date in accordance with ITG’s past custom and practice. The income if ITG and its Subsidiaries shall be apportioned to the period up to and including the Closing Date and the period after the Closing Date by closing the books of ITG and its Subsidiaries as of the end of the Closing Date.

(ix) Holdco shall not settle any audit of a Holdco consolidated federal income tax return to the extent that such return relates to ITG and its Subsidiaries in a manner that would adversely affect ITG and its Subsidiaries after the Closing Date unless such settlement would be reasonable in the case of a person that owned ITG and its Subsidiaries both before and after the Closing Date.

(x) Holdco shall immediately pay to SCI any Tax refund (or reduction in Tax liability) resulting from a carryback of a post-acquisition Tax attribute of any of ITG and its Subsidiaries into the Holdco consolidated tax return, when such refund (or reduction) is realized by Holdco’s group. At SCI’s request, Holdco will cooperate with ITG and its Subsidiaries in obtaining such refund (or reduction), including through the filing of amended tax returns or refund claims.

(xi) Holdco shall not elect to retain any net operating loss carryovers or capital loss carryovers of ITG and its Subsidiaries.

(s) Material Agreements. (A) Section 3.1(s) of the ITG Disclosure Schedule contains a complete and accurate list of the following agreements, instruments to which ITG or any of its Subsidiaries is a party or by which ITG or its Subsidiaries or any of their respective properties or assets are bound (each such agreement, contract or instrument, together with the supplier agreements required to be listed in Section 3.1(z) of the ITG Disclosure Schedule, the customer agreements required to be listed in Section 3.1(y) of the ITG Disclosure Schedule, the leases required to be listed in Section 3.1(q)(ii) of the ITG Disclosure Schedule, and the related-party agreements required to be listed in Section 3.1(u) of the ITG Disclosure Schedule being a “Material Agreement”):

(i) all executory contracts or commitments for capital expenditures under which ITG or any ITG Subsidiary as of the date of this Agreement has remaining obligations in excess of $1 million each;

22

(ii) (A) all notes, bonds, indentures and other instruments and agreements evidencing, creating or otherwise relating to or securing obligations for borrowed money and guarantees of obligations for borrowed money, and all reimbursement agreements with respect to letters of credit and (B) all mortgages, pledge or security agreements or other documents creating or evidencing Liens on any asset owned by ITG or any ITG Subsidiary or used by ITG or any ITG Subsidiary in its business, in any such case, involving an amount in excess of $1 million;

(iii) all agreements regarding ongoing remediation under Environmental Laws;

(iv) all joint venture or partnership agreements, or agreements providing for the sharing of facilities or ownership of a minority equity investment, by ITG or any ITG Subsidiary with any other Person;

(v) all agreements providing for the purchase or sale by ITG or any ITG Subsidiary of a product line, business or similar material asset from another Person in which the net proceeds of such purchase or sale were $1 million and under which ITG or any ITG Subsidiary has any outstanding obligations,

(vi) all noncompetition or similar agreements that restrict ITG or any ITG Subsidiary from carrying on its business anywhere in the world;

(vii) all agreements with a term in excess of one year or requiring payments in excess of $250,000 in any twelve-month period providing for the employment of any director, officer, employee, consultant or independent contractor; and all collective bargaining agreements; and

(viii) all amendments, supplements, and modifications (whether written or oral) in respect of any of the foregoing.

(B) Each of the Material Agreements is in full force and effect and constitutes a valid and binding obligation of ITG or its Subsidiary, as applicable, and to ITG’s Knowledge, the other party(ies) thereto. Neither ITG nor its Subsidiary, as applicable, is in breach or default in any material respect under any Material Agreement, and to the Knowledge of ITG no event has occurred and no condition or state of facts exists which, with the passage of time or the giving of notice or both, would constitute such a default or breach by ITG or its Subsidiary, as applicable. To ITG’s Knowledge, no event has occurred or condition or state of facts exists that, with or without the passage of time or the giving of notice or both, constitutes or would constitute a material breach or default under any Material Agreement by any other party thereto. Except as set forth in Section 3.1(e) of the ITG Disclosure Schedule, none of the rights of ITG or its Subsidiary under any Material Agreement are entitled to be terminated or modified and no consent or approval of any third party is required under the terms of any Material Agreement as a result of the consummation of the transactions contemplated hereunder.

23

ITG has delivered or made available to SCI and the SCI Special Committee true, correct and complete copies of all Material Agreements and all amendments thereto.

(t) Ownership of Property; Insurance Coverage.

(i) ITG and each ITG Subsidiary has marketable title to all material assets and properties owned by ITG or each ITG Subsidiary, as applicable, in the conduct of its businesses, whether such assets and properties are tangible or intangible, including all material assets and property reflected in the most recent consolidated statement of financial condition contained in the ITG Financial Statements or acquired subsequent thereto (except to the extent that such assets and properties have been disposed of in the ordinary course of business, since the date of such consolidated statement of financial condition), subject to, except as set forth in Section 3.1(t) of the ITG Disclosure Schedule, no Liens except for Permitted Liens.

(ii) ITG and each ITG Subsidiary currently maintain insurance considered by ITG to be reasonable for their respective operations. Neither ITG nor any ITG Subsidiary, has received written notice from any insurance carrier on or before the date hereof that such insurance will be canceled or that coverage thereunder will be reduced or eliminated. Section 3.1(t) of the ITG Disclosure Schedule identifies all policies of insurance maintained by ITG and each ITG Subsidiary, including the name of the insurer, the policy number, the type of policy and any applicable deductibles. ITG has made available to SCI copies of all of the policies listed on Section 3.1(t) of the ITG Disclosure Schedule.

(u) Related Party Transactions. Except as set forth in Section 3.1(u) of the ITG Disclosure Schedule, neither ITG, any ITG Subsidiary or any Controlling Entity nor, to ITG’s Knowledge, any director, manager or officer of ITG, any ITG Subsidiary or any Controlling Entity (a) owns, directly or indirectly, any interest in (excepting not more than 1% stock holdings for investment purposes in securities of publicly held and traded companies) or is an officer, director, manager, employee or consultant of, any Person which is a competitor, lessor, lessee, customer or supplier of ITG or any ITG Subsidiary; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property, including any ITG Intellectual Property, which ITG or any ITG Subsidiary is using, has used during the past thirty-six (36) months or the use of which is necessary for its business; (c) is a party to any contract or agreement, other than an employment agreement or Benefit Plan, with ITG or its Subsidiary, or (d) has any cause of action or other claim whatsoever against, or owes any amount to, ITG or its Subsidiary except for claims which will be discharged at or prior to the Closing or claims in the ordinary course of business, such as for accrued vacation pay or accrued benefits under Benefit Plans and similar matters related to employment.

(v) Registration Obligations. Neither ITG nor any ITG Subsidiary is under any obligation, contingent or otherwise, by reason of any agreement to register any transaction involving any of its securities under the Securities Act of 1933, as amended, which will survive the Effective Time and be binding upon SCI.

24

(w) Intellectual Property.

(i) Section 3.1(w) of the ITG Disclosure Schedule lists, and identifies as owned or licensed, all (i) patents and patent applications owned or used by ITG or any ITG Subsidiary, including the jurisdiction, owner, filing date, issue date, and expiration date; (ii) trademarks, service marks, trade names, trade dress, logos, business and product names, slogans, domain names and other commercial symbols used or intended or expected to be used in the business of ITG or any ITG Subsidiary (“ITG Trademarks”) that are registered or with respect to which applications have been filed for registration before any state, national or community office; (iii) unregistered (including common law) ITG Trademarks material to the business of ITG or any ITG Subsidiary; and (iv) registered copyrights owned or used by ITG or any ITG Subsidiary (collectively, the “ITG Intellectual Property”). Except for ITG Licensed Intellectual Property (defined below), ITG and its Subsidiaries, as applicable, own all right, title and interest in and to all ITG Intellectual Property identified on Section 3.1(w) of the ITG Disclosure Schedule as “ITG Owned Intellectual Property,” free and clear of all Liens except Permitted Liens. ITG and its Subsidiaries, as applicable, are the licensee of (or have otherwise been permitted, through non-assertion agreements, settlement or similar agreements or otherwise, to use) the ITG Intellectual Property identified in Section 3.1(w) of the ITG Disclosure Schedule as “ITG Licensed Intellectual Property” and such right to use is free and clear of all Liens except for Permitted Liens and except as set forth in the agreements governing such ITG Licensed Intellectual Property and listed in Section 3.1(w) of the ITG Disclosure Schedule. ITG or an ITG Subsidiary has delivered or made available to SCI complete copies of such agreements.

(ii) The ITG Owned Intellectual Property and the ITG Licensed Intellectual Property are collectively referred to herein as the “ITG Scheduled Intellectual Property.” ITG or its Subsidiaries own, license or otherwise possess (or have applied for) legally enforceable rights to use as they are currently used in the conduct of their business all ITG Intellectual Property, except where the failure to so own, be licensed or otherwise possess such rights would not reasonably be expected to have a Material Adverse Effect on ITG. No stockholder of ITG owns, in whole or in part, any ITG Intellectual Property which ITG or its Subsidiaries are using or the use of which is necessary for their business. None of the ITG Intellectual Property owned or used by ITG or its Subsidiaries is subject to any outstanding order, ruling, decree, judgment or stipulation to which ITG or its Subsidiaries is or has been made a party by or with any Governmental Entity, or has since the acquisition of such ITG Intellectual Property by ITG or any ITG Subsidiary, been subject to any ITG Proceeding by or against ITG or any ITG Subsidiary (whether or not resolved in favor of ITG or the ITG Subsidiary).

(iii) Except for the ITG Licensed Intellectual Property, there are no agreements or arrangements pursuant to which ITG or any ITG Subsidiary has had ITG Intellectual Property licensed to it, or has otherwise been permitted to

25

use ITG Intellectual Property (through non-assertion agreements, settlement or similar agreements or otherwise), except where the same would not reasonably be expected to have a Material Adverse Effect on ITG. Neither ITG nor any ITG Subsidiary, as applicable, is in violation of any license agreement to which it is a party, or by which it or its assets are bound, with respect to off-the-shelf software, except where such violation could not reasonably be expected to have a Material Adverse Effect on ITG.

(iv) The conduct by ITG and its Subsidiaries of their business does not infringe upon or violate the ITG Intellectual Property rights of any other Person, except where such infringement or violation could not reasonably be expected to have a Material Adverse Effect on ITG. There is no pending nor to ITG’s Knowledge any threatened ITG Proceeding, nor to ITG’s Knowledge is there any basis for any valid claim, demand or ITG Proceeding, which (in any such case) (i) challenges the rights of ITG or any Subsidiary in respect of any ITG Intellectual Property or (ii) asserts that ITG or any ITG Subsidiary is infringing or otherwise in conflict with, or is required to pay any royalty, license fee, charge or other amount with regard to, any ITG Intellectual Property.

(v) To ITG’s Knowledge, no other Person is infringing any ITG Scheduled Intellectual Property. To ITG’s Knowledge and except for those rights or interests set forth in written licenses or other written contracts identified on Section 3.1(w) of the ITG Disclosure Schedule as requiring such payments, ITG and its Subsidiaries’ ITG Intellectual Property is free from any proprietary, financial or other interest, direct or indirect, in whole or in part, including any right to royalties or other compensation, of any Person.

(vi) There are no administrative filings or responses, including but not limited to Section 8 Affidavits of Use, Section 15 Affidavits of Incontestability, Section 9 Applications for Renewal, Statements of Use Under 37 CFR 2.88 or responses to outstanding office actions, required by the United States Patent and Trademark Office with respect to any ITG Trademark due prior to the date which is sixty (60) days following the Closing Date.

(x) Employees; Labor Matters. Except as set forth in Section 3.1(x) of the ITG Disclosure Schedule, there are no labor or collective bargaining agreements to which ITG or any ITG Subsidiary is a party. There is no union organizing effort pending or, to the Knowledge of ITG, threatened against ITG or any ITG Subsidiary. There is no labor strike, labor dispute (other than routine employee grievances that are not related to union employees), work slowdown, stoppage or lockout pending or, to the Knowledge of ITG, threatened against ITG or any ITG Subsidiary. There is no unfair labor practice or labor arbitration proceeding pending or, to the Knowledge of ITG, threatened against ITG or any ITG Subsidiary (other than routine employee grievances that are not related to union employees). ITG and each ITG Subsidiary is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and are not engaged in any unfair labor practice, except for such instances of noncompliance as would not, individually or in the aggregate, result in a

26

Material Adverse Effect on ITG. Neither ITG nor any ITG Subsidiary is a party to, or bound by, any agreement for the leasing of employees.

(y) Customers. Section 3.1(y) of the ITG Disclosure Schedule sets forth customers of ITG and its Subsidiaries which sales to any such customer constitute 10% of more of ITG’s consolidated revenues and the loss of such customer would have a Material Adverse Effect on ITG (collectively, such customers are the “ITG 2005 Top Customers”). None of the ITG 2005 Top Customers has indicated in writing to ITG that it intends to terminate its relationship with ITG.

(z) Absence of Certain Business Practices. None of (1) ITG or any ITG Subsidiary, any officer, director, manager or similar executive of ITG or any ITG Subsidiary, or any of ITG’s five (5) highest paid employees, acting on its behalf, or (2) to ITG’s Knowledge, any other employee or agent of ITG or its Subsidiaries acting on its behalf (during the past five (5) years with respect to clause (1) and during the past twelve (12) months with respect to clause (2)), has, directly or indirectly, given or agreed to give any improper or illegal gift or similar benefit to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of ITG or its Subsidiaries (or assist ITG or its Subsidiaries in connection with any actual or proposed transaction relating to the business of ITG) which has or may reasonably be expected to subject ITG or its Subsidiaries to any material damage or penalty in any civil, criminal or governmental litigation or ITG Proceeding. The business of ITG and its Subsidiaries is not dependent upon the making or receipt of such payments, discounts or other inducements.

Section 3.2 Representations and Warranties of SCI and Merger Sub. Except as expressly set forth in the disclosure schedule delivered by SCI to ITG prior to the execution of this Agreement (the “SCI Disclosure Schedule”) or the SCI SEC Documents, SCI and Merger Sub, jointly and severally, represent and warrant to ITG as follows:

(a) Organization, Standing and Corporate Power. Each of SCI, Merger Sub and SCI’s other Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and authority to carry on its business as now being conducted. Each of SCI and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each additional jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions in which the failure to be so qualified or licensed or to be in good standing individually or in the aggregate is not reasonably likely to have a Material Adverse Effect on SCI. SCI has made available to ITG prior to the execution of this Agreement complete and correct copies of SCI’s and Merger Sub’s respective Certificate of Incorporation and By-laws, in each case, as amended to date. The minute books of SCI and its Subsidiaries accurately reflect all material corporate actions of their respective stockholders, members, owners, directors and/or managers, as applicable.

27

(b) Subsidiaries. Section 3.2(b) of the SCI Disclosure Schedule sets forth each Subsidiary of SCI as of the date hereof and its jurisdiction of incorporation or formation. All of the outstanding shares of capital stock of, or other equity interests in, each Subsidiary of SCI have been validly issued and are fully paid and non-assessable and, except as shown in Section 3.2(b) of the SCI Disclosure Schedule, are owned directly or indirectly by SCI, free and clear of all Liens and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests. Except for the capital stock or other ownership interests of its Subsidiaries, as of the date hereof, SCI does not beneficially own directly or indirectly any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person other than 49% of the equity interests in NxGen Technologies, LLC.

(c) Capital Structure.

(i) The authorized capital stock of SCI consists of 25,000,000 shares, including 20,000,000 shares of SCI Common Stock and 5,000,000 shares of preferred stock par value $0.01 per share. As of the date of this Agreement, (A) no shares of preferred stock were issued and outstanding, (B) 5,507,147 shares of SCI Common Stock were issued and outstanding (excluding treasury shares), and (C) 40,322 shares of SCI Common Stock were held by SCI in its treasury. All of the issued and outstanding shares of SCI Common Stock have been duly authorized and are validly issued, fully paid, and non-assessable. Except as set forth above or in Section 3.2(c) of the SCI Disclosure Schedule, (x) there are not issued, reserved for issuance or outstanding (A) any shares of capital stock or other voting securities of SCI, (B) any securities of SCI or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of, or other ownership interests in, SCI or any of its Subsidiaries, (C) any warrants, calls, options or other rights to acquire from SCI or any Subsidiary of SCI, and no obligation of SCI or any Subsidiary of SCI to issue, any capital stock or other voting securities of, or other ownership interests in any securities convertible into or exchangeable or exercisable for capital stock or other voting securities of SCI or any of its Subsidiaries and (y) as of the date of this Agreement, there are not any outstanding obligations of SCI or any Subsidiary of SCI to repurchase, redeem or otherwise acquire any such securities or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. SCI is not a party to any voting agreement with respect to the voting of any such securities.

(ii) The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $0.01 per share (“Merger Sub Common Stock”). There are issued and outstanding 100 shares of Merger Sub Common Stock. All such shares are owned, beneficially and of record, by SCI. Merger Sub does not have issued or outstanding any options, warrants, subscriptions, calls, rights, convertible securities or other agreements or commitments obligating Merger Sub to issue, transfer or sell any shares of Merger Sub Common Stock. Merger Sub does not have any bonds, debentures, notes or other indebtedness outstanding.

28

(d) Power and Authority; Due Authorization. Each of SCI and Merger Sub has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by SCI and Merger Sub and the consummation by SCI and Merger Sub of the transactions contemplated by this Agreement (including approval of the SCI Charter Amendment), have been duly authorized by all necessary corporate action on the part of SCI and Merger Sub, as applicable, subject to receipt of the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of SCI Common Stock to adopt the SCI Charter Amendment (the “SCI Stockholder Approval”). This Agreement has been duly executed and delivered by SCI and Merger Sub and, assuming the due authorization, execution and delivery by each of the parties hereto, constitutes a valid and binding obligation of SCI and Merger Sub, enforceable against each of them in accordance with its terms.

(e) Noncontravention; Governmental Approvals. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under the respective Certificates of Incorporation or By-laws of SCI or Merger Sub. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of SCI or Merger Sub or any of SCI’s other Subsidiaries under (i) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, obligation, instrument, permit, concession, franchise, license or similar authorization applicable to SCI or Merger Sub or any of SCI’s other Subsidiaries or their respective properties or assets or (ii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to SCI or any of its Subsidiaries or their respective properties or assets, other than any such conflicts, violations, defaults, rights, losses or Liens that individually or in the aggregate are not reasonably likely to have a Material Adverse Effect on SCI. No consent, approval, order or authorization of, action by, or in respect of, or registration, declaration or filing with, any Governmental Entity is required by SCI or Merger Sub or any of SCI’s other Subsidiaries in connection with the execution and delivery of this Agreement by SCI and Merger Sub or the consummation by SCI and Merger Sub of the transactions contemplated by this Agreement, except for (1) the filing of a premerger notification and report form under the HSR Act and any applicable filings and approvals under similar foreign antitrust or competition laws and regulations; (2) the applicable requirements of the Securities Act, the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “Exchange Act”), and applicable state securities or “Blue Sky” laws, as may be required in connection with this Agreement and the transactions contemplated by this Agreement; (3) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which SCI or Merger Sub is qualified to do business; and (4) such other consents, approvals, orders or authorizations the failure of which to be made or obtained individually or in the aggregate is not reasonably likely to have a Material Adverse Effect on SCI.

29

(f) Information Supplied. None of the information supplied or to be supplied by SCI specifically for inclusion in the Form S-4 will, at the time the Form S-4 becomes effective under the Securities Act, at the time the joint proxy statement / prospectus included therein is first mailed to SCI’s stockholders, or at the time of the SCI stockholders’ meeting held for the purpose of voting on the SCI Charter Amendment (the “SCI Stockholders’ Meeting”), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder. No representation or warranty is made by SCI with respect to statements made or incorporated by reference in the Form S-4 based on information supplied by ITG specifically for inclusion in the Form S-4.

(g) SEC Documents; Financial Statements. SCI has filed all required reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) with the SEC since December 31, 2002 (collectively, the “SCI SEC Documents”). As of their respective dates, the SCI SEC Documents complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SCI SEC Documents, and none of the SCI SEC Documents when filed (or, if amended or superseded by a filing prior to the date hereof, on the date of such filing) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of SCI (including, in each case, any notes thereto) included in the SCI SEC Documents comply as to form, and as of their respective dates of filing with the SEC, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and each fairly present in all material respects the consolidated financial position of SCI and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal recurring year-end audit adjustments which did not or would not, individually or in the aggregate, be material). As of June 30, 2006, SCI did not have any liabilities, obligations or loss contingencies of any nature (whether absolute, accrued, contingent or otherwise) of a type required by GAAP to be reflected in the December 31, 2005 audited consolidated balance sheet of SCI and its Subsidiaries, or in the notes thereto, which are not fully reflected or reserved against therein or fully disclosed in a note thereto other than any such liabilities, obligations and loss contingencies which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on SCI.

(h) Absence of Certain Changes or Events. Since June 30, 2006, except as (i) specifically contemplated by this Agreement or (ii) disclosed in Section 3.2(h) of the SCI Disclosure Schedule, SCI and its Subsidiaries have conducted their respective businesses

30

in the ordinary course consistent with past practice and, since such date, there has not been (A) any Material Adverse Effect with respect to SCI, (B) any event or development that would, individually or in the aggregate, reasonably be expected to prevent or materially delay the performance of this Agreement by SCI, or (C) any action taken by SCI or any of its Subsidiaries during the period from June 30, 2006 through the date of this Agreement that, if taken during the period from the date of this Agreement through the Effective Time, would constitute a breach of Section 4.1.

(i) Legal Proceedings. There are no pending or, to SCI’s Knowledge, threatened, legal, administrative or arbitration proceedings, claims, actions or, to SCI’s Knowledge, governmental investigations or inquiries of any nature (collectively, an “SCI Proceeding”) which SCI has received written notice of, or to SCI’s Knowledge, which SCI has received oral notice of, against SCI or any SCI Subsidiary or to which SCI or any SCI Subsidiary’s assets are or may be subject, either (i) challenging the validity or propriety of any of the transactions contemplated by this Agreement or (ii) which reasonably could be expected to adversely affect the ability of SCI to perform under this Agreement, or have a Material Adverse Effect on SCI.

(j) Compliance with Applicable Laws.

(i) SCI and each SCI Subsidiary is in compliance with all Laws, and neither SCI nor any SCI Subsidiary has received any written notice to the contrary that has not been resolved, except for such instances of noncompliance as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on SCI.

(ii) SCI and each SCI Subsidiary has all Permits with all Governmental Entities that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted in all material respects. All such Permits are in full force and effect and, to the Knowledge of SCI, no suspension or cancellation of any such Permit is threatened or will result from the consummation of the transactions contemplated by this Agreement, subject to obtaining the approvals set forth in Section 3.2(e) and such exceptions as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on SCI. Neither SCI nor any of its Subsidiaries is violating in any material respect any law in respect of the conduct of its business, nor is SCI or any of its Subsidiaries in material default with respect to any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against SCI or any of its Subsidiaries, except for, in either such case, such violations or defaults that are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on SCI. Neither SCI nor any SCI Subsidiary has received any Regulatory Agreement that has not been resolved nor has SCI nor any SCI Subsidiary consented to or entered into any Regulatory Agreement that is currently in effect.

(iii) SCI and each SCI Subsidiary is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of

31

employment and wages and hours, and are not engaged in any unfair labor practice, except for such instances of noncompliance as would not, individually or in the aggregate, result in a Material Adverse Effect on SCI. Neither SCI nor any SCI Subsidiary is a party to, or bound by, any agreement for the leasing of employees.

(k) Voting Requirements. The SCI Stockholder Approval is the only vote of the holders of any class or series of SCI’s capital stock necessary to approve and adopt this Agreement and the transactions contemplated hereby (including approval of the SCI Charter Amendment). The SCI Special Committee constitutes the sole “Continuing Director,” as such term is used and defined in Article Sixth of SCI’s Certificate of Incorporation, and, in such capacity, has approved this Agreement and the Merger, and adoption of the SCI Charter Amendment, for purposes of satisfying the requirements of said Article Sixth, and, therefore, the voting provisions of Article Six, Section 1 of SCI’s Certificate of Incorporation are not applicable to any of the transactions contemplated by this Agreement. The SCI Special Committee has duly authorized termination by SCI of that certain Confidentiality Agreement, dated September 21, 2005, between SCI and WL Ross & Co. LLC, including the terms of Section 2(c) thereof.

(l) State Takeover Statutes. The SCI Special Committee, and the Board of Directors of SCI (upon the recommendation of the SCI Special Committee), has unanimously approved the terms of this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement. The provisions of Section 203 of the DGCL and the South Carolina Business Combination Act do not apply to ITG or its Affiliates in connection with the Merger and the other transactions contemplated by this Agreement and, to the Knowledge of SCI, no other state takeover statute is applicable to the Merger or the other transactions contemplated hereby.

(m) Brokers. No broker, investment banker, financial advisor or other person, other than RSM EquiCo Capital Markets LLC (“RSM EquiCo”), the fees, commissions and expenses of which will be paid by SCI, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses, in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of SCI.

(n) Opinion of Financial Advisor. The Special Committee of the Board of Directors of SCI has received the opinion of RSM EquiCo, dated the date of this Agreement, to the effect that, as of such date, the Exchange Ratio is fair from a financial point of view to the stockholders of SCI (other than WLR Recovery Fund II, L.P. and WLR Recovery Fund III, L.P., to whom RSM EquiCo expresses no opinion), a signed copy of which has been or promptly will be delivered to ITG, it being understood that ITG may not rely upon such opinion.

(o) Employee Benefits.

(i) Section 3.2(o) of the SCI Disclosure Schedule sets forth a true and complete list of each “employee benefit plan,” as defined in Section 3(3) of

32

ERISA and any other executive compensation plan or agreement, bonus plan, incentive compensation plan, stock option or other equity compensation plan, deferred compensation plan or agreement, severance pay and other change of control agreement, employee stock purchase plan, and fringe benefit plan sponsored, maintained, or contributed to by SCI or any of its Subsidiaries for the benefit of any current or former employee of SCI or any of its Subsidiaries (such plans are collectively referred to as the “SCI Benefit Plans” or “SCI Plans”). Section 3.2(o) of the SCI Disclosure Schedule identifies, in separate categories, SCI Benefit Plans that are (i) subject to Sections 4063 and 4064 of ERISA (“SCI Multiple Employer Plans”), (ii) multiemployer plans (as defined in Section 4001(a)(3) of ERISA) (“SCI Multiemployer Plans”) or (iii) welfare plans providing continuing benefits after the termination of employment (other than health plan continuation coverage as required by Section 4980B of the Code and at the former employee’s own expense). At no time has SCI had any ERISA Affiliates, other than SCI’s Subsidiaries.

(ii) Each SCI Benefit Plan is in writing and SCI has previously furnished to ITG or made available to ITG a true and complete copy of each SCI Plan document, including all amendments thereto, and (if applicable) a true and complete copy of (i) each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the most recently filed IRS Form 5500, including all attachments thereto, (iv) the most recently received IRS determination letter for each such SCI Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such SCI Plan. Neither SCI nor any Subsidiary of SCI has any express or implied commitment (i) to create or incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual or (iii) to modify, change or terminate any SCI Plan, other than with respect to a modification, change or termination required by ERISA or the Code.

(iii) Except as set forth on Schedule 3.1(o) of the SCI Disclosure Schedule, with respect to all employees and former employees (including their dependents and spouses) of SCI and its Subsidiaries, neither SCI nor any Subsidiary of SCI currently has or has ever had in the past three years, any obligation to contribute to (or any other liability with respect to) any funded or unfunded “employee welfare benefit plan,” as defined in Section 3(1) of ERISA, whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retirees or current or future former employees (including dependents and spouses), except for continued medical benefit coverage for former employees, their spouses and other eligible dependents at their expense as required under COBRA or similar state laws.

(iv) Each of the SCI Benefit Plans has been maintained in all material respects in accordance with its terms and all provisions of applicable laws and regulations. All amendments and actions required to bring each of the SCI Benefit Plans into conformity in all material respects with all of the applicable

33

provisions of ERISA and other applicable laws and regulations have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Closing Date. To the Knowledge of SCI and the Subsidiaries of SCI, there has been no violation of ERISA with respect to the filing of applicable returns, reports, documents and notices regarding any of the SCI Benefit Plans with the Secretary of Labor or the Secretary of the Treasury or the furnishing of such notices or documents to the participants or beneficiaries of the SCI Benefit Plans which could result in any material liability to SCI or any Subsidiary of SCI.

(v) Each SCI Benefit Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (“SCI Pension Plan”) and which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service (or, in the case of a plan maintained pursuant to the adoption of a master or prototype plan document, the sponsor of the master or prototype plan has obtained from the National Office of the IRS an opinion letter to the effect that the form of the master or prototype document is acceptable for the establishment of a qualified retirement plan); and, notwithstanding any disclosure in Section 3.2(o) of the SCI Disclosure Schedule or elsewhere, to the Knowledge of SCI, nothing has occurred that would adversely affect the qualified status of such SCI Plan.

(vi) Except as set forth on Schedule 3.1(o) of the SCI Disclosure Schedule, neither SCI nor any Subsidiary of SCI or any organization to which any is a successor or parent corporation, has divested any business or entity maintaining or sponsoring a defined benefit pension plan having unfunded benefit liabilities (within the meaning of Section 4001(a)(18) of ERISA) or transferred any such plan to any person or entity other than SCI or any Subsidiary of SCI during the five-year period ending on the Closing Date. There has been no “reportable event” as that term is defined in Section 4043 of ERISA and the regulations thereunder with respect to any of the SCI Benefit Plans subject to Title IV of ERISA which would require the giving of notice, or any event requiring notice to be provided under Section 4063(a) of ERISA.

(vii) Neither SCI nor any SCI Subsidiary has engaged in a transaction with respect to any SCI Benefit Plan that has subjected or could reasonably be expected to subject SCI or any Subsidiary of SCI to a tax or penalty imposed by either Section 4975 of the Code or Section 406 or 502 of ERISA in an amount which would be material. Neither SCI nor any Subsidiary of SCI is currently liable or has previously incurred any liability for any material tax or penalty arising under Chapter 43 of Subtitle D of the Code or Section 502 of ERISA, and no fact or event exists which could reasonably be expected to give rise to any such liability. Neither SCI nor any Subsidiary of SCI has been required to post any security under Section 307 of ERISA or Section 401(a)(29) of the Code; and no fact or event exists which could reasonably be expected to give rise to any such lien or requirement to post any such security.

34

(viii) As of the date of this Agreement there is no pending or, to the Knowledge of SCI, threatened litigation relating to the SCI Benefit Plans, other than routine claims for benefits in the ordinary course of plan administration.

(ix) All contributions and premiums required by law or by the terms of any SCI Benefit Plan or any agreement relating thereto have been timely made (without regard to any waivers granted with respect thereto) and, except as disclosed on Section 3.2 (o) of the SCI Disclosure Schedule, no accumulated funding deficiencies exist in any of the SCI Benefit Plans subject to Section 412 of the Code.

(x) The liabilities of each SCI Benefit Plan that has been terminated or otherwise wound up, have been fully discharged or are being fully discharged in compliance with applicable law.

(xi) All material benefit plans, contracts and arrangements covering non-U.S. employees of SCI or any Subsidiaries of SCI (“Non-U.S. SCI Benefit Plans”) are listed in Section 3.2(o) of the SCI Disclosure Schedule. Each Non-U.S. SCI Benefit Plan as to which SCI or a Subsidiary of SCI is the plan sponsor or a contributing employer (excluding any governmental social insurance scheme or plan) has been maintained in substantial compliance with its terms and in all material respects with the requirements of the laws and regulations of any applicable jurisdiction. Except as disclosed in Section 3.2(o) of the SCI Disclosure Schedule, neither SCI nor any of its Subsidiaries has any current or projected material liability in respect of post-employment or post-retirement health or medical benefits for non-U.S. employees. All contributions, payments or liabilities accrued under each Non-U.S. SCI Benefit Plan, determined in accordance with prior funding and accrual practices, as adjusted to include proportional accruals for the period ending on the Closing Date, will be discharged and paid or remitted and accrued in any case consistent with prior practice, (A) on or prior to the Closing Date or (B) in the case of a funded Non-U.S. SCI Benefit Plan in respect to which payments are required to be made to an insurance company, trust or support fund or other independent entity, within such time as SCI or its Subsidiary normally makes such payments.

(xii) Each trust maintained or contributed to by SCI or a Subsidiary which is intended to be qualified as a voluntary employees’ beneficiary association exempt from federal income taxation under Section 501(a) and 501(c)(9) of the Code has received a favorable determination letter from the IRS that it is so qualified and so exempt, and to the Knowledge of SCI and its Subsidiaries, no fact or event has occurred since the date of such determination by the IRS that could reasonably be expected to adversely affect such qualified or exempt status.

(xiii) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement will (A) result in any payment (including, without limitation, severance, retention bonus or

35

golden parachute) becoming due to any current or former director, employee or independent contractor of SCI or any Subsidiary of SCI, (B) increase any benefits otherwise payable under any SCI Benefit Plan, or (C) result in the acceleration of the time of payment or vesting of any benefit. No payments or benefits under any SCI Benefit Plan or other agreement with SCI or any Subsidiary of SCI will be considered an excess parachute payment under Section 280G of the Code or result in a deduction limitation under Section 162(m) of the Code.

(xiv) Section 3.2(o) of the SCI Disclosure Schedule sets forth each SCI Benefit Plan that is subject to Section 409A of the Code.

(p) Environmental Matters.

(i) The use by SCI and its Subsidiaries and, to the Knowledge of SCI, the use by any predecessor entities, of properties, and the occupancy and operation thereof is, and at all times has been, in material compliance with, and has not been and is not in material violation under, any Environmental Law, other than any such instances of noncompliance that have been previously resolved, and instances of noncompliance to the extent such instances of noncompliance are reserved against on the most recent balance sheet included in the SCI SEC Documents.

(ii) SCI and its Subsidiaries have (1) completed and filed all reports and filings in a materially timely fashion, (2) obtained all material required approvals and licenses, and (3) generated, maintained and retained all required data, documentation and records required by the Environmental Laws or any code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder.

(iii) Neither SCI nor any of its Subsidiaries nor, to the Knowledge of SCI, any predecessor entity has permitted the emission, spill, release, or discharge or disposal (whether intentional or not) of a Hazardous Substance or disposal of Solid Waste on properties it currently owns or has formerly owned or operated, nor, to the Knowledge of SCI, is there a basis for any SCI Proceeding by any person or governmental authority alleging a violation of or liability under any Environmental Law, including, without limitation, relating to migration of Hazardous Substances from any property currently or formerly owned or operated by SCI or its Subsidiaries or any predecessor entities, in any such case, that is reasonably likely to result in any material liability to SCI or any of its Subsidiaries or any of their respective shareholders or other owners under any applicable Environmental Law or any common law.

(iv) Neither SCI nor its Subsidiaries nor, to the Knowledge of SCI, any predecessor entity has received any notice or communication from any third party, governmental authority or private citizen acting in the public interest asserting a claim or threatening to assert a claim that has not been resolved concerning the

36

violation or potential or alleged violation of, or failure to comply with, any Environmental Law in any material respect.

(v) Neither SCI nor its Subsidiaries nor, to the Knowledge of SCI, any predecessor entity has transported or arranged for the treatment, storage, or disposal of any Hazardous Substances in connection with the business of SCI, any of its Subsidiaries or any predecessor entity (including, without limitation, for disposal to disposal facilities not owned or operated by SCI, any SCI Subsidiary or any predecessor entities to SCI or any SCI Subsidiary) that is reasonably likely to lead to any material liability to SCI or any of its Subsidiaries or any of their respective shareholders under any applicable Environmental Law or any common law.

(q) Taxes. Except as set forth in Section 3.2(q) of the SCI Disclosure Schedule:

(i) SCI and its Subsidiaries have timely filed or caused to be filed all material foreign, federal, state and local income, franchise, excise, real and personal property and other Tax returns and reports (including, but not limited to, those filed on a consolidated, combined or unitary basis), or requests for extensions to file such returns and reports have been timely filed.

(ii) All of the foregoing returns and reports are true, correct, and complete in all material aspects. All material Taxes owed by SCI and its Subsidiaries (whether or not shown on any tax return) have been timely paid for each taxable period or are reserved against on the most recent balance sheet included in the SCI SEC Documents.

(iii) SCI and its Subsidiaries have declared on their Tax returns all positions taken therein that could give rise to a substantial underpayment of United States Federal Income Tax within the meaning of Section 6662 of the Code (or any corresponding provision of state or local laws) for each taxable period during which any of SCI and its Subsidiaries was a member of the group. SCI and its Subsidiaries have paid, or made adequate provision in accordance with GAAP in the applicable Financial Statements for, all material Taxes payable in respect of all periods ending on or prior to the date of this Agreement and will have made or provided for all material Taxes payable in respect of all periods ended on or prior to the Effective Time.

(iv) No director or officer (or employee responsible for Tax matters) of SCI and its Subsidiaries have been notified in writing by any jurisdiction that the jurisdiction believes that either SCI or any of its Subsidiaries were required to file any Tax return that was not filed. Neither SCI nor its Subsidiaries have been a member of a group with which they have filed or been included in a combined, consolidated or unitary income Tax return other than a group the common parent of which was Zapata Corporation or SCI.

40

(v) All material deficiencies proposed as a result of any audits have been paid or settled. There are no material claims or assessments pending against any of SCI and its Subsidiaries for any alleged deficiency in any Tax, and neither SCI nor any of its Subsidiaries have been notified in writing of any proposed material Tax claims or assessments. SCI and its Subsidiaries have complied with all applicable laws relating to the payment, collection and withholding of material amounts on account of Taxes, have duly and timely withheld, collected and paid over to the appropriate taxing authority all material amounts required to be so withheld and paid under all applicable laws, and have duly and timely filed all material Tax returns with respect to such withheld Taxes, within the time prescribed under any applicable law. SCI and its Subsidiaries have made available to ITG true and complete copies of all Tax returns of SCI and its Subsidiaries for taxable periods ending within three (3) years of the date of this Agreement.

(vi) Neither SCI nor any of its Subsidiaries has any material liability for the Taxes of any person (other than SCI and its Subsidiaries) (A) under Reg. 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by contract, or (D) otherwise.

(vii) Any tax-sharing agreement of which SCI and its Subsidiaries is a party to is terminated as of the Closing Date and shall have no further effect for any taxable year (whether the current year, a future year, or a past year).

(r) Intellectual Property.

(i) Section 3.2(r) of the SCI Disclosure Schedule lists, and identifies as owned or licensed, all (i) patents and patent applications owned or used by SCI or any SCI Subsidiary, including the jurisdiction, owner, filing date, issue date, and expiration date; (ii) trademarks, service marks, trade names, trade dress, logos, business and product names, slogans, domain names and other commercial symbols used or intended or expected to be used in the business of SCI or any SCI Subsidiary (“SCI Trademarks”) that are registered or with respect to which applications have been filed for registration before any state, national or community office; (iii) unregistered (including common law) SCI Trademarks material to the business of SCI or any SCI Subsidiary; and (iv) registered copyrights owned or used by SCI or any SCI Subsidiary (collectively, the “SCI Intellectual Property”). Except for SCI Licensed Intellectual Property (defined below), SCI and its Subsidiaries, as applicable, own all right, title and interest in and to all SCI Intellectual Property identified on Section 3.2(r) of the SCI Disclosure Schedule as “SCI Owned Intellectual Property,” free and clear of all Liens except Permitted Liens. SCI and its Subsidiaries, as applicable, are the licensee of (or have otherwise been permitted, through non-assertion agreements, settlement or similar agreements or otherwise, to use) the SCI Intellectual Property identified in Section 3.2(r) of the SCI Disclosure Schedule as “SCI Licensed Intellectual Property” and such right to use is free and clear of all Liens except for Permitted Liens and except as set forth in the agreements governing

41

such SCI Licensed Intellectual Property and listed in Section 3.2(r) of the SCI Disclosure Schedule. SCI or an SCI Subsidiary has delivered or made available to ITG complete copies of such agreements.

(ii) The SCI Owned Intellectual Property and the SCI Licensed Intellectual Property are collectively referred to herein as the “SCI Scheduled Intellectual Property.” SCI or its Subsidiaries own, license or otherwise possess (or have applied for) legally enforceable rights to use as they are currently used in the conduct of their business all SCI Intellectual Property, except where the failure to so own, be licensed or otherwise possess such rights would not reasonably be expected to have a Material Adverse Effect on SCI. No stockholder of SCI owns, in whole or in part, any SCI Intellectual Property which SCI or its Subsidiaries are using or the use of which is necessary for their business. None of the SCI Intellectual Property owned or used by SCI or its Subsidiaries is subject to any outstanding order, ruling, decree, judgment or stipulation to which SCI or its Subsidiaries is or has been made a party by or with any Governmental Entity, or has since the acquisition of such SCI Intellectual Property by SCI or any SCI Subsidiary, been subject of any SCI Proceeding by or against SCI or any SCI Subsidiary (whether or not resolved in favor of SCI or the SCI Subsidiary).

(iii) Except for the SCI Licensed Intellectual Property, there are no agreements or arrangements pursuant to which SCI or any SCI Subsidiary has had SCI Intellectual Property licensed to it, or has otherwise been permitted to use SCI Intellectual Property (through non-assertion agreements, settlement or similar agreements or otherwise), except where the same would not reasonably be expected to have a Material Adverse Effect on SCI. Neither SCI nor any SCI Subsidiary, as applicable, is in violation of any license agreement to which it is a party, or by which it or its assets are bound, with respect to off-the-shelf software, except where such violation could not reasonably be expected to have a Material Adverse Effect on SCI.

(iv) The conduct by SCI and its Subsidiaries of their business does not infringe upon or violate the SCI Intellectual Property rights of any other Person, except where such infringement or violation could not reasonably be expected to have a Material Adverse Effect. There is no pending nor to SCI’s Knowledge any threatened SCI Proceeding, nor to SCI’s Knowledge is there any basis for any valid claim, demand or SCI Proceeding, which (in any such case) (i) challenges the rights of SCI or any Subsidiary in respect of any SCI Intellectual Property or (ii) asserts that SCI or any SCI Subsidiary is infringing or otherwise in conflict with, or is required to pay any royalty, license fee, charge or other amount with regard to, any SCI Intellectual Property.

(v) To SCI’s Knowledge, no other Person is infringing any SCI Scheduled Intellectual Property. To SCI’s Knowledge and except for those rights or interests set forth in written licenses or other written contracts identified on Section 3.2(r) of the SCI Disclosure Schedule as requiring such payments, SCI

42

and its Subsidiaries’ SCI Intellectual Property is free from any proprietary, financial or other interest, direct or indirect, in whole or in part, including any right to royalties or other compensation, of any Person.

(vi) There are no administrative filings or responses, including but not limited to Section 8 Affidavits of Use, Section 15 Affidavits of Incontestability, Section 9 Applications for Renewal, Statements of Use Under 37 CFR 2.88 or responses to outstanding office actions, required by the United States Patent and Trademark Office with respect to any SCI Trademark due prior to the date which is sixty (60) days following the Closing Date.

(s) Insurance Coverage. SCI and each SCI Subsidiary currently maintain insurance considered by SCI to be reasonable for their respective operations. Neither SCI nor any SCI Subsidiary, has received written notice from any insurance carrier on or before the date hereof that such insurance will be canceled or that coverage thereunder will be reduced or eliminated. Section 3.2(s) of the SCI Disclosure Schedule identifies all policies of insurance maintained by SCI and each SCI Subsidiary, including the name of the insurer, the policy number, the type of policy and any applicable deductibles. SCI has made available to ITG copies of all of the policies listed on Section 3.2(s) of the SCI Disclosure Schedule.

(t) Interim Operations of Merger Sub. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. Correct and complete copies of the Certificate of Incorporation and By-laws of Merger Sub are attached hereto as Exhibit B-1 and Exhibit B-2, respectively.

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 4.1 Conduct of Business.

(a) Conduct of Business by ITG. Except as set forth in Section 4.1(a) of the ITG Disclosure Schedule, as otherwise expressly permitted by this Agreement or as consented to in writing by SCI (such consent not to be unreasonably withheld or delayed), during the period from the date of this Agreement to the Effective Time, ITG shall, and shall cause its Subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that its goodwill and ongoing businesses shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, except as set forth in Section 4.1(a) of the ITG Disclosure Schedule, as otherwise expressly permitted by this Agreement, as required by applicable law or a Governmental Entity or as consented to in writing by SCI

43

(such consent not to be unreasonably withheld or delayed), ITG shall not, and shall not permit any of its Subsidiaries to:

(i) (x) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (z) purchase, redeem or otherwise acquire any shares of capital stock of ITG or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;

(ii) issue, deliver, sell, grant, pledge or otherwise encumber or subject to any Lien any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities;

(iii) amend ITG’s Certificate of Incorporation or By-laws, or amend the charter, by-laws or similar governing documents of any of the Subsidiaries of ITG;

(iv) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any person, other than purchases of raw materials or supplies in the ordinary course of business consistent with past practice, and other than acquisitions or purchases with a total consideration at the time of such transaction of less than $5 million;

(v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its material properties or assets, other than sales or licenses of finished goods and services in the ordinary course of business consistent with past practice;

(vi) other than in the ordinary course of business consistent with past practice, incur indebtedness for borrowed money, or agree to guarantee, assume or otherwise become liable for indebtedness for borrowed money, in the individual amount of more than $1 million or in the aggregate amount of more than $5 million;

(vii) in any other manner, modify, change or otherwise alter the fundamental nature of the business of ITG or any of its Subsidiaries as presently conducted; or

(viii) authorize, commit or agree to take, any of the foregoing actions.

(b) Conduct of Business by SCI. Except as set forth in Section 4.1(b) of the SCI Disclosure Schedule, as otherwise expressly permitted by this Agreement or as consented to in writing by ITG (such consent not to be unreasonably withheld or delayed), during the period from the date of this Agreement to the Effective Time, SCI shall, and

44

shall cause its Subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that its goodwill and ongoing businesses shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, except as set forth in Section 4.1(b) of the SCI Disclosure Schedule, as otherwise expressly permitted by this Agreement, as required by applicable law or a Governmental Entity or as consented to in writing by ITG (such consent not to be unreasonably withheld or delayed), SCI shall not, and shall not permit any of its Subsidiaries to:

(i) (x) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (z) purchase, redeem or otherwise acquire any shares of capital stock of SCI or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;

(ii) issue, deliver, sell, grant, pledge or otherwise encumber or subject to any Lien any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities;

(iii) amend the respective Certificate of Incorporation or By-laws of SCI or Merger Sub, or amend the charter, by-laws or similar governing documents of any other Subsidiary of SCI;

(iv) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any person, other than purchases of raw materials or supplies in the ordinary course of business consistent with past practice, and other than acquisitions or purchases with a total consideration at the time of such transaction of less than $5 million;

(v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its material properties or assets, other than sales or licenses of finished goods and services in the ordinary course of business consistent with past practice;

(vi) other than in the ordinary course of business consistent with past practice, incur indebtedness for borrowed money, or agree to guarantee, assume or otherwise become liable for indebtedness for borrowed money, in the individual amount of more than $1 million or in the aggregate amount of more than $5 million;

45

(vii) in any other manner, modify, change or otherwise alter the fundamental nature of the business of SCI or any of its Subsidiaries as presently conducted; or

(viii) authorize, commit or agree to take, any of the foregoing actions.

(c) Advice of Changes. Each of ITG and SCI shall promptly advise the other party orally and in writing to the extent it has Knowledge of (i) any representation or warranty made by it (and, in the case of SCI, made by Merger Sub) contained in this Agreement becoming untrue or inaccurate in any material respect or (ii) the failure of it (and, in the case of SCI, by Merger Sub) to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement and (iii) any change or event having, or which is reasonably likely to have, a Material Adverse Effect on such party or on the ability of the conditions set forth in Article VI to be satisfied; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement.

ARTICLE V

ADDITIONAL AGREEMENTS

Section 5.1 Preparation of the Form S-4 and SCI Proxy Statement.

(a) As soon as practicable following the date of this Agreement, SCI shall prepare and file, or cause to be prepared and filed, with the SEC the Form S-4, including the joint proxy statement/prospectus included therein. Each of ITG and SCI shall use reasonable efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing and keep the Form S-4 effective for so long as necessary to complete the Merger. SCI shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or to file a general consent to service of process) required to be taken under any applicable state securities laws in connection with the issuance of SCI Common Stock in the Merger and ITG shall furnish all information concerning ITG and the holders of capital stock of ITG as may be reasonably requested in connection with any such action. No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to, the Form S-4 will be made by SCI without providing ITG’s Board of Directors a reasonable opportunity to review and comment thereon. SCI will advise ITG, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the SCI Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information and will, as promptly as practicable, provide to ITG copies of all correspondence and filings with the SEC with respect to the Form S-4. If at any time prior to the Effective Time any information relating to ITG or SCI, or any of their respective Affiliates, officers or directors, should be discovered by ITG or SCI which

46

should be set forth in an amendment or supplement to the Form S-4, so that the Form S-4 would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC. No amendment or supplement to the information supplied by ITG for inclusion in the Form S-4 shall be made without the approval of ITG, which approval shall not be unreasonably withheld or delayed.

(b) SCI will, as soon as practicable following the date of this Agreement, establish a record date (which shall be as soon as practicable following the date of this Agreement) for, duly call, give notice of, convene and hold the SCI Stockholders’ Meeting for the purpose of obtaining SCI Stockholder Approval of the Charter Amendment and shall, through its Board of Directors, recommend to its stockholders the approval and adoption of the SCI Charter Amendment.

Section 5.2 ITG Stockholder Consent; Notice to ITG Stockholders. ITG shall seek ITG Stockholder Approval of this Agreement and the Merger and, promptly following receipt by ITG of such ITG Stockholder Approval, ITG shall prepare and deliver to its stockholders notice of such stockholder action in accordance with Section 228(e) of the DGCL (the “ITG Stockholder Notice”).

Section 5.3 Access to Information; Confidentiality. Subject to the existing confidentiality agreement between SCI and ITG (the “Confidentiality Agreement”), upon reasonable notice, each of SCI and ITG shall, and shall cause each of its respective Subsidiaries to, afford to the other party and to the officers, employees, accountants, counsel, financial advisors and other representatives of such other party, reasonable access during normal business hours during the period prior to the Effective Time to all their respective properties, books, contracts, commitments, personnel and records and, during such period, each of ITG and SCI shall, and shall cause each of its respective Subsidiaries to, furnish promptly to the other party (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of Federal or state securities laws and (b) all other information concerning its business, properties and personnel as such other party may reasonably request. Neither SCI nor ITG shall be required to provide access to or disclose information where such access or disclosure would contravene any applicable law, rule, regulation, order or decree or would, with respect to any pending matter, result in a waiver of the attorney-client privilege or the protection afforded attorney work-product. SCI and ITG shall use reasonable efforts to obtain from third parties any consents or waivers of confidentiality restrictions with respect to any such information being provided by it. No review pursuant to this Section 5.2 shall have an effect for the purpose of determining the accuracy of any representation or warranty given by either party hereto to the other party hereto. Each of ITG and SCI will hold, and will cause its respective officers, employees, accountants, counsel, financial advisors and other representatives and Affiliates to hold, any nonpublic information in accordance with the terms of the Confidentiality Agreement.

Section 5.4 Reasonable Best Efforts. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or

47

cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including using reasonable efforts to accomplish the following: (i) the taking of all reasonable acts necessary to cause the conditions to Closing to be satisfied as promptly as practicable, (ii) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by any Governmental Entity, (iii) the obtaining of all necessary consents, approvals or waivers from third parties, (iv) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the Merger or the other transactions contemplated hereby or thereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed and (v) the execution and delivery of any additional instruments necessary to consummate the Merger and the other transactions contemplated by, and to fully carry out the purposes of, this Agreement. In connection with and without limiting the foregoing, ITG, SCI and their respective Boards of Directors shall (1) take all action reasonably necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to this Agreement, the Merger or any of the other transactions contemplated by this Agreement and (2) if any state takeover statute or similar statute becomes applicable to this Agreement, the Merger or any other transactions contemplated by this Agreement, take all action reasonably necessary to ensure that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on this Agreement, the Merger and the other transactions contemplated by this Agreement.

Section 5.5 Indemnification, Exculpation and Insurance.

(a) SCI and Merger Sub agree that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time (and rights for advancement of expenses) now existing in favor of the current or former directors or officers of ITG and its Subsidiaries as provided in their respective certificates of incorporation or by-laws (or comparable organizational documents) and any indemnification or other agreements of ITG as in effect on the date hereof shall be assumed by the Surviving Corporation in the Merger, without further action, consistent with applicable law, as of the Effective Time and shall survive the Merger and shall continue in full force and effect in accordance with their terms.

(b) In the event that the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, SCI shall cause proper provision to be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 5.5.

48

(c) For six years after the Effective Time, SCI shall maintain in effect (i) ITG’s current directors’ and officers’ liability insurance covering acts or omissions occurring prior to the Effective Time covering each person currently covered by ITG’s directors’ and officers’ liability insurance policy and (ii) ITG’s current fiduciary liability insurance policies covering acts or omissions occurring prior to the Effective Time for employees who serve or have served as fiduciaries under or with respect to any ITG benefit plans, in each case on terms with respect to such coverage and amounts no less favorable than those of each such policy in effect on the date hereof; provided that SCI may substitute therefor policies of SCI with respect to coverage and amount no less favorable to such directors, officers or fiduciaries; provided however, that in no event shall SCI be required to pay aggregate premiums for insurance under this Section 5.5(c) in excess of 150% of the amount of the aggregate premiums paid by ITG in 2005 on an annualized basis for such purpose, provided that SCI shall nevertheless be obligated to provide such coverage as may be obtained for such 150% amount.

(d) SCI and Merger Sub agree that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time (and rights for advancement of expenses) now existing in favor of the current or former directors or officers of SCI as provided in its certificate of incorporation or by-laws and any indemnification or other agreements of SCI as in effect on the date hereof shall survive the Merger and shall continue in full force and effect in accordance with their terms.

(e) In the event that SCI or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, SCI shall cause proper provision to be made so that its successors and assigns assume the obligations set forth in this Section 5.5.

(f) For six years after the Effective Time, SCI shall maintain in effect (i) SCI’s current directors’ and officers’ liability insurance covering acts or omissions occurring prior to the Effective Time covering Dr. Daniel Tessoni, and (ii) SCI’s current fiduciary liability insurance policies covering acts or omissions occurring prior to the Effective Time to the extent Dr. Daniel Tessoni serves or has served as a fiduciary under or with respect to any SCI benefit plans, in each case on terms with respect to such coverage and amounts no less favorable than those of each such policy in effect on the date hereof; provided that SCI may substitute therefor policies of SCI with respect to coverage and amount no less favorable to Dr. Daniel Tessoni; provided however, that in no event shall SCI be required to pay aggregate premiums for insurance under this Section 5.5(f) in excess of 150% of the amount of the aggregate premiums paid by SCI in 2005 on an annualized basis for such purpose, provided that SCI shall nevertheless be obligated to provide such coverage as may be obtained for such 150% amount.

(g) The provisions of this Section 5.5 are intended to be for the benefit of, and will be enforceable by, each indemnified party, his or her heirs and his or her

49

representatives and (ii) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise.

Section 5.6 Fees and Expenses. Except as provided in this Section 5.6, all fees and expenses incurred in connection with the Merger, this Agreement, and the transactions contemplated hereby shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated, except that each of SCI and ITG shall bear and pay one-half of the filing fees for the premerger notification and report forms under the HSR Act. All unpaid fees and expenses of the SCI Special Committee and the ITG Special Committee (including any unpaid invoices for fees and expenses of the respective legal and financial advisors to the SCI Special Committee and the ITG Special Committee which have been approved in writing by the applicable committee) shall be paid by SCI to the person incurring such fees and expenses by wire transfer of immediately available funds on or prior to the Closing Date.

Section 5.7 Public Announcements. SCI and ITG will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as either party may determine is required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange or national trading system. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties.

Section 5.8 Tax Treatment. Each of SCI and ITG shall use commercially reasonable efforts to cause the Merger to qualify as a reorganization under the provisions of Section 368 of the Code.

Section 5.9 Inclusion of Fairness Opinion. ITG shall use its commercially reasonable efforts to obtain the consent of SunTrust Robinson Humphrey to permit the inclusion of the opinion of SunTrust Robinson Humphrey referred to in Section 3.1(n) in its entirety in the Form S-4 and the ITG Stockholder Notice. SCI shall use its commercially reasonable efforts to obtain the consent of RSM EquiCo to permit the inclusion of the opinion of RSM EquiCo referred to in Section 3.2(n) in its entirety in the Form S-4.

ARTICLE VI

CONDITIONS PRECEDENT

Section 6.1 Conditions to Each Party’s Obligation To Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions:

(a) ITG and SCI Stockholder Approval. ITG Stockholder Approval of this Agreement and the Merger shall have been obtained. SCI Stockholder Approval of the SCI Charter Amendment shall have been obtained.

50

(b) HSR Act. Any applicable waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired.

(c) No Litigation. No judgment, order, decree, statute, law, ordinance, rule, regulation or injunction entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity of competent jurisdiction or other litigation, legal restraint or prohibition (collectively, “Restraints”) shall be in effect, and there shall not be pending any suit, action, proceeding or investigation by any Governmental Entity (i) seeking to prevent or delay the consummation of the Merger or any material part of the transactions, or that is reasonably likely to require any material divestiture of the business of ITG or of SCI, or (ii) which otherwise is reasonably likely to have a Material Adverse Effect on ITG or SCI, as applicable; provided, however, that each of the parties shall have used its reasonable efforts to prevent the entry of any such Restraints and to appeal as promptly as possible any such Restraints that may be entered.

(d) Form S-4. The Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order and, if the issuance of SCI Common Stock in connection with the Merger is subject to the state securities or “blue sky” laws of any state, shall not be subject to a stop order of any state securities commissioner.

(e) Permits, Authorizations. The parties shall have obtained any and all permits, authorizations, consents, waivers, clearances or approvals required under contracts or agreements or otherwise required for the lawful consummation of the Merger and the consummation of the transactions contemplated by this Agreement, and all such permits, authorizations, consents, waivers, clearances or approvals shall be in full force and effect, in each case, with such exceptions as would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect on ITG or SCI, as applicable.

(f) Dissenting Shares. Appraisal rights pursuant to Section 262 of the DGCL shall have not have been exercised in connection with the Merger in respect of more than 365,850 shares of ITG Common Stock.

Section 6.2 Conditions to Obligations of SCI and Merger Sub. The obligations of SCI and Merger Sub to effect the Merger are further subject to satisfaction or waiver of the following conditions:

(a) Representations and Warranties. The representations and warranties of ITG set forth herein (without giving effect to any qualifications contained therein as to materiality or Material Adverse Effect) shall be true and correct as of the Closing Date as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), with only such exceptions to be true and correct as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect with respect to ITG, and ITG shall have delivered to SCI a certificate to

51

such effect signed on behalf of ITG by an executive officer of ITG and dated as of the Closing Date.

(b) Performance of Obligations of ITG. ITG shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and ITG shall have delivered to SCI a certificate to such effect signed on behalf of ITG by an executive officer of ITG and dated as of the Closing Date.

(c) Financial Advisor Opinion. The opinion of RSM EquiCo, financial advisor to the SCI Special Committee, shall not have been withdrawn or changed in a manner adverse to SCI.

(d) FIRPTA Certificate. SCI shall have received an affidavit of ITG certifying that it is not a United States real property holding corporation under Section 897 of the Code.

(e) No Material Adverse Effect. There shall have been no changes, other than changes contemplated by this Agreement, in the business, operations, condition (financial or otherwise), assets or liabilities of ITG and its Subsidiaries (regardless of whether such events or changes are inconsistent with the representations and warranties of ITG set forth herein) that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect with respect to ITG.

(f) Escrow Agreement. The Escrow Agreement shall have been duly executed by the parties thereto.

Section 6.3 Conditions to Obligations of ITG. The obligation of ITG to effect the Merger is further subject to satisfaction or waiver of the following conditions:

(a) Representations and Warranties. The representations and warranties of SCI and Merger Sub set forth herein (without giving effect to any qualifications contained therein as to materiality or Material Adverse Effect) shall be true and correct as of the Closing Date as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), with only such exceptions to be true and correct as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect with respect to SCI, and SCI shall have delivered to ITG a certificate to such effect signed on behalf of SCI by an executive officer of SCI and dated as of the Closing Date.

(b) Performance of Obligations of SCI and Merger Sub. SCI and Merger Sub shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and SCI shall have delivered to ITG a certificate to such effect signed on behalf of SCI by an executive officer of SCI and dated as of the Closing Date.

(c) Financial Advisor Opinion. The opinion of SunTrust Robinson Humphrey, financial advisor to the ITG Special Committee, shall not have been withdrawn or changed in a manner adverse to ITG.

52

(d) SCI Charter Amendment. The SCI Charter Amendment shall have been duly filed with the Delaware Secretary of State and shall be in full force and effect.

(e) No Material Adverse Effect. There shall have been no changes, other than changes contemplated by this Agreement, in the business, operations, condition (financial or otherwise), assets or liabilities of SCI and its Subsidiaries (regardless of whether such events or changes are inconsistent with the representations and warranties of SCI set forth herein) that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect with respect to SCI.

(f) Escrow Agreement. The Escrow Agreement shall have been duly executed by the parties thereto.

ARTICLE VII

TERMINATION, AMENDMENT AND WAIVER

Section 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after ITG Stockholder Approval or SCI Stockholder Approval:

(a) by mutual written consent of SCI and ITG;

(b) by either SCI or ITG:

(i) if the Merger shall not have been consummated by March 31, 2007 (the “Outside Date”); provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Merger to be consummated by such time;

(ii) if SCI Stockholder Approval of the SCI Charter Amendment or ITG Stockholder Approval of this Agreement and the Merger has not been obtained by the Outside Date;

(iii) if any Restraint having any of the effects set forth in Section 6.1(c) shall be in effect and shall have become final and nonappealable; provided that the party seeking to terminate this Agreement pursuant to this Section 7.1(b)(iii) shall have used reasonable best efforts to prevent the entry of and to remove such Restraint;

(c) by SCI, if ITG shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.2(a) or (b), and (B) has not been or is incapable of being cured by ITG within 30 calendar days after receipt of written notice from SCI; or

53

(d) by ITG, if SCI shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.3(a) or (b), and (B) has not been or is incapable of being cured by SCI within 30 calendar days after receipt of written notice from ITG.

Section 7.2 Amendment. This Agreement may be amended by the parties at any time before or after ITG Stockholder Approval; provided, however, that after such approval, there shall not be made any amendment that by law requires further approval by the stockholders of ITG without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.

Section 7.3 Extension; Waiver. At any time prior to the Effective Time, a party may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights.

ARTICLE VIII

SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION

Section 8.1 Survival of Representations and Warranties; Indemnification Limitations.

(a) The representations and warranties of the parties contained in this Agreement, or in any schedule or exhibit or other writing delivered pursuant to the provisions of this Agreement or in connection with the transactions contemplated hereby, shall survive the Closing for a period ending on the earlier of (i) eighteen (18) months after the Effective Time or (ii) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of SCI Common Stock to the public with aggregate gross proceeds (before deduction of expenses and underwriting commissions) to SCI of at least $25,000,000 and an aggregate equity value of SCI of at least $250 million, provided that the shares of SCI Common Stock covered by such registration statement are listed for trading on either the New York Stock Exchange or the NASDAQ Exchange (the “Survival Period”). Any Indemnity Claim (defined below) pursuant to this Article VIII must be made prior to the end of the Survival Period, provided that, for the avoidance of doubt, any such Indemnity Claim in respect of which notice is given pursuant to Section 8.2(f) below prior to the end of the Survival Period may continue to be pursued by the Indemnified Party (defined below) notwithstanding the expiration of the Survival Period prior to resolution of such Indemnity Claim and, provided further, that if either party makes an Indemnity Claim within ten (10) Business Days prior to the end of the Survival

54

Period, then the other party shall have ten (10) Business Days after such Indemnity Claim is made in which to make an Indemnity Claim.

(b) The indemnification provided for in this Article VIII shall be the sole and exclusive remedy for monetary damages for any breach of this Agreement or the representations, warranties, covenants or agreements herein by the parties hereto.

(c) In calculating the amount of any Losses recoverable pursuant to Section 8.2, the amount of such Losses shall be reduced by (i) any insurance proceeds actually received by SCI or its Subsidiary relating to such Loss, net of any related deductible and any expenses paid by SCI or its Subsidiary to obtain such proceeds, (ii) any recoveries actually received from third parties by SCI or its Subsidiary pursuant to indemnification (or otherwise) with respect thereto, net of any expenses incurred by SCI or its Subsidiary in obtaining such third party payment, and (iii) the amount of any net Tax benefit actually realized by SCI or its Subsidiary and resulting from the incurrence or payment of such Losses. The parties agree to treat any indemnification payment pursuant to this Article VIII as an adjustment to the Merger Consideration for all Tax purposes unless otherwise required by applicable law.

(d) Notwithstanding anything herein to the contrary, an Indemnifying Party shall not be liable to the Indemnified Party for indirect damages for “lost profits” or loss of business opportunity of SCI or its Subsidiary, or for special, punitive or exemplary Losses, except to the extent paid by SCI or its Subsidiary pursuant to a third-party claim.

Section 8.2 Indemnification. The parties agree to indemnify each other as follows:

(a) SCI’s Indemnity. SCI agrees to indemnify and defend ITG from and against any and all damages, claims, deficiencies, losses, liabilities, obligations, diminution of value, and expenses (including reasonable attorneys’ fees) of every kind and description (collectively, “Losses”), including any Losses incurred by an officer or director of ITG, arising from or relating to (i) any breach of representation or warranty hereunder by SCI or Merger Sub, or under any certificate delivered by SCI or Merger Sub in accordance herewith, and (ii) any other nonfulfillment of any covenants or other obligations of SCI or Merger Sub under this Agreement.

(b) ITG’s Indemnity. ITG agrees to indemnify and defend SCI from and against any and all Losses, including any Losses incurred by an officer of director of SCI, arising from or relating to (i) any breach of representation or warranty hereunder by ITG, or under any certificate delivered by ITG in accordance herewith, and (ii) any other nonfulfillment of any covenants or other obligations of ITG under this Agreement.

(c) Materiality. For purposes of this Section 8.2, in determining whether there has been a breach of a representation or warranty by a party, or the amount of any Losses arising from or related to a breach of a representation or warranty, the qualifications as to the materiality of such matters (or words of similar import, including “material,” “in all material respects” and “Material Adverse Effect”) set forth in the representations and warranties of such party shall be disregarded.

55

(d) ITG Stockholder Representative.

(i) Effective upon the Closing Date, Stephen Bosworth is hereby appointed, authorized and empowered to act as the stockholder representative for the benefit of the holders of ITG Common Stock (which for purposes of this Section 8.2 shall not include holders of any Dissenting Shares), as the exclusive agent and attorney-in-fact to act on behalf of each of the holders of ITG Common Stock, in connection with and to facilitate the consummation of the transactions contemplated hereby (the “ITG Stockholder Representative”), which shall include the power and authority:

(A) to execute and deliver the Escrow Agreement (with such modifications or changes therein as to which the ITG Stockholder Representative, in his sole discretion, shall have consented) and to agree to such amendments or modifications thereto as the ITG Stockholder Representative, in his sole discretion, determines to be desirable;

(B) to execute and deliver such waivers and consents in connection with this Agreement, the Escrow Agreement and each other agreement, document, instrument or certificate referred to herein or therein or the transactions provided for herein or therein as the ITG Stockholder Representative, in his sole discretion, may deem necessary or desirable;

(C) as representative, to enforce and protect the rights and interests of the holders of ITG Common Stock (including the ITG Stockholder Representative) and to enforce and protect the rights and interests of the ITG Stockholder Representative arising out of or under or in any manner relating to this Agreement, the Escrow Agreement and each other agreement, document, instrument or certificate referred to herein or therein or the transactions provided for herein or therein (including, without limitation, in connection with any and all Indemnity Claims), and to take any and all actions which the ITG Stockholder Representative believes are necessary or appropriate under either the Escrow Agreement and/or this Agreement for and on behalf of the holders of ITG Common Stock, including, without limitation, asserting or pursuing any Indemnity Claim (as defined below), compromising or settling any such Indemnity Claims, conducting negotiations regarding Indemnity Claims, and, in connection therewith, to (A) assert any Indemnity Claim or institute any action, proceeding or investigation; (B) investigate, defend, contest or litigate any Indemnity Claim initiated by any person or entity, or by any Governmental Authority against the ITG Stockholder Representative, any holder of ITG Common Stock and/or the ITG Escrow Fund and receive process on behalf of any or all in any such Indemnity Claim and compromise or settle on such terms as the ITG Stockholder Representative shall determine to be appropriate, and give receipts, releases and discharges with respect to, any such Indemnity Claim; (C) file any proofs of debt, claims and petitions as the ITG Stockholder Representative may

56

deem advisable or necessary; (D) settle or compromise any claims asserted under the Escrow Agreement; and (E) file and prosecute appeals from any decision, judgment or award rendered in any such action, proceeding or investigation; provided that it is understood that the ITG Stockholder Representative shall not have any obligation to take any of such actions referenced in this Section 8.2(d)(i), and shall not have any liability for any failure to take any such actions;

(D) to refrain from enforcing any right of any holder of ITG Common Stock or any of them and/or the ITG Stockholder Representative arising out of or under or in any manner relating to this Agreement, the Escrow Agreement or any other agreement, instrument or document in connection with the foregoing; provided, however, that no such failure to act on the part of the ITG Stockholder Representative, except as otherwise provided in this Agreement or in the Escrow Agreement, shall be deemed a waiver of any such right or interest by the ITG Stockholder Representative or by any holder of ITG Common Stock unless such waiver is in writing signed by the waiving party or by the ITG Stockholder Representative; and

(E) to make, execute acknowledge and deliver this Agreement, the Escrow Agreement, all such other agreements, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and other writings, and, in general, to do any and all things and to take any and all action that the ITG Stockholder Representative, in its sole and absolute discretion, may consider necessary or proper or convenient in connection with or to carry out the transactions contemplated by this Agreement, the Escrow Agreement, and all other agreements, documents or instruments referred to herein or therein or executed in connection herewith and therewith.

(ii) SCI shall be responsible for the payment of any reasonable expenses incurred by the ITG Stockholder Representative in his capacity as the ITG Stockholder Representative, including, but not limited to any attorneys’, accountants’ and other experts’ fees. In connection with this Agreement, the Escrow Agreement and any instrument, agreement or document relating hereto or thereto, and in exercising or failing to exercise all or any of the powers conferred upon the ITG Stockholder Representative hereunder (i) the ITG Stockholder Representative and its officers, employees, partners and Affiliates (collectively, the “ITG Stockholder Representative Parties”) shall incur no responsibility whatsoever to any holder of ITG Common Stock by reason of any error in judgment or other act or omission performed or omitted under this Agreement or in connection with the Escrow Agreement or any such other agreement, instrument or document, excepting only responsibility for any act or failure to act that is finally adjudicated to constitute willful misconduct or gross negligence, and (ii) the ITG Stockholder Representative shall be entitled to rely on the advice of counsel, public accountants or other independent experts that he determines in good faith to be experienced in the matter at issue, and any error in judgment or

57

other act or omission of the ITG Stockholder Representative Parties pursuant to such advice shall in no event constitute willful misconduct or gross negligence that could under any circumstances subject the ITG Stockholder Representative Parties to liability to any holder of ITG Common Stock. SCI shall indemnify the ITG Stockholder Representative Parties against all losses, damages, liabilities, claims, obligations, costs and expenses, including reasonable attorneys’, accountants’ and other experts’ fees and the amount of any judgment against them, of any nature whatsoever (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened or any claims whatsoever), arising out of or in connection with any claim, investigation, challenge, action or proceeding or in connection with any appeal thereof, relating to the acts or omissions of the ITG Stockholder Representative Parties hereunder, or under the Escrow Agreement or otherwise. The foregoing indemnification shall not apply in the event of any action or proceeding by a court of competent jurisdiction that finally adjudicates the liability of the ITG Stockholder Representative hereunder for its willful misconduct or gross negligence. In determining whether any Indemnity Claim may exist, the ITG Stockholder Representative or his designee may review such books and records as the ITG Stockholder Representative, in his sole discretion, deems necessary but shall have no responsibility for seeking, identifying or securing any other information or documentation unless he determines to do so in his absolute discretion.

(iii) All of the indemnities, immunities and powers granted to the ITG Stockholder Representative Parties under this Agreement shall survive the Closing Date and/or any termination of this Agreement and/or the Escrow Agreement.

(iv) ITG and SCI shall have the right to rely upon all actions taken or omitted to be taken by the ITG Stockholder Representative pursuant to this Agreement and the Escrow Agreement, all of which actions or omissions shall be legally binding upon each holder of ITG Common Stock.

(v) The grant of authority provided for herein (i) is coupled with an interest and shall be irrevocable and survive the death, incompetence, bankruptcy or liquidation of any holder of any ITG Common Stock; and (ii) shall survive the consummation of the transactions contemplated herein.

(vi) Should the ITG Stockholder Representative resign or be unable to serve, the ITG Stockholder Representative may appoint a single substitute agent (who shall not, in any event, be an employee of SCI, ITG or any Subsidiary of SCI or ITG, an Affiliate of WL Ross & Co. LLC or the SCI Stockholder Representative) to take on the responsibility of the ITG Stockholder Representative hereunder, whose appointment shall be effective on the date of the ITG Stockholder Representative’s resignation or incapacity. In the event of the ITG Stockholder Representative’s death or incapacity, holders of ITG Common Stock comprising a majority of the as-converted, fully-diluted shares of ITG

58

Common Stock as of the Closing Date may appoint a successor (who shall not, in any event, be an employee of SCI, ITG or any Subsidiary of SCI or ITG, an Affiliate of WL Ross & Co. LLC or the SCI Stockholder Representative). The ITG Stockholder Representative shall have the absolute right to resign from such position at any time for any reason whatsoever, effective immediately upon delivery of written notice of such resignation to ITG, whether or not a replacement for such position has been selected. The ITG Stockholder Representative shall have no liability or responsibility for any damage or losses that may result from such resignation.

(vii) Upon request of the ITG Stockholder Representative, SCI shall provide, and shall cause each of its officers, employees, accountants, counsel, financial advisors and other representatives to provide, any and all information related to SCI’s (or any of its Subsidiaries’, including the Surviving Corporation) properties, books, contracts, commitments, personnel and records and all other information concerning its business, properties and personnel as the ITG Stockholder Representative may reasonably deem necessary to fulfill his obligations hereunder.

(e) SCI Stockholder Representative.

(i) Effective upon the Closing Date, Dr. Daniel Tessoni is hereby appointed, authorized and empowered to act as the SCI Stockholder Representative for the benefit of the holders of SCI Common Stock as the exclusive agent and attorney-in-fact to act on behalf of each of the holders of SCI Common Stock in connection with and to facilitate the consummation of the transactions contemplated hereby. For purposes hereof, “SCI Stockholder Representative” shall mean, at any time there is only one member of the Board of Directors of SCI who is not an Affiliate of WL Ross & Co. LLC, an employee of SCI or any Subsidiary thereof, or the ITG Stockholder Representative (an “SCI Independent Director”), such SCI Independent Director, and, if there is at such time more than one SCI Independent Director, the SCI Stockholder Representative shall be the SCI Independent Director so appointed to act by a majority of the SCI Independent Directors. In no event shall the SCI Stockholder Representative and the ITG Stockholder Representative be the same individual. The SCI Stockholder Representative shall act in connection with and facilitate the consummation of the transactions contemplated hereby which shall include the power and authority:

(A) to execute and deliver the Escrow Agreement (with such modifications or changes therein as to which the SCI Stockholder Representative, in his sole discretion, shall have consented) and to agree to such amendments or modifications thereto as the SCI Stockholder Representative, in his sole discretion, determines to be desirable;

(B) to execute and deliver such waivers and consents in connection with this Agreement, the Escrow Agreement and each other agreement,

59

document, instrument or certificate referred to herein or therein or the transactions provided for herein or therein as the SCI Stockholder Representative, in his sole discretion, may deem necessary or desirable;

(C) as representative, to enforce and protect the rights and interests of the holders of SCI Common Stock (including the SCI Stockholder Representative) and to enforce and protect the rights and interests of the SCI Stockholder Representative arising out of or under or in any manner relating to this Agreement, the Escrow Agreement and each other agreement, document, instrument or certificate referred to herein or therein or the transactions provided for herein or therein (including, without limitation, in connection with any and all Indemnity Claims), and to take any and all actions which the SCI Stockholder Representative believes are necessary or appropriate under either of the Escrow Agreement and/or this Agreement for and on behalf of the holders of SCI Common Stock, including, without limitation, asserting or pursuing any Indemnity Claim (as defined below), compromising or settling any such Indemnity Claims, conducting negotiations regarding Indemnity Claims, and, in connection therewith, to (A) assert any Indemnity Claim or institute any action, proceeding or investigation; (B) investigate, defend, contest or litigate any Indemnity Claim initiated by any person or entity, or by any Governmental Authority against the SCI Stockholder Representative, any holder of SCI Common Stock and/or the SCI Escrow Fund and receive process on behalf of any or all in any such Indemnity Claim and compromise or settle on such terms as the SCI Stockholder Representative shall determine to be appropriate, and give receipts, releases and discharges with respect to, any such Indemnity Claim; (C) file any proofs of debt, claims and petitions as the SCI Stockholder Representative may deem advisable or necessary; (D) settle or compromise any claims asserted under the Escrow Agreement; and (E) file and prosecute appeals from any decision, judgment or award rendered in any such action, proceeding or investigation; provided that it is understood that the SCI Stockholder Representative shall not have any obligation to take any of such actions referenced in this Section 8.2(d)(ii), and shall not have any liability for any failure to take any such actions;

(D) to refrain from enforcing any right of any holder of SCI Common Stock or any of them and/or the SCI Stockholder Representative arising out of or under or in any manner relating to this Agreement, the Escrow Agreement or any other agreement, instrument or document in connection with the foregoing; provided, however, that no such failure to act on the part of the SCI Stockholder Representative, except as otherwise provided in this Agreement or in the Escrow Agreement, shall be deemed a waiver of any such right or interest by the SCI Stockholder Representative or by any holder of SCI Common Stock unless such waiver is in writing signed by the waiving party or by the SCI Stockholder Representative; and

57

(E) to make, execute acknowledge and deliver this Agreement, the Escrow Agreement, all such other agreements, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and other writings, and, in general, to do any and all things and to take any and all action that the SCI Stockholder Representative, in its sole and absolute discretion, may consider necessary or proper or convenient in connection with or to carry out the transactions contemplated by this Agreement, the Escrow Agreement, and all other agreements, documents or instruments referred to herein or therein or executed in connection herewith and therewith.

(ii) SCI shall be responsible for the payment of any reasonable expenses incurred by the SCI Stockholder Representative in his capacity as the SCI Stockholder Representative, including, but not limited to any attorneys’, accountants’ and other experts’ fees. In connection with this Agreement, the Escrow Agreement and any instrument, agreement or document relating hereto or thereto, and in exercising or failing to exercise all or any of the powers conferred upon the SCI Stockholder Representative hereunder (i) the SCI Stockholder Representative and its officers, employees, partners and Affiliates (collectively, the “SCI Stockholder Representative Parties”) shall incur no responsibility whatsoever to any holder of SCI Common Stock by reason of any error in judgment or other act or omission performed or omitted under this Agreement or in connection with the Escrow Agreement or any such other agreement, instrument or document, excepting only responsibility for any act or failure to act that is finally adjudicated to constitute willful misconduct or gross negligence, and (ii) the SCI Stockholder Representative shall be entitled to rely on the advice of counsel, public accountants or other independent experts that he determines in good faith to be experienced in the matter at issue, and any error in judgment or other act or omission of the SCI Stockholder Representative Parties pursuant to such advice shall in no event constitute willful misconduct or gross negligence that could under any circumstances subject the SCI Stockholder Representative Parties to liability to any holder of SCI Common Stock. SCI shall indemnify the SCI Stockholder Representative Parties against all losses, damages, liabilities, claims, obligations, costs and expenses, including reasonable attorneys’, accountants’ and other experts’ fees and the amount of any judgment against them, of any nature whatsoever (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened or any claims whatsoever), arising out of or in connection with any claim, investigation, challenge, action or proceeding or in connection with any appeal thereof, relating to the acts or omissions of the SCI Stockholder Representative Parties hereunder, or under the Escrow Agreement or otherwise. The foregoing indemnification shall not apply in the event of any action or proceeding by a court of competent jurisdiction that finally adjudicates the liability of the SCI Stockholder Representative hereunder for its willful misconduct or gross negligence. In determining whether any Indemnity Claim may exist, SCI Stockholder Representative or his designee may review such books and records as the SCI Stockholder Representative, in his sole discretion,

58

deems necessary but shall have no responsibility for seeking, identifying or securing any other information or documentation unless he determines to do so in his absolute discretion.

(iii) All of the indemnities, immunities and powers granted to the SCI Stockholder Representative Parties under this Agreement shall survive the Closing Date and/or any termination of this Agreement and/or the Escrow Agreement.

(iv) SCI shall have the right to rely upon all actions taken or omitted to be taken by the SCI Stockholder Representative pursuant to this Agreement and the Escrow Agreement, all of which actions or omissions shall be legally binding upon each holder of SCI Common Stock.

(v) The grant of authority provided for herein (i) is coupled with an interest and shall be irrevocable and survive the death, incompetence, bankruptcy or liquidation of any holder of any SCI Common Stock; and (ii) shall survive the consummation of the transactions contemplated herein.

(vi) Upon request of the SCI Stockholder Representative, SCI shall provide, and shall cause each of its officers, employees, accountants, counsel, financial advisors and other representatives to provide, any and all information related to SCI’s (or any of its Subsidiaries’, including the Surviving Corporation) properties, books, contracts, commitments, personnel and records and all other information concerning its business, properties and personnel as the SCI Stockholder Representative may reasonably deem necessary to fulfill his obligations hereunder.

(f) Notice and Defense of Indemnity Claims. A party hereto responsible for indemnifying against any matter pursuant to this Agreement is referred to herein as the “Indemnifying Party” and a party entitled to indemnification hereunder is referred to as the “Indemnified Party.” An Indemnified Party under this Agreement shall give prompt written notice to the Indemnifying Party hereunder with respect to any assertion by the Indemnified Party or by a third party of any liability which the Indemnified Party has reason to believe might give rise to a claim for indemnification under this Section 8.2 (an “Indemnity Claim”). Such notice shall set forth in reasonable detail the nature of such action or claim, include copies of any written complaint, summons, correspondence or other communication from the party asserting the claim or initiating the action and, to the extent reasonably practicable, a reasonable estimate made in good faith of the Losses that the Indemnified Party believes are indemnifiable. As to any such Indemnity Claim which involves a third party, SCI shall assume and control the defense of such Indemnity Claim against such third party.

(g) Resolution of Indemnity Claims. The ITG Stockholder Representative and the SCI Stockholder Representative shall attempt to resolve any Indemnity Claim arising hereunder through negotiation in good faith for a period of not less than thirty (30) days after notice of such Indemnity Claim is provided pursuant to Section 8.2(f) above.

59

Any Indemnity Claims which are not resolved through negotiation in good faith by the ITG Stockholder Representative and the SCI Stockholder Representative shall be resolved pursuant to binding arbitration in accordance with this Section 8.2(g). The arbitration shall be conducted by a single arbitrator in New York, New York in accordance with the commercial arbitration rules of the American Arbitration Association (as modified by this Section 8.2(g)), with such arbitrator to be selected in accordance with such commercial arbitration rules. Within thirty (30) days of the hearing, the arbitrator shall render a decision concerning all contested issues considered during the arbitration and the arbitrator shall notify the parties in writing of his or her decision, setting forth the dollar amount, if any, awarded. The arbitrator’s decision shall be final and binding on the parties, and notice of award, if any, shall be given to the parties not later than thirty (30) days after the date set for the hearing. In the event that there shall be more than one dispute to be arbitrated, the parties agree that all pending disputes shall be consolidated to the extent feasible.

(h) Satisfaction of Indemnity Claims. Satisfaction of Indemnity Claims shall be made in accordance with the terms of the Escrow Agreement. Notwithstanding anything in this Agreement to the contrary, SCI’s sole recourse with respect to Indemnity Claims made by it under this Section 8.2 shall be limited to the ITG Escrow Fund and ITG shall not be obligated to indemnify SCI, or its successors and assigns, for any amount in excess of the aggregate amount of the ITG Escrow Fund. Notwithstanding anything in this Agreement to the contrary, ITG’s sole recourse with respect to Indemnity Claims made by it under this Section 8.2 shall be limited to the SCI Escrow Fund and SCI shall not be obligated to indemnify ITG, or its successors and assigns, for any amount in excess of the aggregate amount of the SCI Escrow Fund.

(i) Indemnity Threshold. Notwithstanding the foregoing provisions of this Article VIII, neither party shall be obligated to indemnify the other, or its successors and assigns, for any Indemnity Claims unless and until the aggregate amount of those Indemnity Claims that the Indemnifying Party otherwise would be obligated to pay exceeds $1,000,000 (the “Threshold”), whereupon the full amount of Losses both above and below the Threshold and up to the amount of the ITG Escrow Fund or SCI Escrow Fund, as the case may be, shall be recoverable by the Indemnified Party; provided, that any Losses suffered by an Indemnified Party arising out of fraud on the part of the Indemnified Party shall not be subject to the Threshold.

ARTICLE IX

GENERAL PROVISIONS

Section 9.1 Authorization. No action taken or purported to have been taken on behalf of ITG after the date hereof with respect to any Specified Matter shall be valid or effective unless such action has been approved by ITG’s Board of Directors, including approval of the ITG Special Committee member. No action taken or purported to have been taken on behalf of SCI after the date hereof with respect to any Specified Matter shall be valid or effective unless such

60

action has been approved by SCI’s Board of Directors, including approval of the SCI Special Committee member. For purposes of this Agreement, the following shall be deemed to be a “Specified Matter”: (i) any amendment or termination by the applicable party of, and any exercise or enforcement by the applicable party of any right under, this Agreement, (ii) an extension of time for performance granted by such party to the other, (iii) any waiver of any right, condition or obligation by the applicable party under this Agreement, (iv) any action or failure to act that would reasonably be expected to result in a breach by such party, (v) in the case of ITG, settlement of any demands received for appraisal of ITG Common Stock in connection with the Merger, (vi) any change in authority or membership in the applicable party’s special committee of its board of directors and (vii) any exercise by ITG or SCI, as the case may be, of such party’s consent rights under this Agreement.

Section 9.2 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice:

(a) if to SCI or Merger Sub,

if prior to the Effective Time, to

Safety Components International, Inc.

41 Stevens Street

Greenville, South Carolina 29605

Attention: Stephen Duerk and Dr. Daniel Tessoni

if after the Effective Time, to

ITG, Inc. f/k/a Safety Components International, Inc.

804 Green Valley Road, Suite 300

Greensboro, North Carolina 27408

Attention: Stephen Duerk and Dr. Daniel Tessoni

with a copy (both prior to and after the Effective Time) to:

Nixon Peabody, LLP

1100 Clinton Square

Rochester, New York 14604

Attention: James A. Locke III, Esq.

with an additional copy (both prior to and after the Effective Time) to:

Wyche Burgess Freeman & Parham, PA

44 West Camperdown Way, 29601

Post Office Box 728

Greenville, South Carolina 29602-0728

Attention: Cary Hall, Esq. and Eric Graben, Esq.

61

and

(b) if to ITG,

if prior to the Effective Time, to

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro, North Carolina 27408

Attention: Joseph L. Gorga and Stephen Bosworth

if after the Effective Time, to

Safety Components International, Inc. f/k/a

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro, North Carolina 27408

Attention: Joseph L. Gorga and Stephen Bosworth

with a copy (both prior to and after the Effective Time) to:

Kilpatrick Stockton LLP

1100 Peachtree Street, Suite 2800

Atlanta, Georgia 30309-4530

Attention: David Stockton, Esq.

(c) in either case, with copies to:

WL Ross & Co. LLC

101 East 52^nd Street

New York, New York 10022

Attention: David L. Wax

and

Jones Day

1420 Peachtree Street

Suite 800

Atlanta, Georgia 30309

Attention: Lizanne Thomas, Esq.

Section 9.3 Definitions.

(a) For purposes of this Agreement, the following terms shall have the meanings set forth below:

(i) an “Affiliate” of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is

62

under common control with, such first person, where “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise;

(ii) “Affiliated Group” means the U.S. consolidated group of which International Textile Holdings, Inc. is the common parent.

(iii) “Business Day” means any day other than Saturday, Sunday or any other day on which banks are legally permitted to be closed in New York;

(iv) “Controlling Entity” means any of International Textile Holdings, Inc., WLR Recovery Fund II L.P., Absolute Recovery Hedge Fund, Ltd., Absolute Recovery Hedge Fund L.P., or WL Ross & Co. LLC.;

(v) “Environmental Law” means any applicable law, order, regulation, decree, permit, license, code, enforceable standard, ordinance or other federal, state, county, provincial, local or foreign governmental requirements in effect as of the date hereof or as may hereafter be adopted relating to pollution, the protection of human health or the environment, or the spill or release of any Hazardous Substance into the environment;

(vi) “Escrow Agent” means U.S. Bank, or such other bank on which the parties, acting reasonably, may agree;

(vii) “Escrow Agreement” means the Escrow Agreement to be entered into on the Closing Date by and among SCI, ITG, the SCI Stockholder Representative, the ITG Stockholder Representative and the Escrow Agent, in substantially the form attached hereto as Exhibit C, with such changes therein to which the parties, acting reasonably, may agree;

(viii) “Hazardous Substance” means any petroleum, petroleum by-products, polychlorinated biphenyls and any other chemicals, materials, substances or wastes, including without limitation, mycotoxins, which are currently defined or regulated as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “extremely hazardous wastes,” “restricted hazardous wastes,” “regulated materials,” “toxic substances,” “toxic pollutants,” “toxic air pollutants” or “hazardous air pollutants” under any Environmental Law;

(ix) “Knowledge” of any person that is not an individual means, with respect to any specific matter, the actual knowledge of such person’s executive officers and other officers having primary responsibility for such matter, after due inquiry;

(x) “Material Adverse Effect” means, when used in connection with ITG or SCI, any change, effect, event, occurrence or state of facts (i) that is materially adverse to the business, operations, conditions (financial or otherwise), assets or liabilities of such party (or the Surviving Corporation when used with

63

respect to ITG) and its Subsidiaries, taken as a whole, or (ii) preventing or materially delaying the consummation of the Merger, other than any change, effect, event, occurrence or state of facts (x) relating to the economy in general which does not have a disproportionate impact on such party or (y) relating to the industries in which such party operates in general and not specifically relating to such party;

(xi) “Permitted Liens” means (a) Liens for Taxes, assessments and other charges of Governmental Entities not yet due and payable or being contested in good faith by appropriate proceedings for which collection and enforcement against the property is stayed, (b) mechanics’, workmens’, repairmens’, warehousemens’, carriers’ or other like Liens arising or incurred in the ordinary course of business or by operation of Law if the underlying obligations are not delinquent, (c) with respect to the Real Property only (i) any conditions that may be shown by a current, accurate survey, (ii) easements, encroachment, restrictions, rights of way and any other non-monetary title defects, and (iii) zoning, building and other similar restrictions, and (d) with respect to SCI and its Subsidiaries, Liens granted in connection with (i) the Loan and Security Agreement dated October 11, 2000, as amended, between SCI, certain of its subsidiaries and Wachovia Bank, National Association and (ii) the March 2002 Amendment Number 1 to the Credit Facility Agreement dated May 29, 1997 between HVB Bank Czech Republic a.s, (formerly, Bank Austria) and Automotive Safety Components International s.r.o. and the related SCI March 2002 $500,000 Guarantee thereof, and (e) with respect to ITG and its Subsidiaries, Liens granted in connection with (i) the Credit Agreement dated August 2, 2004, by and among ITG, certain of its subsidiaries, Bank of America, N.A., General Electric Capital Corporation and The CIT Group/Commercial Services, Inc., (ii) the Bank of China Foreign Exchange Loan by and between Cone Denim (Jiaxing) Limited and the Jiaxing Municipal Branch of Bank of China and (iii) the Amended and Restated Term Loan Agreement dated June 30, 2006, by and between Parras Cone de Mexico, S.A. de C.V. and General Electric Capital Corporation.

(xii) “person” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity;

(xiii) “Solid Waste” means any material defined as solid waste under the Federal Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., any state counterpart, or any other applicable Environmental Law;

(xiv) “Subsidiary” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person;

64

(xv) “Taxes” shall mean (a) any federal, state, local, foreign and other income, alternative or add-on minimum, accumulated earnings, personal holding company, franchise, capital stock, profits, windfall profits, gross receipts, value added, sales, use, excise (including the golden parachute excise tax imposed by Section 4999 of the Code, the deferred compensation excise tax imposed by Section 409A of the Code, and the green mail excise tax imposed by Section 5881 of the Code), customs duties, transfer, conveyance, registration, stamp, documentation, recording, premium, severance, environmental (including taxes under Section 59A of the Code), real property, real property transfer gains, personal property, ad valorem, intangibles, rent, occupancy, firearm, ammunition, license, occupation, employment, unemployment insurance, social security, disability, workers’ compensation, payroll, withholding, estimated or any other tax, duty, governmental fee or other like assessment or charge of any kind whatsoever (including all interest and penalties thereon and additions thereto whether disputed or not) imposed by any Governmental Entity and (b) any obligations under any agreements or arrangements with respect to Taxes described in clause (a) above.

(b) Each of the following terms is defined in this Section set forth opposite such term:

Adjusted Option	Section 2.4(a)(i)
Agreement	First paragraph
Certificates	Section 2.2(b)
Certificate of Merger	Section 1.3
Closing	Section 1.2
Closing Date	Section 1.2
Closing Date Merger Consideration	Section 2.1(d)
COBRA	Section 3.1(o)(iii)
Code	Recital D
Confidentiality Agreement	Section 5.3
DGCL	Section 1.1
Dissenting Shares	Section 2.3(a)

65

Effective Time	Section 1.3
ERISA	Section 3.1(o)(i)
Exchange Act	Section 3.2(e)
Exchange Agent	Section 2.2(a)
Exchange Ratio	Section 2.1(c)
Form S-4	Section 3.1(f)
GAAP	Section 3.1(g)(i)
Governmental Entity	Section 3.1(e)
Holdco	Section 3.1(r)(iv)
HSR Act	Section 3.1(e)
Indemnified Party	Section 8.2(e)
Indemnifying Party	Section 8.2(e)
Indemnity Claim	Section 8.2(f)
IRS	Section 3.1(o)(ii)
ITG	First paragraph
ITG 2005 Top Customers	Section 3.1(y)
ITG Benefit Plans	Section 3.1(o)(i)
ITG Common Stock	Section 2.1(b)
ITG Disclosure Schedule	Section 3.1
ITG Escrow Fund	Section 2.1(d)
ITG Escrow Shares	Section 2.1(d)
ITG Financial Statements	Section 3.1(g)(i)

66

ITG Intellectual Property	Section 3.1(w)(i)
ITG Licensed Intellectual Property	Section 3.1(w)(i)
ITG Multiemployer Plans	Section 3.1(o)(i)
ITG Multiple Employer Plans	Section 3.1(o)(i)
ITG Owned Intellectual Property	Section 3.1(w)(i)
ITG Pension Plan	Section 3.1(o)(v)
ITG Plans	Section 3.1(o)(i)
ITG Proceeding	Section 3.1(i)
ITG Scheduled Intellectual Property	Section 3.1(w)(ii)
ITG Special Committee	Recital A
ITG Stock Option	Section 2.4(a)(i)
ITG Stock Plan	Section 2.4(a)(ii)
ITG Stockholder Approval	Section 3.1(d)
ITG Stockholder Notice	Section 5.2
ITG Stockholder Representative	Section 8.2(d)
ITG Stockholder Representative Parties	Section 8.2(d)
ITG Trademarks	Section 3.1(w)(i)
Laws	Section 3.1(j)(i)
Liens	Section 3.1(b)
Losses	Section 8.2(a)
Material Agreement	Section 3.1(s)
Merger	Recital A

67

Merger Consideration	Section 2.1(c)
Merger Sub	First paragraph
Merger Sub Common Stock	Section 3.2(c)(ii)
Non-U.S. ITG Benefit Plans	Section 3.1(o)(xi)
Non-U.S. SCI Benefit Plans	Section 3.2(o)(xi)
Outside Date	Section 7.1(b)(i)
Owned Real Property	Section 3.1(q)(i)
Permits	Section 3.1(j)(ii)
Real Property	Section 3.1(q)(ii)
Real Property Leases	Section 3.1(q)(ii)
Regulatory Agreement	Section 3.1(j)(iii)
Restraints	Section 6.1(c)
RSM EquiCo	Section 3.2(m)
SCI	First paragraph
SCI Benefit Plans	Section 3.2(o)(i)
SCI Charter Amendment	Section 1.7(a)
SCI Common Stock	Section 2.1(c)
SCI Disclosure Schedule	Section 3.2
SCI Dividend Shares	Section 1.8
SCI Escrow Fund	Section 1.8
SCI Escrow Shares	Section 1.8
SCI Independent Director	Section 8.2(e)

68

SCI Intellectual Property	Section 3.2(i)
SCI Licensed Intellectual Property	Section 3.2(i)
SCI Multiemployer Plans	Section 3.2(o)(i)
SCI Multiple Employer Plans	Section 3.2(o)(i)
SCI Owned Intellectual Property	Section 3.2(i)
SCI Pension Plan	Section 3.2(o)(v)
SCI Plans	Section 3.2(o)(i)
SCI Proceeding	Section 3.2(i)
SCI SEC Documents	Section 3.2(g)
SCI Scheduled Intellectual Property	Section 3.2(r)(ii)
SCI Special Committee	Recital A
SCI Stockholder Approval	Section 3.2(d)
SCI Stockholder Representative	Section 8.2(e)
SCI Stockholder Representative Party	Section 8.2(e)
SCI Stockholders’ Meeting	Section 3.2(f)
SCI Trademarks	Section 3.2(r)(i)
SEC	Section 3.1(f)
Securities Act	Section 3.1(f)
Specified Matter	Section 9.1
Survival Period	Section 8.1(a)
Surviving Corporation	Section 1.1
Threshold	Section 8.2(i)

69

Section 9.4 Interpretation. When a reference is made in this Agreement to an Article, Section or Exhibit, such reference shall be to an Article or Section of, or an Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns.

Section 9.5 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

Section 9.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein), (a) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Article II, Section 5.5, Section 5.6, Section 8.2(d) and Section 8.2(e) are not intended to confer upon any person other than the parties any rights or remedies.

Section 9.7 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof.

Section 9.8 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either of the parties hereto without the prior written consent of the other party. Any assignment in violation of the preceding sentence shall be void. Subject to the preceding two sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

Section 9.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

70

IN WITNESS WHEREOF, SCI, Merger Sub and ITG have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.

SAFETY COMPONENTS INTERNATIONAL, INC.
By	/s/ Stephen B. Duerk
	Name: Stephen B. Duerk
	Title: President
SCI MERGER SUB, INC.
By	/s/ Stephen B. Duerk
	Name: Stephen B. Duerk
	Title: President
INTERNATIONAL TEXTILE GROUP, INC.
By	/s/ Joseph L. Gorga
	Name: Joseph L. Gorga
	Title: President & CEO

71

EX-4.1

EXHIBIT 4.1

FORM OF STOCKHOLDERS AGREEMENT

by and among

INTERNATIONAL TEXTILE GROUP, INC.,

WLR RECOVERY FUND II, L.P.,

WLR RECOVERY FUND III, L.P.,

and

THE OTHER INVESTORS FROM TIME TO TIME PARTY HERETO

Dated as of March 2, 2007

STOCKHOLDERS AGREEMENT

THIS STOCKHOLDERS AGREEMENT, dated as of March 2, 2007 (the "Agreement"), is made by and among International Textile Group, Inc., a Delaware corporation (the "Company"), WLR Recovery Fund II, L.P., a Delaware limited partnership (“Fund II”), WLR Recovery Fund III, L.P., a Delaware limited partnership (“Fund III” and, together with Fund II, the "WLR Funds"), and such other Persons listed from time to time on Schedule A hereto, as such schedule may be updated from time to time (collectively with the WLR Funds, the "Stockholders").

W I T N E S S E T H:

WHEREAS, contemporaneously with the execution and delivery of this Agreement, in one or more transactions the Company is issuing and selling shares of its Series A Convertible Preferred Stock (the "Series A Preferred Stock") to the Stockholders as of the date hereof.

WHEREAS the Company and the Stockholders believe it would be in their mutual best interests to ensure a degree of continuity of ownership of, and to impose certain restrictions and obligations and grant certain additional rights with respect to, the Series A Preferred Stock.

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

ARTICLE I

Certain Definitions

As used in this Agreement, the following terms shall have the following respective meanings:

"Affiliate" with respect to a Person, shall mean any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Agent" means any Person authorized to act and who acts on behalf of any Stockholder with respect to the transactions contemplated by this Agreement.

"Business Day" means any day other than Saturday or Sunday or any other day on which banks in New York are permitted or required to close.

- 2 -

"Capital Stock" means the Common Stock, Series A Preferred Stock and any other class of capital stock of the Company that may be outstanding from time to time and any Capital Stock Equivalents.

"Commission" means the Securities and Exchange Commission.

"Common Stock" means the Company’s common stock, $.01 par value per share.

"Investors" means those Persons set forth on Schedule A hereto, other than the WLR Funds and any WLR Permitted Transferee.

"Permitted Transferee" shall mean (i) the spouse and the natural or legally adopted children of a Stockholder; (ii) any party to, or any other Person who, upon a previous permitted transfer of Shares, becomes a signatory to, this Agreement pursuant to Section 2.3; (iii) the executors, administrators, testamentary trustees, legatees, beneficiaries or successors by testamentary or intestate succession of a Stockholder; (iv) a trust or custodianship the beneficiaries of which include only Stockholders or their Permitted Transferees as herein defined; (v) a corporation or partnership, the stockholders or limited and general partners of which include (and continue to include during the term such entity holds any equity interest in the Company) only Permitted Transferees as defined herein; (vi) with respect to any normal course distribution (including a winding up) in accordance with the agreements governing either Fund II or Fund III, by Fund II or Fund III, as applicable, any general or limited partner of Fund II or Fund III, as applicable as of March 2, 2007; (vii) with respect to a Stockholder, any other Person that is an Affiliate (including, for purposes of clarity, any co-invest or side-by-side funds) of such Stockholder and that is an "accredited investor" as defined in Regulation D promulgated under the Securities Act; and (viii) any Permitted Transferee of a Permitted Transferee as defined herein.

"Person" shall mean a corporation, association, partnership, joint venture, organization, business, individual, trust or any other entity or organization, including a government or any subdivision or agency thereof.

"Public Offering" means any primary or secondary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act, other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor or similar form.

"Qualified Public Offering" means the first underwritten Public Offering of Common Stock pursuant to an effective registration statement under the Securities Act, provided that (i) such registration statement covers the offer and sale of Common Stock of which the aggregate net proceeds exceed $50.0 million and (ii) such Common Stock is listed for trading on either the New York Stock Exchange, the American Stock Exchange, the Pacific Stock Exchange, the Boston Stock Exchange, the Philadelphia Stock Exchange or the NASDAQ Global Select Market, other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor or similar form.

"Registrable Shares" means any Common Stock which may be issued or issuable upon conversion, exchange or redemption of the Series A Preferred Stock, or issued or

- 3 -

distributed in respect thereof by way of stock dividend or distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation, or otherwise. Notwithstanding the foregoing, Registrable Shares will cease to be Registrable Shares when and to the extent that (i) a registration statement relating to such securities has been declared effective under the Securities Act and such Registrable Shares have been disposed of pursuant to such effective registration statement, (ii) such Registrable Shares have been transferred to a party in violation of this Agreement, (iii) such Registrable Shares have ceased to be outstanding, or (iv) all such securities owned by a Stockholder may be sold in a single transaction without registration pursuant to Rule 144.

"Registration Expenses" means all (i) registration and filing fees with the Commission, (ii) fees and expenses of compliance with state securities or blue sky laws (including without limitation reasonable fees and disbursements of a qualified independent underwriter, if any, counsel in connection therewith and the reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Shares), (iii) printing expenses, (iv) internal expenses of the Company (including without limitation all salaries and expenses of officers and employees performing legal or accounting duties), (v) fees and expenses of counsel and independent public accountants for the Company, (vi) fees and expenses of any additional experts retained by the Company in connection with such registration, (vii) fees and expenses of listing the Registrable Shares, if any, (viii) transfer taxes, and (ix) reasonable fees and expenses of one counsel for the Stockholders, which counsel will be selected by the Stockholders holding a majority of Registrable Shares held by the Stockholders and included in the registration.

"Sale of the Company" means the sale of the Company (in one or more transactions), whether by merger, consolidation, sale of all or substantially all of its or its Subsidiaries’ assets or sale of all of the Shares.

"Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"Subsidiary" means any Person of which the securities having a majority of the ordinary voting power in electing the board of directors (or equivalent body) are, at the time as of which any determination is being made, owned by the Company either directly or through one or more of its Subsidiaries.

"Third Party" means, as to any Stockholder, any person other than a Permitted Transferee of such Stockholder.

"Transfer" has the meaning set forth in Section 2.1.1.

“WLR Fund” means either Fund II or Fund III, as applicable

"WLR Permitted Transferee" means (i) a trust or custodianship the beneficiaries of which include only either of the WLR Funds or any general or limited partner of the WLR Fund as of March 2, 2007; (ii) a corporation or partnership, the stockholders or limited and general partners of which include (and continue to include during the term such entity holds any equity interest in the Company) only either of the WLR Funds or any general or limited partner

- 4 -

of either of the WLR Funds as of March 2, 2007; (iii) with respect to any normal course distribution (including a winding up) in accordance with the agreements governing Fund II or Fund III by Fund II or Fund III, as applicable, any general or limited partner of such Fund as of March 2, 2007; and (iv) any WLR Permitted Transferee of a WLR Permitted Transferee as defined herein.

ARTICLE II

Transfers of Stock

2.1 Transfer.

2.1.1 Each Stockholder acknowledges and agrees that they will not, directly or indirectly, offer, sell, transfer, assign or otherwise dispose of, make any exchange, gift, assignment or pledge of, or agree to do any of the foregoing with respect to (collectively, for purposes of Articles II and III hereof only, a "Transfer") any shares of Series A Preferred Stock, except as provided in Section 2.1.2 hereof.

2.1.2 The provisions of Section 2.1.1 shall not apply to any of the following Transfers:

(a) Transfers to a Permitted Transferee provided such Permitted Transferee agrees in writing to be bound as if a Stockholder by the terms of this Agreement;

(b) Transfers to the Company;

(c) Transfers made in compliance with Article III hereof;

(d) Transfers made in compliance with Article IV hereof (including Transfers made pursuant to Rule 144 under the Securities Act).

2.1.3 In the event of a Transfer pursuant to Section 2.1.2(a), the Transferee shall be subject to Section 2.1.1 and may further Transfer Shares to Transferees in compliance with Section 2.1 as if such Transferee were the original Transferor.

2.2 Restrictive Legend. In addition to any other legends required by law, each certificate representing Registrable Shares will include a legend substantially as follows:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCKHOLDERS AGREEMENT, DATED AS OF [•], 2007, AS FROM TIME TO TIME AMENDED, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY."

2.3 Certain Transferees Bound. In the event of a Transfer by a party pursuant to Section 2.1.2(a) or a Transfer to which the "tag-along" rights of Section 2.1 apply, the obligations of such party shall be binding upon (and the rights of such party shall be conferred upon) each transferee to whom Registrable Shares are transferred by such party; provided that, if

- 5 -

the transferor is either of the WLR Funds, the obligations and rights with respect to the transferred shares of Series A Preferred Stock shall be the obligations and rights of the applicable WLR Fund hereunder. Prior to consummation of any transfer such party shall cause the proposed transferee to execute an agreement in form and substance reasonably satisfactory to the other parties hereto, providing that such proposed transferee shall fully comply with the terms and provisions of this Agreement.

2.4 Registration and Qualification; Legal Opinions. No Transfer of any Registrable Shares other than a Transfer to the Company, shall be effective unless such Transfer is made (i) pursuant to an effective registration statement under the Securities Act and a valid qualification under applicable state securities or blue sky laws or (ii) without registration under the Securities Act and qualification under applicable state securities or blue sky laws, as a result of the availability of an exemption from registration and qualification under such laws, and, unless waived by the Company in writing, the transferring Stockholder shall have furnished the Company an opinion of counsel, such counsel and such opinion being reasonably satisfactory in form and substance to the Company and its counsel, to that effect.

2.5 Improper Transfer. Any attempt to Transfer or encumber any Registrable Shares not in accordance with this Agreement shall be null and void ab initio and neither the issuer of such securities nor any transfer agent for such securities shall give any effect to such attempted transfer or encumbrance in its stock records.

ARTICLE III

Tag-Along Rights

3.1 Tag Along Procedures.

3.1.1 If, after giving effect to any proposed Transfer, the WLR Funds and any WLR Permitted Transferees (each for the purposes of this Section 3.1, a "Transferor") would own, in the aggregate, less than fifty percent (50%) of the then issued and outstanding shares of Series A Preferred Stock, the Transferor shall not enter into such Transfer (except as set forth in Section 3.4) unless the terms and conditions of such Transfer shall include an offer (the "Offer"), at the same price and on the same terms and conditions as the Transferor transferring such Registrable Shares has agreed to sell its Registrable Shares (except that the only representation and warranty that the Stockholder shall be required to make in connection with any Transfer is a warranty with respect to its own ownership of the Registrable Shares to be sold by it and its ability to convey title thereto free and clear of any liens, encumbrances or adverse claims), to the other Stockholders (each, an "Other Stockholder"), to include, at each such Other Stockholder’s option, in the Transfer to the Third Party, additional Registrable Shares up to the Tag-Along Maximum (defined below).

3.1.2 The Third Party shall purchase from each Other Stockholder desiring to have its Registrable Shares purchased pursuant to the Offer up to the number of shares of Series A Preferred Stock equaling the number derived by multiplying (i) the total number of Registrable Shares to be purchased by the Third Party by (ii) a fraction, the numerator of which is the total number of Registrable Shares owned by such Other Stockholder, and the denominator of which

- 6 -

is the total number of Registrable Shares owned in the aggregate by the WLR Funds, any WLR Permitted Transferees, and all Other Stockholders desiring to have their shares purchased pursuant to the Offer, in each case, on the date of the notice described in Section 3.1.3 ("Tag Along Maximum").

3.1.3 If a Transferor proposes to Transfer any Registrable Shares in a transaction subject to this Article III, the Transferor shall notify, or cause to be notified, each Other Stockholder, in writing of each such proposed Transfer. Such notice shall set forth: (a) the name of the Third Party and the number of Registrable Shares proposed to be Transferred, (b) the address of the Third Party, (c) the proposed amount and form of consideration and terms and conditions of payment offered by the Third Party (the "Third Party Terms") and (d) that the Third Party has been informed of the "‘tag-along right" provided for in this Article III, if such right is applicable, and has agreed to purchase Registrable Shares in accordance with the terms hereof.

3.1.4 The tag-along right may be exercised by any Other Stockholder by delivery of a written notice to the Transferor (the "Tag-Along Notice") within 10 Business Days following receipt of the notice specified in the preceding sentence. The Tag-Along Notice shall state the number of Registrable Shares that such Other Stockholder wishes to include in such transfer to the Third Party, which may be any number of shares not exceeding the Tag-Along Maximum.

3.1.5 Upon the giving of a Tag-Along Notice, an Other Stockholder shall be entitled and obligated to sell the number of Shares set forth in the Tag-Along Notice to the Third Party on the Third Party Terms; provided, however, that neither the Transferor nor such Other Stockholder shall consummate the sale of any Registrable Shares offered by it if the Third Party does not purchase all Registrable Shares which the Transferor and any Other Stockholder is entitled and desires to sell pursuant hereto. After expiration of the 10 Business Day period referred to in Section 3.1.4 hereof, if the provisions of this Section 3.1 have been complied with in all respects, the Transferor shall have the right for a 60-day period to transfer the Registrable Shares to the Third Party on the Third Party Terms without further notice to any Other Stockholders who have not given a Tag-Along Notice, but after such 60-day period, no such Transfer may be made without again giving notice to all Other Stockholders of the proposed Transfer and complying with the requirements of this Article III.

3.2 Payment of Tag-Along Purchase Price. At the closing of the Transfer to any Third Party (of which the Transferor shall give each Other Stockholder who has elected to exercise the tag-along right provided by Article III hereof at least 5 Business Days’ prior written notice), the Third Party shall remit to each such Stockholder the consideration (including a certified check for the cash portion of such consideration) for the total sales price of the Registrable Shares of such Stockholder sold pursuant hereto, against delivery by such Stockholder of certificates for such Registrable Shares, duly endorsed or with duly executed stock powers and the compliance by such Stockholder with any other conditions to closing generally applicable to the Transferor and all selling Stockholders.

3.3 Excluded Transfers. For purposes of clarification, the WLR Funds’ obligations under Section 3.1 shall not apply to (i) Transfers made to a Permitted Transferee, in

- 7 -

the case of an Investor, and any WLR Permitted Transferee, in the case of the WLR Funds (provided, however, any Registrable Shares transferred to a Permitted Transferee or a WLR Permitted Transferee, as applicable, would still be subject to the provisions of this Article III), (ii) Transfers to the Company, (iii) Transfers made in compliance with Article IV (including Transfers made pursuant to Rule 144 under the Securities Act) and (iv) the Transfer of Registrable Shares as to which an Offer has been made to the Other Stockholders in connection with a previous Transfer that was subject to the provisions of this Article III.

ARTICLE IV

Registration Rights

4.1 Demand Registration.

4.1.1 Subject to paragraphs 4.1.4, 4.1.5 and 4.1.6 of this Article IV, at any time and from time to time following the first anniversary of the date hereof, the WLR Registrable Funds or any Stockholder or group of Stockholders of no less than an aggregate of 50% of the Registrable Shares (the "Requesting Holders") may make a written request for registration under the Securities Act of all or part of the Requesting Holders’ Registrable Shares (a "Demand Registration"); provided, however, that the right to request a Demand Registration may be exercised no more than two times by the WLR Funds and three times by the Investors (provided, however, it being agreed that no single Investor may initiate a Demand Registration more than one time). Each such request will specify the number of Registrable Shares proposed to be offered for sale by the Requesting Holders and will also specify the intended method of disposition thereof.

4.1.2 If the Requesting Holders elect, the offering of the Requesting Holders’ Registrable Shares pursuant to such Demand Registration will be in the form of an underwritten Public Offering. Subject to the approval of the Company, the Requesting Holders will select the managing underwriter and any additional underwriters in connection with the offering. A registration will not count as a Demand Registration until it has become effective.

4.1.3 If, in connection with any Demand Registration that is to be an underwritten Public Offering, the Company, any other Stockholders or any other holders of Registrable Shares exercising registration rights also desire to sell shares of Common Stock and the managing underwriter of such offering advises the Company, the Requesting Holders and such other Stockholders in writing that the total number of shares requested to be so included in such registration exceeds the number of shares of Common Stock which can be sold in such offering or that the success or pricing of the offering would be materially and adversely affected by the inclusion of all of the shares requested to be so included, then the Company will include in such registration (i) first, the Registrable Shares requested to be included by the Requesting Holders, such other Stockholders and such other holders exercising registration rights, allocated pro rata among them in accordance with the number of Registrable Shares held by each of them so that the total number of Registrable Shares to be included in such offering for the account of all such Persons will not exceed the number recommended by such managing underwriter, (ii) second, the shares of Common Stock that the Company proposes to offer for sale, which number of shares to be registered will be reduced to the extent necessary to reduce the total number of

- 8 -

shares to be included in such offering to the number recommended by such managing underwriter and (iii) third, such number of other shares of Common Stock as the holders thereof desire to offer for sale and the Company and the managing underwriter recommend be included in such offering.

4.1.4 Notwithstanding the foregoing provisions of this Section 4.1, the Requesting Holders may not request a Demand Registration (i) if a registration statement has been filed by the Company with the Commission, unless such registration statement has been withdrawn or has been effective for a period of 90 calendar days, or (ii) if an underwritten offering of Common Stock (whether for the account of the Company or any other security holders) has been consummated within the preceding nine months; provided, however, that the limitations in clauses (i) and (ii) of this sentence will not apply if the Requesting Holders were not given the opportunity, in accordance with Section 4.2, to include their Registrable Shares in the registration statement described in clause (i) or the underwritten offering described in clause (ii) (as applicable).

4.1.5 Notwithstanding the foregoing provisions of this Section 4.1, the Requesting Holders will not have the right to initiate or demand a registration hereunder unless they propose to include therein Registrable Shares which they believe in good faith to have a value of at least $10,000,000.

4.1.6 Notwithstanding the foregoing provisions of this Section 4.1, in the event the Company receives notice of a Demand Registration, the Company may elect once, but only once, by written notice to the Requesting Holders within 20 Business Days after receipt of such notice, to proceed with a registration of shares of Common Stock for the Company’s account in lieu of proceeding with the Demand Registration, in which case the provisions of Section 4.2 (and not this Section 4.1 ) will apply. If the Company exercises the right described in the preceding sentence, the Requesting Holders will not be deemed (for purposes of determining the number of future Demand Registrations that may be demanded under the terms of this Agreement) to have exercised the right to request a Demand Registration unless at least 80% of the Registrable Shares that the Requesting Holders desired to include in such registration were included pursuant to Section 4.2.

4.1.7 The Requesting Holders shall be permitted to remove all or any part of the Registrable Shares held by the Requesting Holders from any Demand Registration at any time prior to the effective date of the registration statement covering such Registrable Shares; provided, however, if, as a result of the removal of such Registrable Shares, such registration statement is withdrawn by the Company, such Demand Registration shall nonetheless count as a Demand Registration for purposes of determining the number of future Demand Registrations which can be requested pursuant to Section 4.1(a) hereof, unless the Requesting Holders reimburse the Company for all Registration Expenses incurred by the Company in connection with such withdrawn Demand Registration.

4.2 Piggyback Rights.

4.2.1 If the Company proposes to file a registration statement under the Securities Act with respect to an offering of Common Stock Shares (i) for its own account (other than a

- 9 -

registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the Commission)) or (ii) for the account of either or both of the WLR Funds pursuant to a Demand Registration requested by the WLR Funds, then the Company will give written notice of such proposed offering to all Stockholders as soon as practicable (provided that Stockholders will be given such notice not less than 10 Business Days prior to the deadline set by the Company for electing to include Registrable Shares in such offering), and such notice will offer such Stockholders the opportunity, in accordance with Section 4.2.2, to register such number of Registrable Shares as such Stockholders may request on the same terms and conditions as the registration of the Company’s or such other holders, shares of Common Stock. If the Company so elects, the offering contemplated by this Section 4.2 will be in the form of an underwritten offering. The Company will select the managing underwriter and any additional underwriters in connection with the offering.

4.2.2 Whenever the Company proposes to file a registration statement in accordance with Section 4.2.1, the Company will include in such registration statement all Registrable Shares which any Stockholder requests to be included therein; provided, however, that if the managing underwriter of an underwritten offering under this Section 4.2 advises the Company and such Stockholders in writing that the total number of shares requested to be included in such registration exceeds the number of shares of Common Stock which can be sold in such offering or that the success or pricing of the offering would be materially and adversely affected by the inclusion of all of the shares of Common Stock requested to be included, then (except in the case of a Demand Registration, as to which Section 4.1.3 will govern), the Company will include in such registration (i) first, the shares of Common Stock the Company proposes to offer for sale for its own account or for the account of the WLR Funds, as applicable, (ii) second, the Registrable Shares requested to be included by the Requesting Holders, such other Stockholders and any other holders of Registrable Shares exercising registration rights, allocated pro rata among them in accordance with the number of Registrable Shares held by each of them so that the total number of Registrable Shares to be included in such offering for the account of all such Persons will not exceed the number recommended by such managing underwriter, and (iii) third, such number of other shares of Common Stock as the holders thereof desire to offer for sale and the Company and the managing underwriter recommend be included in such offering.

4.2.3 A request by the Requesting Holders to include Registrable Shares in a proposed underwritten offering pursuant to this Section 4.2 will not be deemed to be a request for a demand registration pursuant to Section 4.1.

4.3 Registration; Filings and Information. Whenever a Stockholder (the "Registering Stockholder") requests that any Registrable Shares be registered pursuant to Section 4.1 or 4.2, the Company will use its best efforts to effect the registration of such Registrable Shares to the extent required by Section 4.1 or 4.2, as promptly as is practicable, and in connection with any such request the Company:

(a) will as expeditiously as possible prepare and file with the Commission a registration statement on any form for which the Company then qualifies and which counsel for the Company deems appropriate and available for the sale of the Registrable Shares to be registered thereunder in accordance with the intended method of

- 10 -

distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 90 calendar days or, if less, the period required for such Registrable Shares to be sold; provided, however, that if the Company furnishes to the Registering Stockholder a certificate signed by the Company’s Chief Executive Officer stating that the Board of Directors of the Company has determined that it would be materially detrimental or otherwise materially disadvantageous to the Company or its stockholders (whether because of any proposed material transaction or otherwise) for such a registration statement to be filed as expeditiously as possible, the Company will have a period of not more than 120 calendar days within which to file such registration statement measured from the date of the Company’s receipt of the Registering Stockholder’s request for registration;

(b) will, if requested, prior to filing such registration statement or any amendment or supplement thereto, furnish to the Registering Stockholder and each applicable underwriter, if any, copies thereof, and thereafter furnish to the Registering Stockholder and each such Underwriter, if any, such number of copies of such registration statement, amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the prospectus included in such registration statement (including each preliminary prospectus) as the Registering Stockholder or each such underwriter may reasonably request in order to facilitate the sale of the Registrable Shares;

(c) after the filing of the registration statement, will promptly notify the Registering Stockholder of any stop order issued or, to the Company’s knowledge, threatened to be issued by the Commission or any state securities agency or authority and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered;

(d) will endeavor to qualify the Registrable Shares for offer and sale under such other securities or blue sky laws of such jurisdictions in the United States as the Registering Stockholder reasonably requests; provided, however, that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to quality but for this subsection (d), (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction;

(e) will as promptly as is practicable notify the Registering Stockholder, at any time when a prospectus relating to the sale of the Registrable Shares is required by law to be delivered in connection with sales by an underwriter or dealer, of the occurrence of any event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and promptly make available to the Registering Stockholder and to the underwriters any such supplement or amendment. The Registering Stockholder agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in the

- 11 -

preceding sentence, the Registering Stockholder will forthwith discontinue the offer and sale of Registrable Shares pursuant to the registration statement covering such Registrable Shares until receipt by the Registering Stockholder and the underwriters of the copies of such supplemented or amended prospectus and, if so directed by the Company, the Registering Stockholder will deliver to the Company all copies, other than permanent file copies then in the Registering Stockholder’s possession, of the most recent prospectus covering such Registrable Shares at the time of receipt of such notice. In the event the Company gives such notice, the Company will extend the period during which such registration statement will be effective as provided in Section 4.3(a) by the number of days during the period from and including the date of the giving of such notice to the date when the Company will make available to the Registering Stockholder such supplemented or amended prospectus;

(f) will enter into customary agreements (including in the case of an underwritten offering an underwriting agreement in customary form) and the Company and its officers will take such other actions as are reasonably required in order to expedite or facilitate the sale of such Registrable Shares, including participation in any "road show" undertaken in connection with such sale;

(g) will furnish to the Registering Stockholder and to each underwriter a signed counterpart, addressed to the Registering Stockholder or such underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company’s independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the Registering Stockholder or the managing underwriter may reasonably request;

(h) will make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement will satisfy the provisions of Section 11(a) of the 1933 Act and the rules and regulations of the Commission thereunder;

(i) will use its reasonable efforts to cause all such Registrable Shares to be listed on each securities exchange on which securities of the same class issued by the Company are then listed;

(j) may require the Registering Stockholder promptly to furnish in writing to the Company such information regarding the Registering Stockholder, the plan of distribution of the Registrable Shares and other information as the Company may from time to time reasonably request or as may be legally required in connection with such registration. The furnishing of such information will be a condition to the Company’s obligations hereunder;

(k) will notify each Registering Stockholder, its counsel and the managing underwriters, if any, as soon as possible and (if requested by any such Person) confirm such notice in writing, (i) when a prospectus relating to the Registrable Shares or

- 12 -

any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement relating to the Registrable Shares or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission for amendments or supplements to a registration statement relating to the Registrable Shares or related prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement relating to the Registrable Shares or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (v) of the Company’s reasonable determination that a post-effective amendment to a registration statement relating to the Registrable Shares would be appropriate or that there exist circumstances not yet disclosed to the public which make further sales under such registration statement inadvisable pending such disclosure and post-effective amendment;

(l) upon the occurrence of any event contemplated by paragraph (e) above, promptly prepare a supplement or post-effective amendment to the registration statement relating to the Registrable Shares or related prospectus or any document incorporated therein by reference or file any other required document so that (i) such registration statement will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) as thereafter delivered to the purchasers of the Registrable Shares being sold thereunder, such prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein in light of the circumstances under which they were made, not misleading; and (iii) will make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement relating to the Registrable Shares, or the lifting of any suspension of the qualification of any of the Registrable Shares for sale in any jurisdiction, at the earliest possible moment;

(m) (i) if reasonably requested by the managing underwriter or any Registering Stockholder, promptly incorporate in a prospectus supplement or post-effective amendment such information concerning such Registering Stockholder, the managing underwriter or underwriters or the intended method of distribution as the managing underwriter or underwriters or the Registering Stockholder reasonably requests to be included therein and as is appropriate in the reasonable judgment of the Company including, without limitation, information with respect to the number of shares of the Registrable Shares being sold to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Shares to be sold in such offering; and (ii) make all required filings of such prospectus supplement or post-effective amendment as promptly as practicable after being notified of the matters to be incorporated therein;

(n) will furnish to each Registering Stockholder and each managing underwriter, if any, without charge, one manually signed copy of the registration

- 13 -

statement relating to the Registrable Shares and any post-effective amendments thereto, including financial statements and schedules and, upon request, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); and

(o) will provide a transfer agent and registrar for the Registrable Shares not later than the effective date of the registration statement relating to the Registrable Shares.

4.4 Registration Expenses. Registration Expenses incurred in connection with any registration made or requested to be made pursuant to this Article IV will be borne by the Company, whether or not any such registration statement becomes effective, to the extent permitted by applicable law. The Registering Stockholders will pay, on a pro rata basis, any underwriting fees, discounts or commissions attributable to the sale of the Registrable Shares.

4.5 Indemnification by the Company. The Company agrees to indemnify and hold harmless each Registering Stockholder, its officers, directors, members, managers and agents, and each Person, if any, who controls each such Registering Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934 from and against any and all losses, claims, damages, liabilities and expenses caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Shares (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by or on behalf of such Registering Stockholder expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus will not inure to the benefit of any Registering Stockholder if a copy of the current prospectus was not provided in the manner required by applicable regulations to the applicable purchaser by such Registering Stockholder and such current copy of the prospectus would have cured the defect giving rise to such loss, claim, damage, liability or expenses. The Company also agrees to indemnify any underwriters of the Registrable Shares, their officers and directors and each Person who controls such underwriters on substantially the same basis as that of the indemnification of the Registering Stockholders provided in this Section 4.5.

4.6 Indemnification by Registering Stockholders. Each Registering Stockholder registering shares pursuant to this Article IV agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers and Directors and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934 to the same extent as the foregoing indemnity from the Company to such Registering Stockholder, but only with reference to information related to such Registering Stockholder furnished by or on behalf of such Registering Stockholder expressly for use in any registration statement or prospectus relating to the Registrable Shares, or any amendment or supplement thereto or any preliminary prospectus; provided, however, that in no event will the liability of any Registering Stockholder under this

- 14 -

Section 4.6 be greater in amount than the dollar amount of the proceeds received by such holder upon the sale of the Registrable Shares giving rise to such indemnification obligation. Each such Registering Stockholder also agrees to indemnify and hold harmless any underwriters of the Registrable Shares, their officers and directors and each Person who controls such underwriters on such terms as provided for in underwriting agreement relating to such offering.

4.7 Conduct of Indemnification Proceedings. In the case any proceeding (including any governmental investigation) is instituted involving any person in respect of which indemnity may be sought pursuant to Section 4.5 or Section 4.6, such Person will promptly notify the Person against whom such indemnity may be sought in writing and the indemnifying party upon request of the indemnified party will retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and will pay the fees and disbursements of such counsel related to the proceeding; provided, however, that the failure to so notify the indemnifying Person shall not relieve the indemnifying party from any liability that it may otherwise have to such indemnified Person, except to the extent the indemnifying Person shall have been materially prejudiced by such failure. In any such proceeding, any indemnified party will have the right to retain its own counsel, but the fees and expenses of such counsel will be at the expense of such indemnified party unless (a) the indemnifying party and the indemnified party have mutually agreed to the retention of such counsel or (b) the named parties to any such proceeding (including any impleaded parties) include both the indemnified party and the indemnifying party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, in which case the fees and expenses of such counsel will be paid by the Company. It is understood that the indemnifying party will not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such indemnified parties, and that all such reasonable fees and expenses will be reimbursed promptly after they are incurred. In the case of the retention of any such separate firm for the indemnified parties, such firm will be designated in writing by the indemnified parties. The indemnifying party will not be liable for any settlement of any proceeding effected without its consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the indemnifying party will indemnify and hold harmless such indemnified parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment.

4.8 Contribution.

(a) If the indemnification provided for herein is for any reason unavailable to the indemnified parties in respect of any losses, claims, damages or liabilities referred to herein, then each such indemnifying party, in lieu of indemnifying such indemnified party, will contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Company, the Registering Stockholders and any underwriter in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company, the Registering Stockholders and the underwriter will be determined by reference to, among other things,

- 15 -

whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(b) The Company and each Registering Stockholder agree that it would not be just and equitable if contribution pursuant to this Section 4.8 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding subsection. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding subsection will be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.8, no Registering Stockholder will be required to contribute any amount by reason of such untrue or alleged untrue statement or omission or alleged omission in excess of the amount received by such Registering Stockholder upon the sale of the Registrable Shares giving rise to such contribution obligation. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

4.9 Participation in Underwritten Registrations. Notwithstanding any other provision of this Agreement, no Person may participate in any underwritten registration hereunder unless such Person (a) agrees to sell such Person’s securities on the basis provided in any reasonable underwriting arrangements approved by the Company or other Persons entitled hereunder to approve such arrangements and (b) completes and executes all customary questionnaires, powers of attorney, indemnities, underwriting agreements, "lock-up" agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights.

4.10 Rule 144. The Company will file any reports required to be filed by it under the Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act") and will take such further action as any Stockholder may reasonably request to the extent required from time to time to enable the Stockholders to sell Registrable Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Exchange Act, as such Rule may be amended from time to time, or other appropriate rule or regulation adopted by the Commission. Upon the request of any Stockholder, the Company will deliver to the Stockholder a written statement as to whether the Company has complied with such reporting requirements.

4.11 Restrictions on Public Sale by Holders of Registrable Shares.

(a) If and to the extent requested by the managing underwriter or underwriters in the case of an underwritten Public Offering, each of the Stockholders agrees not to effect, except as part of such registration, any sale of the shares of Common Stock, or any securities convertible into or exchangeable or exercisable for such

- 16 -

securities during such time period (not to exceed 180 days) for which the Company agrees not to effect any sale of securities in connection therewith, or to which the Registering Stockholder agrees if the Company does not include any securities therein. In addition, each of the Stockholders agrees to execute any customary lock-up agreement reasonably requested by the managing underwriter to confirm its agreement in accordance with the preceding sentence, but only if identical lock-up agreements are required of all Stockholders.

(b) Nothing in this Article IV will diminish or otherwise affect the restrictions on transfer contained elsewhere in this Agreement.

4.12 Limitation on Future Registration Rights. So long as the WLR Funds, or either of them, continue to own Registrable Shares, the Company will not grant or agree to grant registration rights in respect of any shares of Common Stock of the Company (or securities convertible or exchangeable into or exercisable for any such shares) to any other Person which would interfere with the rights of the Requesting Holders hereunder, without the prior written consent of the WLR Funds. The provisions of this Section 4.12 will cease to apply once the Registrable Shares beneficially owned by the WLR Funds represent less than 10% of the Registrable Shares beneficially owned by the WLR Funds on the date of this Agreement.

ARTICLE V

Termination

The Agreement shall terminate on the date on which any of the following first occurs: (a) the Sale of the Company or (b) all shares subject to this Agreement cease to be Registrable Shares. Notwithstanding the foregoing, this Agreement shall in any event terminate with respect to any Stockholder when such Stockholder no longer owns any Registrable Shares (except if such shares are transferred in violation of this Agreement).

ARTICLE VI

Miscellaneous

6.1 Successors and Assigns. Except as otherwise provided herein, all of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. No Stockholder may assign any of its rights hereunder to any Person other than a transferee that has complied with the requirements of Sections 2.3 and Articles III and IV (if applicable) as provided therein in all respects. The Company may not assign any of its rights hereunder to any Person other than an Affiliate of the Company. Except as provided in Section 2.3, if any transferee of any Stockholder shall acquire any Shares in any manner, whether by operation of law or otherwise, such shares shall be held subject to all of the terms of this Agreement, and by taking and holding such shares such Person shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to comply with all of the terms and provisions of this Agreement.

- 17 -

6.2 Amendment and Modification; Waiver of Compliance.

6.2.1 This Agreement may be amended only by a written instrument duly executed by Stockholders holding no less than 66-2/3% of the issued and outstanding shares of Series A Preferred Stock and who are subject to this Agreement.

6.2.2 In the event of the amendment or modification of this Agreement, the Stockholders shall cause the Board of Directors of the Company to meet as soon as practicable following such amendment or modification or as soon thereafter as is practicable for the purpose of adopting any amendment to the amended and restated certificate of incorporation and amended and restated bylaws of the Company that may be required as a result of such amendment or modification to this Agreement, and, if required, proposing such amendments to the Stockholders entitled to vote thereon.

6.2.3 Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

6.3 Notices. Any notice, request, claim, demand, document and other communication hereunder to any party shall be in writing and delivered personally or sent by telex, telecopy, nationally recognized overnight courier or certified or registered mail, postage prepaid, or other similar means of communication, as follows:

(a) If to the Company, addressed to its principal executive offices to the attention of its President; and

(b) If to a Stockholder, to the address of such Stockholder set forth on Schedule A, as updated from time to time, or to such other address as such Stockholder shall have specified by notice given to the Company and the other Stockholders in the manner specified above.

Notice by facsimile or hand delivery shall be deemed to have been received by the close of the Business Day on which it was transmitted or hand delivered (unless transmitted or hand delivered after close of business in which case it shall be deemed received at the close of the next Business Day). Notice by overnight mail or courier shall be deemed to have been received by the close of business on the first Business Day after such notice was sent. Notice sent by certified or registered mail shall be deemed received on the date delivery was first attempted by the U.S. Postal Service.

6.4 Inspection. For so long as this Agreement shall be in effect, this Agreement shall be made available for inspection by any Stockholder or prospective transferee of any Stockholder at the principal executive offices of the Company.

- 18 -

6.5 Headings. The Article, Section and Paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

6.6 Recapitalizations, Exchanges, Etc., Affecting Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to Common Stock, to any and all shares of Capital Stock of the Company (including the capital stock of any successor or assign of the Company, whether by merger, consolidation, sale of assets, or otherwise) which may be issued in respect of, in exchange for, or in substitution of, Common Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalization and the like occurring after the date hereof.

6.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

6.8 Severability. If any provision herein, or the application thereof to any circumstance, is found to be unenforceable, invalid or illegal, such provision shall be deemed deleted from this Agreement or not applicable to such circumstance, as the case may be, and the remainder of this Agreement shall not be affected or impaired thereby.

6.9 Attorneys’ Fees. If any action is brought to enforce or interpret any part of this Agreement or any other agreement or instrument provided for herein or the rights or obligations of any party to this Agreement or such other agreement or instrument, the prevailing party in such action shall be entitled to recover its reasonable attorney’s fees and expenses.

6.10 Integration. This Agreement expresses the entire agreement and understanding of the parties hereto with respect to the matters set forth herein and supersedes all prior agreements, arrangements and understandings among the parties hereto with respect to the matters set forth herein.

6.11 Governing Law. This Agreement shall be construed, enforced and governed by the internal laws of the State of New York without regard to its conflicts of law principles.

6.12 Waivers. No waiver of any term, provision or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a further waiver of any such term, provision or condition or as a waiver of any other term, provision or condition.

6.13 Pronouns and Numbers. When the context so requires, the masculine shall include the feminine and neuter, the singular shall include the plural and conversely.

6.14 Survival of Representations. All representations and warranties set forth in this Agreement shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

- 19 -

6.15 Further Assurances. The parties hereto agree to execute any and all such further agreements, instruments or documents, and to take any and all such further action, as may be necessary or desirable to carry into effect the purpose and intent of this Agreement.

6.16 Full Understanding. Each of the parties hereto represents and agrees that such party fully understands their rights, and has had the opportunity to discuss all aspects of this Agreement with their attorney, and that to the extent, if any, that they desired, they availed themselves of such right and opportunity. Each party further represents that they have carefully read and fully understands all of the provisions of this Agreement, and the meaning, intent and consequences thereof, that they are competent to execute this Agreement, that it, or its representative, is duly authorized to execute this Agreement, that their execution and delivery of this Agreement has not been obtained by any duress and that they freely and voluntarily enter into this Agreement.

6.17 Additional Stockholders; Joinder Agreement. Any Person who becomes a Stockholder subsequent to the date of this Agreement and who is not already a party hereto, shall, as a condition to becoming a Stockholder and being entitled to the rights of a Stockholder hereunder, enter into a joinder agreement, in such form acceptable to the Company, by which such Stockholder agrees to be bound by the terms and conditions of this Agreement.

- 20 -

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed on the date first above written.

THE COMPANY: INTERNATIONAL TEXTILE GROUP, INC.
By:
	Name: Title:

WLR RECOVERY FUND II, L.P. By:   WLR Recovery Associates II LLC, its General Partner
By:
	Name: Title:

WLR RECOVERY FUND III, L.P. By:   WLR Recovery Associates III LLC, its General Partner
By:
	Name: Title:

- 21 -

WLR/GS MASTER CO-INVESTMENT, L.P. By:   WLR Master Co-Investment GP, LLC, its General Partner
By:
	Name: Title:

- 22 -

EX-10.2

Exhibit 10.2

INTERNATIONAL TEXTILE GROUP, INC.

(f/k/a Safety Components International, Inc.)

EQUITY INCENTIVE PLAN

As Amended and Restated Effective

11:59 p.m., Eastern Time, October 20, 2006

1. Purpose. The purpose of this Amended and Restated International Textile Group, Inc. Equity Incentive Plan (the “Plan”) is to assist International Textile Group, Inc., a Delaware corporation, which was formerly known as Safety Components International, Inc., and its direct and indirect subsidiaries (including, without limitation, ITG Holdings, Inc., which was formerly known as International Textile Group, Inc., and its subsidiaries), in attracting, retaining, and rewarding high-quality executives, employees, and other persons who provide services to the Company and/or its subsidiaries, by enabling these persons to acquire or increase a proprietary interest in the Company.

2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof:

(a) “Award” means an award of Options, Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units granted under the Plan.

(b) “Beneficiary” means the person, persons, trust or trusts who or which have been designated by a Participant in his or her most recent written beneficiary designation filed with the Company or ITG Holdings, Inc. to receive the benefits specified under the Plan upon such Participant’s death or to which Options are transferred if and to the extent permitted under Section 10(c) hereof. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means the person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive such benefits.

(c) “Board” means the Board of Directors of the Company.

(d) “Change of Control” means the happening of any of the following events:

(1) Before an IPO, the acquisition by any individual, entity or group (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) other than a WLR Affiliate of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 39% or more of either (A) the then-outstanding shares of Common Stock (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); or

(2) After an IPO, the acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the Outstanding Company Common Stock or (B) the Outstanding Company Voting Securities, provided, however, that neither of the following acquisitions shall constitute a Change in Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Company controlled by the Company; or (ii) any acquisition by any corporation pursuant to a transaction described in clauses (A), (B) and (C) of paragraph (4) of this Section 2(e); or

(3) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a director subsequent to such effective date whose election, or nomination for election by the stockholders of the Company, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(4) Approval by the stockholders of the Company of a reorganization, merger, share exchange or consolidation (a “Business Combination”), unless, in each case following such Business Combination: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation Company except to the extent that such Person owned 25% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the Business Combination; and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

- 2 -

(5) Approval by the stockholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which, following such sale or other disposition: (i) more than 50% of, respectively, the then-outstanding shares of common stock of such corporation and the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (ii) less than 25% of, respectively, the then outstanding shares of common stock of such Company and the combined voting power of the then outstanding voting securities of such Company entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such Company), except to the extent that such Person owned 25% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition; and (iii) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company or were elected, appointed or nominated by the Board; or

(6) A redemption by the Company of 25 percent (25%) or more of the stock owned, as of the effective date, by all WLR Affiliates.

(e) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.

(f) “Committee” means, prior to 11:59 p.m., Eastern Time, on October 20, 2006, the Compensation Committee of the Board of Directors of ITG Holdings, Inc., or its delegate, and, following such time, the Compensation Committee of the Board, or its delegate.

(g) “Common Stock” means, prior to 11:59 p.m., Eastern Time, on October 20, 2006, the common stock of ITG Holdings, Inc. and, following such time, the common stock of the Company, and such other securities as may be substituted (or resubstituted) for Common Stock pursuant to Section 10(d) hereof.

(h) “Company” means, prior to 11:59 p.m., Eastern Time, on October 20, 2006, ITG Holdings, Inc., which was formerly known as International Textile Group, Inc., and, following such time, International Textile Group, Inc., which was formerly known as Safety Components International, Inc.

- 3 -

(i) “Effective Date” means May 4, 2005.

(j) “Eligible Employee” means each Executive Officer and other officers and employees of the Company or of any direct or indirect subsidiary (including, without limitation, ITG Holdings, Inc. or any subsidiary thereof), including employees who may also be directors of the Company, who are designated as eligible to participate in the Plan by the Committee. An employee on leave of absence may be considered as still in the employ of the Company or a subsidiary for purposes of eligibility for participation in the Plan. Eligible Employees also include officers and employees of International Textile Holdings, Inc., so long as it is the majority owner of the Company’s capital stock, and of the majority-owned subsidiaries of International Textile Holdings, Inc., including employees who may also be directors of International Textile Holdings, Inc., who are designated as eligible to participate in the Plan by the Committee.

(k) “Employment Agreement” means, with respect to any Participant, any written agreement executed by the Participant and the Company or any affiliate thereof (including, without limitation, ITG Holdings, Inc. or its direct or indirect subsidiary) setting forth the specific terms and conditions of the Participant’s employment with the Company or any affiliate thereof.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

(m) “Executive Officer” means an executive officer of the Company as defined under the Exchange Act.

(n) “Fair Market Value” means the fair market value of Common Stock as determined by the Committee in good faith and in accordance with any relevant statutes, regulations or other applicable governmental guidance.

(o) “Incentive Stock Option” or “ISO” means any Option intended to be and designated as an incentive stock option within the meaning of Code section 422 or any successor provision thereto.

(p) “Initial Public Offering “ or “IPO” means a registered public offering of Common Stock that results in twenty percent (20%) or more of the Common Stock being owned by members of the public.

(q) “Management Objectives” means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares or Performance Units or, when so determined by the Board, Options, Restricted Stock and dividend credits pursuant to this Plan. Management objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant or of the subsidiary, division, department, region or function within the Company or subsidiary in which the Participant

- 4 -

is employed. The Management Objectives may be made relative to the performance of other corporations. If the Board determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Management Objectives unsuitable, the Board may in its discretion modify such Management Objectives or the related minimum acceptable level of achievement, in whole or in part, as the Board deems appropriate and equitable.

(r) “Option” means a right, granted to a Participant under Section 6 hereof, to purchase Common Stock at a specified price during specified time periods.

(s) “Participant” means an Eligible Employee who has been granted an Award under the Plan that remains outstanding, including a person who is no longer an Eligible Employee.

(t) “Performance Period” means, in respect of a Performance Share or Performance Unit, a period of time established pursuant to Section 9 of this Plan within which the Management Objectives relating to such Performance Share or Performance Unit are to be achieved.

(u) “Performance Share” means a bookkeeping entry that records the equivalent of one share of Common Stock awarded pursuant to Section 9 of this Plan.

(v) “Performance Unit” means a bookkeeping entry that records a unit equivalent to $1.00 awarded pursuant to Section 9 of this Plan.

(w) “Restricted Stock” means Common Stock awarded to a Participant in accordance with the provisions of Section 7 of the Plan.

(x) “Restricted Stock Units” means an Award made pursuant to Section 8 of this Plan of the right to receive shares of Common Stock at the end of a specified Restriction Period.

(y) “WLR Affiliate” means any Person which is controlled by WL Ross & Co. LLC (“WLR”) or any fund managed by WLR or in which WLR or any fund managed by WLR directly or indirectly owns fifteen percent (15%) or more of the outstanding equity interests of such Person, other than the Company and any of the Company’s subsidiaries or any Person in which the Company directly or indirectly owns fifteen percent (15%) or more of the outstanding equity interests.

3. Administration.

(a) Authority of the Committee. The Plan shall be administered by the Committee. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to: interpret the provisions of the Plan; select Eligible Employees to become Participants; make Awards; determine the type, number and other terms and conditions of, and all other matters relating to, Awards; prescribe Award agreements (which need not be identical for each Participant); adopt,

- 5 -

amend and rescind rules and regulations for the administration of the Plan; construe and interpret the Plan and Award agreements and correct defects, supply omissions or reconcile inconsistencies therein; and make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. Except as otherwise determined by the Board, unless the context otherwise requires, all actions and determinations that the Plan contemplates that the Board may take may be taken by the Committee in its stead.

(b) Manner of Exercise of Committee Authority. Any action of the Committee shall be final, conclusive and binding on all persons, including the Company, its subsidiaries, Participants, Beneficiaries, transferees under Section 10(c) hereof or other persons claiming rights from or through a Participant, and shareholders. The Committee shall exercise its authority only by a majority vote of its members at a meeting or without a meeting by a writing signed by a majority of its members. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any subsidiary, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform administrative functions to the extent permitted under applicable law. The Committee may appoint agents to assist it in administering the Plan.

(c) Limitation of Liability. The Committee and each member thereof shall be entitled, in good faith, to rely or act upon any report or other information furnished to it, him or her by any Executive Officer, other officer or employee of the Company or a subsidiary, the Company’s independent auditors, consultants or any other agents assisting in the administration of the Plan. Members of the Committee and any officer or employee of the Company or a subsidiary acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination.

(d) No Further Awards Under the Plan. Notwithstanding anything in this Plan to the contrary, no Awards shall be made under this Plan after 11:59 p.m., Eastern Time, on October 20, 2006.

4. Stock Subject to Plan.

(a) Overall Number of Shares Available for Delivery. Subject to adjustment as provided in Section 10(d) hereof, a total of 616,000 shares of Common Stock shall be reserved and available for delivery in connection with Awards under the Plan. Any shares of Common Stock delivered under the Plan shall consist of authorized and issued or unissued shares. Subject to the adjustments provided in Section 10(d) hereof, no contraction of the number of shares of Common Stock outstanding will affect the validity or enforceability of any Awards then outstanding.

- 6 -

(b) Application of Limitation to Grants of Awards. No Award may be granted if the number of shares of Common Stock to be delivered in connection with such Award exceeds the number of shares of Common Stock remaining available under the Plan minus the number of shares of Common Stock issuable in settlement of or relating to then-outstanding Options. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting and make adjustments if the number of shares of Common Stock actually delivered differs from the number of shares previously counted in connection with an Option.

(c) Availability of Shares Not Delivered under Awards. Shares of Common Stock subject to an Award under the Plan which Award is canceled, expired, forfeited or otherwise terminated without a delivery of shares to the Participant or with the return to the Company of shares previously delivered, including the number of shares surrendered in payment of any taxes relating to any Award, will again be available for Awards under the Plan, except that if any such shares could not again be available for Awards to a particular Participant under any applicable law or regulation, such shares shall be available exclusively for Awards to Participants who are not subject to such limitation.

5. Eligibility. Awards may be granted under the Plan only to Eligible Employees.

6. Terms of Options.

(a) General. Options may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Option or the exercise thereof, at the date of grant, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Options in the event of termination of employment by the Participant and terms permitting a Participant to make elections relating to his or her Option. The Committee shall (subject to Section 10(g)) retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Option that is not mandatory under the Plan.

(b) Specific Terms of Options. The Committee is authorized to grant Options to Participants on the following terms and conditions:

(1) Exercise Price. The exercise price per share of Common Stock purchasable under an Option shall be determined by the Committee, provided that such exercise price shall be not less than the Fair Market Value of a share of Common Stock on the date of grant of such Option.

(2) Vesting. Each Participant shall acquire a nonforfeitable right to Options awarded to him in accordance with the provisions of the agreement evidencing the Award of the Options.

(3) Time and Method of Exercise. The Committee shall determine, at the date of grant or thereafter, the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on completion of future service requirements), the methods by which such exercise

- 7 -

price may be paid or deemed to be paid, the form of such payment, including, without limitation, cash or Common Stock held for more than six months, and the methods by or forms in which Common Stock will be delivered or deemed to be delivered to Participants. The specific circumstances under which a Participant may exercise an Option will be set forth in the agreement evidencing the award of the Option to the Participant.

(4) ISOs. ISOs may be granted only to those Eligible Employees who are entitled to acquire incentive stock options from the Company under Code section 422. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Code section 422. Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify either the Plan or any ISO under Code section 422, unless the Participant has first requested the change that will result in such disqualification. An Option granted under the Plan will be an ISO only if the agreement evidencing the award of the Option specifically states that the Option is to be an ISO; if the Agreement does not so state, the Option will be a nonqualified stock option. In addition, an Option may be an ISO only if it is awarded within ten years after the Effective Date.

(5) Term of Options. The term of each Option shall be for such period as may be determined by the Committee, provided that in no event shall the term of any Option exceed a period of ten years (or such shorter term as may be required in respect of an ISO under Code section 422).

7. Terms of Restricted Stock Awards.

(a) General. Shares of Restricted Stock may be granted on the terms and conditions set forth in this Section 7. In addition, the Committee may impose on any Award of Restricted Stock, at the date of grant, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of shares of Restricted Stock in the event of termination of employment by the Participant and terms permitting a Participant to make elections relating to his or her shares of Restricted Stock. The Committee shall (subject to Section 10(g)) retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Award of shares of Restricted Stock that is not mandatory under the Plan. Except in cases in which the Committee is authorized to require other forms of consideration under the Plan, or to the extent other forms of consideration must be paid to satisfy the requirements of Delaware law, no consideration other than services may be required for the grant of any shares of Restricted Stock.

(b) Vesting. Each Participant shall acquire a nonforfeitable right to shares of Restricted Stock awarded to him in accordance with the provisions of the agreement evidencing the Award of the Restricted Stock.

- 8 -

(c) Ownership Rights. Subject to the terms of the Plan, to divestment based on the forfeiture restrictions applying to an Award of Restricted Stock and to the other terms of the Award agreement, (i) Restricted Stock granted pursuant to an Award shall for all purposes be issued and outstanding shares of Common Stock, and (ii) the Participant shall be the record owner of the Restricted Stock granted by the Award, shall have the right to vote the Restricted Stock as Common Stock on any matter upon which holders of Common Stock are entitled to vote, and shall be entitled to dividends and distributions on the Restricted Stock which are payable with respect to outstanding shares of Common Stock.

8. Terms of Restricted Stock Units.

(a) Agreement to Grant Stock. Each such grant or sale shall constitute the agreement by the Company to deliver shares of Common Stock to the Participant in the future in consideration of the performance of services, but subject to the fulfillment of such conditions during the Restriction Period as the Board may specify.

(b) Exercise Price. Each such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less than the Fair Market Value at the date of grant.

(c) Restrictions. Each such grant or sale shall be subject to such forfeiture and other restrictions as may be determined by the Board at the date of grant, and may provide for the lapse or other modification of such restrictions in the event of a Change of Control.

(d) Voting and Dividend Rights. While and to the extent that forfeiture restrictions apply to an Award, the Participant shall have no right to transfer any rights under his or her Award and shall have no rights of ownership in the Restricted Stock Units and shall have no right to vote them, but the Board may, at or after the date of grant, authorize the payment of dividend equivalents on the shares underlying such units on either a current or deferred or contingent basis, either in cash, in additional shares of Common Stock, or in other rights or property.

9. Performance Shares and Performance Units.

(a) Agreement to Grant Units. Each grant shall specify the number of Performance Shares or Performance Units to which it pertains, which number may be subject to adjustment to reflect changes in compensation or other factors.

(b) Performance Periods. The Performance Period with respect to each Performance Share or Performance Unit shall be such period of time (not less than three years, except in the event of a Change of Control, if the Board shall so determine) commencing with the date of grant as shall be determined by the Board on the date of grant.

- 9 -

(c) Specification of Performance Goals. Any grant of Performance Shares or Performance Units shall specify Management Objectives which, if achieved, will result in payment or early payment of the Award, and each grant may specify in respect of such specified Management Objectives a minimum acceptable level of achievement and shall set forth a formula for determining the number of Performance Shares or Performance Units that will be earned if performance is at or above the minimum level, but falls short of full achievement of the specified Management Objectives. The grant of Performance Shares or Performance Units shall specify that, before the Performance Shares or Performance Units shall be earned and paid, the Board must certify that the Management Objectives have been satisfied.

(d) Time and Form of Payment. Each grant shall specify the time and manner of payment of Performance Shares or Performance Units that have been earned. Any grant may specify that the amount payable with respect thereto may be paid by the Company in cash, in shares of Common Stock or in any combination thereof and may either grant to the Participant or retain in the Board the right to elect among those alternatives.

(e) Limitations on Awards. Any grant of Performance Shares may specify that the amount payable with respect thereto may not exceed a maximum specified by the Board at the Date of Grant. Any grant of Performance Units may specify that the amount payable or the number of shares of Common Stock issued with respect thereto may not exceed maximums specified by the Board at the date of grant.

(f) Dividend Equivalents. The Board may, at or after the date of grant of Performance Shares, provide for the payment of dividend equivalents to the holder thereof on either a current or deferred or contingent basis, either in cash, in additional shares of Common Stock or in other rights or property.

10. General Provisions.

(a) Change of Control. Notwithstanding any provision of the Plan to the contrary and unless otherwise provided in the applicable Award agreement, in the event of any Change of Control:

(1) Any Option carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested as of the time of the Change of Control and shall remain exercisable and vested for the balance of the stated term of such Option without regard to any termination of employment by the Participant, subject only to (A) applicable restrictions set forth in Section 10(b) and (c) hereof and (B) the Board’s right to cancel all Options and, if an Option in the Board’s judgment has value based on its exercise price, provide for a payment of the aggregate spread in the cancelled Options; and

(2) Any Award of Restricted Stock or Restricted Stock Units shall become fully vested.

(b) Compliance with Legal and Other Requirements. The Company may, to the extent deemed necessary or advisable by the Committee, postpone the issuance or delivery of Common Stock or payment of other benefits under any Option until

- 10 -

completion of such registration or qualification of such Common Stock or other required action under any federal or state law, rule or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which the Common Stock or other securities of the Company may in the future be listed or quoted, or compliance with any other obligation of the Company, as the Committee may consider appropriate, and may require any Participant to make such representations, furnish such information and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery of Common Stock or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other obligations.

(c) Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party (other than the Company or a subsidiary), or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and Options or rights that may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or legal representative, except that Options (other than ISOs) may be transferred to one or more Beneficiaries or other transferees during the lifetime of the Participant, and may be exercised by such transferees in accordance with the terms of such Option, but only if and to the extent such transfers are permitted by the Committee pursuant to the express terms of an Option agreement (subject to any terms and conditions which the Committee may impose thereon). A Beneficiary, transferee, or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee.

(d) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, or other property), capital contribution, recapitalization, forward or reverse split, reorganization, merger, acquisition, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution or other corporate transaction or event affects the Common Stock such that an adjustment is determined by the Committee to be appropriate under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (1) the number and kind of shares of Common Stock which may be delivered in connection with Awards granted thereafter, (2) the number and kind of shares of Common Stock subject to or deliverable in respect of outstanding Options and (3) the exercise price, grant price or purchase price relating to any Option and/or make provision for payment of cash or other property in respect of any outstanding Option. In addition, the Committee is authorized to make such adjustments in the terms and conditions of, and the criteria included in, Awards as the Committee deems equitable in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Company, any subsidiary or any business unit, or the financial statements of the Company or any subsidiary, or in response to changes in applicable laws, regulations, accounting

- 11 -

principles, tax rates and regulations or business conditions or in view of the Committee’s assessment of the business strategy of the Company, any subsidiary or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant.

(e) Foreign Employees. In order to facilitate the making of any grant or combination of grants under this Plan, the Board may provide for such special terms for Awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America as the Board may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Board may approve such supplements to or amendments, restatements or alternative versions of this Plan as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, shall include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.

(f) Taxes. The Company and any affiliate is authorized to withhold from any payment to a Participant amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Common Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations (not to exceed the minimum statutorily required tax withholding), either on a mandatory or elective basis in the discretion of the Committee.

(g) Changes to the Plan and Awards. The Board, or the Committee acting pursuant to such authority as may be delegated to it by the Board, may amend, alter, suspend, discontinue or terminate the Plan or the Committee’s authority to grant Awards under the Plan, provided that, without the consent of an affected Participant, except as otherwise contemplated by the Plan or the terms of an Award agreement, no such Board action may materially and adversely affect the rights of a Participant under any previously granted and outstanding Award. Except as otherwise provided in the Plan, the Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award theretofore granted and any Award agreement relating thereto, provided that, without the consent of an affected Participant, except as otherwise contemplated by the Plan or the terms of an Award agreement, no Committee action may materially and adversely affect the rights of such Participant under such Award.

(h) Limitation on Rights Conferred under Plan. Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Employee or Participant the right to continue as an Eligible Employee or Participant or in the employ

- 12 -

or service of the Company or a subsidiary (including, without limitation, ITG Holdings, Inc. and its direct and indirect subsidiaries), (ii) interfering in any way with the right of the Company or a subsidiary to terminate any Eligible Employee’s or Participant’s employment or service at any time, (iii) giving an Eligible Employee or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and employees, or (iv) conferring on a Participant any of the rights of a shareholder of the Company unless and until the Participant is duly issued or transferred shares of Common Stock in accordance with the terms of an Option or an Award of Restricted Stock.

(i) Nonexclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other compensation and incentive arrangements for employees, agents and brokers of the Company and its subsidiaries as it may deem desirable.

(j) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise determined by the Committee, in the event of a forfeiture of a share of Common Stock or Option with respect to which a Participant paid cash or other consideration, the Participant shall be repaid the amount of such cash or other consideration.

(k) Governing Law. The validity, construction and effect of the Plan, any rules and regulations under the Plan, and any Award agreement shall be determined in accordance with Delaware law, without giving effect to principles of conflicts of laws, and applicable federal law.

(l) Plan Effective Date. The Plan has been adopted by the Board as of the Effective Date.

- 13 -

EX-10.3

Exhibit 10.3

INTERNATIONAL TEXTILE GROUP, INC.

(f/k/a Safety Components International, Inc.)

STOCK OPTION PLAN

FOR NON-EMPLOYEE DIRECTORS

As Amended and Restated Effective

11:59 p.m., Eastern Time, October 20, 2006

1. Purpose. The purpose of this Amended and Restated International Textile Group, Inc. Stock Option Plan for Non-Employee Directors (the “Plan”) is to assist International Textile Group, Inc., a Delaware corporation which was formerly known as Safety Components International, Inc., and its direct and indirect subsidiaries (including, without limitation, ITG Holdings, Inc., which was formerly known as International Textile Group, Inc.) in attracting, retaining, and rewarding high-quality business professionals to serve as members of its and its subsidiaries’ Board of Directors, by enabling these persons to acquire or increase a proprietary interest in the Company.

2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof

(a) “Award” means an award of Options granted under the Plan.

(b) “Beneficiary” means the person, persons, trust or trusts who or which have been designated by a Participant in his or her most recent written beneficiary designation filed with the Company or its subsidiary (including ITG Holdings, Inc.) to which Options are transferred if and to the extent permitted under Section 7(c) hereof. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means the person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive such Options.

(c) “Board” means the Board of Directors of the Company.

(d) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.

(e) “Committee” means the Compensation Committee of the Board, or its delegate.

(f) “Common Stock” means, prior to 11:59 p.m., Eastern Time, on October 20, 2006, the common stock ITG Holdings, Inc. f/k/a International Textile Group, Inc. and, following such time, the Common Stock of the Company, and such other securities as may be substituted (or resubstituted) for Common Stock pursuant to Section 8(e) hereof.

(g) “Company” means, prior to 11:59 p.m., Eastern Time, on October 20, 2006, ITG Holdings, Inc., which was formerly known as International Textile Group, Inc., and, following such time, International Textile Group, Inc., which was formerly known as Safety Components International, Inc.

(h) “Effective Date” means August 23, 2005.

(i) “Eligible Director” means each member of the Company’s Board or the Board of Directors of any of its subsidiaries (including, without limitation, ITG Holdings, Inc.). Eligible Directors also include members of the Board of Directors of International Textile Holdings, Inc., so long as it is the majority owner of the Company’s capital stock, who are not an employees of the Company, its subsidiaries or its affiliates or of a WLR Affiliate.

(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

(k) “Executive Officer” means an executive officer of the Company as defined under the Exchange Act.

(l) “Fair Market Value” means the fair market value of Common Stock as determined by the Committee in good faith and in accordance with any relevant statutes, regulations or other applicable governmental guidance.

(m) “Option” means a right, granted to a Participant under Section 6 hereof, to purchase Common Stock at a specified price during specified time periods.

(n) “Participant” means an Eligible Director who has been granted an Award under the Plan that remains outstanding, including a person who is no longer an Eligible Director.

(o) “WLR Affiliate” means any Person which is controlled by WL Ross & Co. LLC (“WLR”) or any fund managed by WLR or in which WLR or any fund managed by WLR directly or indirectly owns fifteen percent (15%) or more of the outstanding equity interests of such Person, other than the Company and any of the Company’s subsidiaries or any Person in which the Company directly or indirectly owns fifteen percent (15%) or more of the outstanding equity interests.

3. Administration.

(a) Authority of the Committee. The Plan shall be administered by the Committee. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to: interpret the provisions of the Plan; select Eligible Directors to become Participants; make Awards; determine the number and other terms and conditions of, and all other matters relating to, Awards; prescribe Award agreements (which need not be identical for each Participant); adopt, amend and rescind rules and regulations for the administration of the Plan; construe and interpret the Plan and Award agreements and correct defects, supply omissions or reconcile inconsistencies therein; and make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. Except as otherwise determined by the Board, unless the context otherwise requires, all actions and determinations that the Plan contemplates that the Board may take may be taken by the Committee in its stead.

- 2 -

(b) Manner of Exercise of Committee Authority. Any action of the Committee shall be final, conclusive and binding on all persons, including the Company, its subsidiaries, Participants, Beneficiaries, transferees under Section 7(c) hereof or other persons claiming rights from or through a Participant, and shareholders. The Committee shall exercise its authority only by a majority vote of its members at a meeting or without a meeting by a writing signed by a majority of its members. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any subsidiary, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform administrative functions to the extent permitted under applicable law. The Committee may appoint agents to assist it in administering the Plan.

(c) Limitation of Liability. The Committee and each member thereof shall be entitled, in good faith, to rely or act upon any report or other information furnished to it, him or her by any Executive Officer, other officer or employee of the Company or a subsidiary, the Company’s independent auditors, consultants or any other agents assisting in the administration of the Plan. Members of the Committee and any officer or employee of the Company or a subsidiary acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination.

(d) No Further Awards Under Plan. Notwithstanding anything in the Plan to the contrary, no Awards shall be made under this Plan after 11:59 p.m., Eastern Time, on October 20, 2006.

4. Stock Subject to Plan.

(a) Overall Number of Shares Available for Delivery. Subject to adjustment as provided in Section 7(d) hereof, the total number of shares of Common Stock reserved and available for delivery in connection with Awards under the Plan shall be 34,000. Any shares of Common Stock delivered under the Plan shall consist of authorized and issued or unissued shares. Subject to the adjustments provided in Section 7(d) hereof, no contraction of the number of shares of Common Stock outstanding will affect the validity or enforceability of any Awards then outstanding.

(b) Application of Limitation to Grants of Awards. No Award may be granted if the number of shares of Common Stock to be delivered in connection with such Award exceeds the number of shares of Common Stock remaining available under the Plan minus the number of shares of Common Stock issuable in settlement of or relating to then-outstanding Options. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting and make adjustments if the number of shares of Common Stock actually delivered differs from the number of shares previously counted in connection with an Option.

- 3 -

(c) Availability of Shares Not Delivered under Awards. Shares of Common Stock subject to an Award under the Plan which Award is canceled, expired, forfeited or otherwise terminated without a delivery of shares to the Participant or with the return to the Company of shares previously delivered, including the number of shares surrendered in payment of any taxes relating to any Award, will again be available for Awards under the Plan, except that if any such shares could not again be available for Awards to a particular Participant under any applicable law or regulation, such shares shall be available exclusively for Awards to Participants who are not subject to such limitation.

5. Eligibility. Awards may be granted under the Plan only to Eligible Directors.

6. Terms of Options.

(a) General. Options may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Option or the exercise thereof, at the date of grant, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Options in the event of termination of employment by the Participant and terms permitting a Participant to make elections relating to his or her Option. The Committee shall (subject to Section 7(f)) retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Option that is not mandatory under the Plan.

(b) Specific Terms of Options. The Committee is authorized to grant Options to Participants on the following terms and conditions:

(1) Exercise Price. The exercise price per share of Common Stock purchasable under an Option shall be determined by the Committee, provided that such exercise price shall be not less than the Fair Market Value of a share of Common Stock on the date of grant of such Option.

(2) Vesting. Each Participant shall acquire a nonforfeitable right to Options awarded to him in accordance with the provisions of the agreement evidencing the Award of the Options.

(3) Time and Method of Exercise. The Committee shall determine, at the date of grant or thereafter, the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on completion of future service requirements), the methods by which such exercise price may be paid or deemed to be paid, the form of such payment, including, without limitation, cash or Common Stock held for more than six months, and the methods by or forms in which Common Stock will be delivered or deemed to be delivered to Participants. The specific circumstances under which a Participant may exercise an Option will be set forth in the agreement evidencing the award of the Option to the Participant.

- 4 -

(4) Term of Options. The term of each Option shall be for such period as may be determined by the Committee, provided that in no event shall the term of any Option exceed a period of ten years.

7. General Provisions.

(a) Change of Control. Notwithstanding any provision of the Plan to the contrary and unless otherwise provided in the applicable Award agreement, in the event of any Change of Control, any Option carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested as of the time of the Change of Control and shall remain exercisable and vested for the balance of the stated term of such Option without regard to any termination of employment by the Participant, subject only to (1) applicable restrictions set forth in Section 7(b) and (c) hereof and (2) the Board’s right to cancel all Options and, if an Option in the Board’s judgment has value based on its exercise price, provide for a payment of the aggregate spread in the cancelled Options.

(b) Compliance with Legal and Other Requirements. The Company may, to the extent deemed necessary or advisable by the Committee, postpone the issuance or delivery of Common Stock or payment of other benefits under any Option until completion of such registration or qualification of such Common Stock or other required action under any federal or state law, rule or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which the Common Stock or other securities of the Company may in the future be listed or quoted, or compliance with any other obligation of the Company, as the Committee may consider appropriate, and may require any Participant to make such representations, furnish such information and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery of Common Stock or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other obligations.

(c) Limits on Transferability; Beneficiaries. No Award or other right or interest of a Participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party (other than the Company or a subsidiary), or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and Options that may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or legal representative, except that Options may be transferred to one or more Beneficiaries or other transferees during the lifetime of the Participant, and may be exercised by such transferees in accordance with the terms of such Option, but only if and to the extent such transfers are permitted by the Committee pursuant to the express terms of an Option agreement (subject to any terms and conditions which the Committee may impose thereon). A Beneficiary, transferee, or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee.

- 5 -

(d) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, or other property), capital contribution, recapitalization, forward or reverse split, reorganization, merger, acquisition, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or event affects the Common Stock such that an adjustment is determined by the Committee to be appropriate under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (l) the number and kind of shares of Common Stock subject to or deliverable in respect of Options and (2) the exercise price, grant price or purchase price relating to any Option and/or make provision for payment of cash or other property in respect of any Option. In addition, the Committee is authorized to make such adjustments in the terms and conditions of, and the criteria included in, Awards as the Committee deems equitable in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Company, any subsidiary or any business unit, or the financial statements of the Company or any subsidiary, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions or in view of the Committee’s assessment of the business strategy of the Company, any subsidiary or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant.

(e) Changes to the Plan and Awards. The Board, or the Committee acting pursuant to such authority as may be delegated to it by the Board, may amend, alter, suspend, discontinue or terminate the Plan or the Committee’s authority to grant Awards under the Plan, provided that, without the consent of an affected Participant, except as otherwise contemplated by the Plan or the terms of an Award Agreement, no such Board action may materially and adversely affect the rights of a Participant under any previously granted and outstanding Award. Except as otherwise provided in the Plan, the Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award theretofore granted and any Award agreement relating thereto, provided that, without the consent of an affected Participant, except as otherwise provided in the Plan or terms of an Award Agreement, no Committee action may materially and adversely affect the rights of such Participant under such Award.

(f) Limitation on Rights Conferred under Plan. Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Director or Participant the right to continue as an Eligible Director or Participant or in the service of the Company or a subsidiary (including, without limitation, ITG Holdings, Inc.), (ii) interfering in any way with the right of the Company or a subsidiary to terminate any Eligible Director’s or Participant’s service at any time, (iii) giving an Eligible Director or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and directors, or (iv) conferring on a Participant any of the rights of a shareholder of the Company unless and until the Participant is duly issued or transferred shares of Common Stock in accordance with the terms of an Option.

- 6 -

(g) Nonexclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other compensation and incentive arrangements for employees, agents and brokers of the Company and its subsidiaries as it may deem desirable.

(h) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise determined by the Committee, in the event of a forfeiture of a share of Common Stock or Option with respect to which a Participant paid cash or other consideration, the Participant shall be repaid the amount of such cash or other consideration.

(i) Governing Law. The validity, construction and effect of the Plan, any rules and regulations under the Plan, and any Award agreement shall be determined in accordance with Delaware law, without giving effect to principles of conflicts of laws, and applicable federal law.

(j) Plan Effective Date. The Plan has been adopted by the Board as of the Effective Date.

- 7 -

EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into effective as of January 1, 2005 (the “Effective Date”), by and between Joseph L. Gorga (“Executive”) and International Textile Group, Inc. (“Company” or “ITG”), a Delaware corporation.

R E C I T A L S:

A. Executive serves as the President and Chief Executive Officer of ITG and is a key corporate officer of ITG and is expected to make major contributions to the profitability, growth and financial strength of the ITG.

B. ITG desires to employ Executive, and Executive desires to accept such employment, under the terms and conditions of this Agreement.

C. The Board of Directors has also determined that it is in the best interests of the stockholders and ITG to promote stability among key officers.

IN CONSIDERATION OF THE FOREGOING, the mutual covenants contained herein, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1. Definitions.

1.1 “Accountants” has the meaning set forth in Section 9.9(B)(i).

1.2 “Base Salary” has the meaning set forth in Section 6.1.

1.3 “Board” means the board of directors of ITG.

1.4 “Cause” means (A) the commission by Executive of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) gross negligence or intentional misconduct by Executive with respect to ITG or in the performance of his duties to ITG; (C) failure to follow a reasonable, lawful and specific direction of the Board of Directors of ITG; (D) failure by Executive to cooperate in any corporate investigation, or (E) breach by Executive of any material provision of this Agreement, which breach is not corrected by Executive within ten (10) calendar days after receipt by Executive of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by the Executive shall be considered “intentional” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of ITG.

1.5 “Code” has the meaning set forth in Section 9.9(A).

1.6 “Covered Payments” has the meaning set forth in Section 9.9(A).

1.7 “Disability” or “Disabled” means the absence of Executive from Executive’s duties with the Company on a full time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.

1.8 “Employee Benefits” means the “benefit plans and policies” for the limited liability companies of ITG or its predecessor that was the employer of the Executive immediately prior to the execution of this Employment Agreement and Employee Benefits shall refer to such plans until adopted by and as subsequently amended by ITG.

1.9 “Excise Tax” has the meaning set forth in Section 9.9(A).

1.10 “Excise Tax Reimbursement” has the meaning set forth in Section 9.9(A).

1.11 “Good Reason” means the termination of Executive’s employment by Executive for any of the following reasons:

(A) involuntary reduction in Executive’s Base Salary unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for Executive under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of Executive’s participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as Executive;

(D) failure to obtain an assumption of ITG’s obligations under this Agreement by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this Agreement are vested in the successor to ITG by operation of law;

(E) involuntary relocation of Executive’s primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of Executive’s duties in effect on the Effective Date.

1.12 “Incentive or Bonus Plan” has the meaning set forth in Section 6.2 hereof.

1.13 “ITG” means International Textile Group Inc. and each of the affiliates of International Textile Group Inc. (meaning any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, International Textile Group Inc.), along with all successors and assigns of each of such entities.

- 2 -

1.14 “Plan” has the meaning set forth in Section 7.3.

1.15 “Restricted Customers” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.16 “Restricted Industry” means the specific industry segment or segments for which the Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.17 “Restricted Territory” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

1.18 “Target Bonus” has the meaning set forth in the Incentive or Bonus Plan as defined in Section 6.2 hereof.

1.19 “Term” has the meaning set forth in Section 5.

1.20 “Termination Date” means the date on which the termination of Executive’s employment with ITG becomes effective.

2. Termination of Prior Agreements.

The parties hereto acknowledge and agree that, effective as of the date hereof, all prior employment agreements if any are terminated and each and every provision of each of such agreements is rendered void and of no further force or effect whatsoever.

3. Employment.

ITG hereby employs Executive, and Executive hereby accepts employment, according to the terms and conditions set forth in this Agreement and for the period specified in Section 5 of this Agreement.

4. Duties.

During the Term, Executive shall serve ITG as its President and Chief Executive Officer in accordance with reasonable and lawful directions from ITG’s Board of Directors and in accordance with ITG’s Articles of Incorporation and Bylaws, as both may be amended from time to time. Executive will report directly to the Board of Directors. While Executive is employed by ITG as a full-time employee, Executive shall serve ITG, faithfully, diligently, competently and to the best of his ability, and will exclusively devote his full time, energy and attention to the business of ITG and to the promotion of its interests. Executive shall not, without the written consent of the Board of Directors either render services to or for any person, firm, corporation or

- 3 -

other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and whether or not it is paid directly or indirectly to Executive, or serve as a board member, director or trustee of any corporation or organization regardless of whether Executive is paid for such services. Nothing in this Section 4 shall preclude Executive from managing his personal investments and affairs, provided that such activities in no way interfere with the proper performance of his duties and responsibilities as President and Chief Executive Officer.

5. Term of Employment.

Subject to Article 9, the term of this Agreement (the “Term”) shall commence on the Effective Date and end on December 31, 2007. The Term shall automatically be extended by one year on each December 31, beginning December 31, 2005, unless not later than September 30 of each year ITG notifies Executive, or Executive notifies ITG, that it or he, as the case may be, does not desire to have the Term extended. For example, if such notice of non-extension is not given by September 30, 2005, the Term of this Agreement shall automatically be extended to December 31, 2008.

6. Compensation.

6.1 Base Salary. While employed under this Agreement, Executive will receive as his compensation for the performance of his duties and obligations to ITG under this Agreement a Base Salary of Six Hundred Thousand Dollars ($600,000.00) per year, which will be payable in such installments established by ITG for all salaried employees, and which will be subject to annual review by the Board of Directors or any committee designated by the Board of Directors (the base salary, as it may be modified from time to time, is referred to herein as the “Base Salary”).

6.2 Bonus. In addition to the Base Salary, Executive will receive with respect to each plan year a bonus in accordance with ITG’s Incentive and Bonus Plan, a copy of which has been delivered to Executive.

6.3 Withholding. All compensation payable to Executive pursuant to this Section 6 shall be paid net of amounts withheld for federal, state, municipal or local income taxes, Executive’s share, if any, of any payroll taxes and such other federal, state, municipal or local taxes as may be applicable to amounts paid by an employer to its employee or to the employer/employee relationship.

7. Other Benefits of Employment.

7.1 Employee Benefits. Executive will be entitled to participate in such hospitalization, life insurance, long and short term disability, 401(k) and other employee benefit plans and programs, if any, as may be adopted by ITG from time to time, in accordance with the provisions of such plans and programs and on the same basis as other full-time salaried employees of ITG who participate in such employee benefit plans (except to the extent that the benefits provided under any of such plans or programs are expressly offset by any of the benefits provided under or pursuant to this Agreement).

- 4 -

7.2 Executive Benefits. Executive shall be entitled to participate in any employee benefit adopted by ITG for executive level employees.

7.3 Stock Based Awards. Executive shall be eligible to receive grants of stock options, performance units, stock appreciation rights, restricted stock, deferred shares, and other stock-based awards in accordance with the provisions of any stock-based award or long-term incentive plan (“Plan”) ITG may adopt or amend or supersede from time to time. The terms of such grants shall be determined by the Board of Directors (or its designee as provided in the Plan or as appointed by the Board of Directors) in accordance with the Plan, provided, however, that notwithstanding any provision of the Plan to the contrary, in the event of any termination of Executive’s employment for any reason other than for Cause pursuant to Section 9.3, or for termination of employment for other than Good Reason pursuant to Section 9.5, any stock-based award granted to Executive prior to such Termination Date shall immediately vest and be exercisable by or issued to the Executive under the Plan.

7.4 Taxes and Withholding. Executive shall be responsible for paying all federal, state, municipal or local taxes payable by him with respect to any benefits provided under this Section 7, and ITG will, when required by law or when otherwise appropriate or customary, withhold from the benefits or other compensation amounts sufficient to satisfy such taxes, unless taxes are to be paid by ITG as set forth in the provisions of the executive benefit plan, Employee Benefit Plan, or an agreement with the Executive.

7.5 Vacation. Notwithstanding any policy of the company for salaried employees, Executive will be entitled to four (4) weeks paid vacation and ITG recognized holidays.

8. Termination.

8.1 Termination by ITG.

(A) This Agreement shall automatically terminate effective upon (i) the date of Executive’s death; (ii) the date that Executive is determined to be permanently Disabled or (iii) the date of Executive’s retirement.

(B) ITG may terminate this Agreement, and Executive’s employment with ITG, without Cause upon ninety (90) days’ prior written notice to Executive.

(C) ITG may terminate this Agreement, and Executive’s employment with ITG, with Cause effective immediately and without the requirement of prior notice to Executive.

8.2 Termination by Executive. Executive may terminate this Agreement, and his employment with ITG, with or without Good Reason, upon ninety (90) days’ prior written notice to ITG.

8.3 Notice. Any purported termination of this Agreement by ITG or Executive shall be communicated by written notice of termination to the other party. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provisions so indicated, and shall specify the Termination Date (which shall not be earlier than the date of the notice).

- 5 -

9. Compensation and Benefits Upon Termination of Employment.

9.1 Termination of Employment upon Death. If Executive’s employment is terminated by reason of death, his estate shall be entitled to receive only the Base Salary to which Executive was entitled through the date of death, any accrued unpaid bonus compensation for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive or his estate through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.2 Termination of Employment upon Disability. If Executive’s employment is terminated due to his Disability, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date due to Disability, any accrued unpaid bonus compensation for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.3 Termination of Employment by ITG for Cause. If Executive’s employment is terminated for Cause as provided in Section 8.1(C), Executive shall be entitled to receive the Base Salary to which he was entitled through the Termination Date, and such other benefits as may be available to him through ITG’s benefit plans and policies in effect on the Termination Date, other than any accrued but unpaid bonus compensation, which shall be forfeited.

9.4 Termination Without Cause or Termination For Good Reason. If ITG terminates Executive’s employment without Cause pursuant to Section 8.1(B) or if Executive terminates his employment for Good Reason pursuant to Section 8.2, Executive shall receive severance pay equal to (A) three (3) times his Base Salary; (B) three (3) times the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term); and (B) medical and dental coverage under the plan(s) in effect under the COBRA eligibility period for Executive and any eligible dependents with the costs absorbed by the Company on a tax protected basis to Executive for the period of time Executive and/or dependents(s) remain eligible for COBRA but not to exceed three (3) years from the Termination Date. Said severance shall be in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Executive agrees that he shall not be entitled to any additional compensation or benefits other than what is set out in this Section 9.4. Executive and ITG agree that the receipt of severance benefits as defined in this Section 9.4 are conditioned upon and subject to Executive and ITG executing a valid mutual release agreement releasing any and all claims which either of them have or may have against the other arising out of Executive’s employment (other than enforcement of this Agreement).

- 6 -

9.5 Termination of Employment other than for Good Reason. If Executive terminates employment with ITG pursuant to Section 8.2 other than for Good Reason or Executive elects to not renew this Agreement for an additional term, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date, accrued unpaid bonus compensation due to Executive for the plan year prior and such other benefits as may be available to him through ITG’s benefit plans and policies through the Termination Date. Such bonus payments shall be paid at the same time bonus payments are made for all plan participants. If the Company elects not to renew this Agreement for an additional term, Executive shall be entitled to receive compensation equal to two (2) year of his Base Salary plus two (2) times the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term). Severance compensation shall be paid in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Such severance payments shall commence immediately after the Termination Date.

9.6 Effect of Termination. Upon termination of Executive’s employment, the obligations of each of the parties under this Agreement shall expire as of the Termination Date, including, without limitation, the obligations of ITG to pay any compensation to Executive, except to the extent otherwise specifically provided in this Agreement. Notwithstanding the foregoing, the obligations contained in Sections 9.7 and 10 of this Agreement, the provisions hereof relating to the obligations of ITG described in the preceding sentence and any other provision of this Agreement that is intended to continue in full force and effect after the termination of Executive’s employment, shall survive the termination or expiration of this Agreement in accordance with the terms set forth therein.

9.7 Other Compensation. The amount of any payment provided for in this Section 9 shall be reduced by any compensation earned or benefits provided as the result of the employment of Executive by another employer or as a result of Executive being self-employed after the Termination Date. If any such compensation received by Executive from another employer or as a result of his self-employment is less than the payment payable under this Section 9, the Company shall pay to Executive only the difference between such amounts in accordance with the applicable payment terms set forth in this Section 9.

9.8 Non-Payment Due to Breach. In the event Executive breaches any of the covenants and obligations set forth in this Agreement, including without limitation any of the covenants set forth in Section 10 hereof, then ITG’s obligation to make any remaining payments under this Agreement that have not already been paid to Executive shall be terminated.

9.9 Certain Further Payments by ITG.

(A) In the event that any amount or benefit paid or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by ITG or any affiliated company (collectively, the “Covered Payments”), are or become subject to the tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any similar tax that may hereafter be imposed, ITG shall pay to Executive at the time specified in this

- 7 -

Section 9.9 an additional amount (the “Excise Tax Reimbursement”) such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Excise Tax Reimbursement provided for by this Section 9.9, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments.

(B) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax:

(i) such Covered Payments will be treated as “parachute payments” within the meaning of Section 280G of the Code, and all “parachute payments” in excess of the “base amount” (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of ITG’s independent certified public accountants appointed prior to the date upon which a change in control became effective or tax counsel selected by such accountants (the “Accountants”), ITG has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute “parachute payments” or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the “base amount,” or such “parachute payments” are otherwise not subject to such Excise Tax; and

(ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code.

(C) For purposes of determining the amount of the Excise Tax Reimbursement, Executive shall be deemed to pay:

(i) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Excise Tax Reimbursement is to be made; and

(ii) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Excise Tax Reimbursement is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year.

(D) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Excise Tax Reimbursement made, Executive shall repay to ITG, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Excise Tax Reimbursement that would not have been paid if such Excise Tax had been applied

- 8 -

in initially calculating such Excise Tax Reimbursement. Notwithstanding the foregoing, in the event any portion of the Excise Tax Reimbursement to be refunded to ITG has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive. Executive and ITG shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executive’s good faith claim for refund or credit is denied.

(E) In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Excise Tax Reimbursement is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Excise Tax Reimbursement), ITG shall make an additional Excise Tax Reimbursement in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined.

(F) The Excise Tax Reimbursement (or portion thereof) provided for in Section 9.9(A) above shall be paid to Executive not later than ten (10) business days following the payment of the Covered Payments; provided, however, that if the amount of such Excise Tax Reimbursement (or portion thereof) cannot be finally determined on or before the date on which payment is due, ITG shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Excise Tax Reimbursement and shall pay the remainder of such Excise Tax Reimbursement as soon as the amount thereof can be determined, but in no event later than forty five (45) calendar days after payment of the related Covered Payment.

10. Confidentiality, Non-Compete, and Non-Solicitation.

10.1 Non-Disclosure. Executive expressly covenants and agrees that he will not reveal, use, divulge or make known to any person, firm, company or corporation any secret or confidential information of any nature concerning ITG or its business, or anything connected therewith.

10.2 Return of Materials. Executive agrees to deliver or return to ITG upon termination or expiration of this Agreement or as soon thereafter as possible, all written information and any other similar items furnished by ITG or prepared by Executive in connection with his services hereunder. Executive will retain no copies thereof after termination of this Agreement or Executive’s employment with ITG.

10.3 Non-Competition. In the event of termination or non-renewal of this Agreement by either ITG or Executive, for any reason, Executive shall not (except as an officer, director, employee, agent or consultant of ITG) during the three (3) year period following the Termination Date, directly or indirectly, (a) own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit his name to be used in connection with, or be otherwise connected in any

- 9 -

manner with any business or enterprise that is actively engaged in any business in the Restricted Industry within the Restricted Territory; provided that the foregoing restriction shall not be construed to prohibit the ownership by Executive of not more than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, having a class of securities registered pursuant to the Securities Exchange Act of 1934, which securities are publicly owned and regularly traded on any national exchange or in the over-the-counter market, provided, further, that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes part in its business other than exercising his rights as a shareholder, or seeks to do any of the foregoing or (b) solicit, call upon, divert or take away any Restricted Customers for purposes of conducting a business in the Restricted Industry.

10.4 No Solicitation. In addition to the limitation imposed by Section 10.3, Executive hereby further agrees and covenants that during the term of this Agreement, and for a period of three (3) years thereafter, he shall not, directly or indirectly, on his own behalf or with others (A) induce or attempt to induce any employee of ITG to leave the employ of ITG, or in any way interfere with the relationship between ITG and any employee; (B) knowingly hire any employee of ITG; or (C) induce or attempt to induce any referral source or other business relation of ITG not to do business with ITG, or to cease doing business with ITG, or in any way interfere with the relationship between any such referral source or business relation and ITG.

10.5 Injunctive Relief. Executive acknowledges that it is impossible to measure in money the damages that will accrue to ITG by reason of Executive’s failure to observe any of the obligations imposed on him by this Section 10. Accordingly, if ITG shall institute an action to enforce the provisions hereof, Executive hereby waives the claim or defense that an adequate remedy at law is available to ITG, and Executive agrees not to urge in any such action the claim or defense that such remedy at law exists.

10.6 Severability. If a final determination is made by a court having competent jurisdiction that the time or territory or any other restriction contained in Sections 10.1, 10.3 or 10.4 is an unenforceable restriction on Executive’s activities, the provisions of Sections 10.1, 10.3 or 10.4 shall not be rendered void but shall be deemed amended to apply such maximum time and territory and such other restrictions as such court may judicially determine or otherwise indicate to be reasonable.

11. Miscellaneous.

11.1 Assignment. This Agreement shall be binding upon the parties hereto, their respective heirs, personal representatives, executors, administrators and successors; provided, however, that Executive shall not assign this Agreement.

11.2 Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

- 10 -

11.3 Entire Agreement. This Agreement between Executive and ITG, set forth the entire agreement of the parties concerning the employment of Executive by ITG, and any other oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Both parties hereto have participated in the selection of the words and phrases set forth in this Agreement in order to express their joint intentions in entering into this employment relationship, and the parties hereto agree that there shall not be strict interpretation against either party in connection with any review of this Agreement in which interpretation thereof is an issue.

11.4 Notices. Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, or mailed properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to the address of Executive on the books and records of ITG at the time of the delivery of such notice, and properly addressed to ITG if addressed to:

Corporate Secretary

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro NC 27408

11.5 Severability. Wherever there is any conflict between any provision of this Agreement and any statute, law regulation or judicial precedent, the latter shall prevail, but in such event the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring them within the requirements of law. In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be indefinite, invalid, void or voidable or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an unconscionable injustice.

11.6 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed the day and year first above written.

INTERNATIONAL TEXTILE GROUP, INC.
By:	/s/ David L. Wax	/s/ Joseph L. Gorga
Name:	David L. Wax	Joseph L. Gorga
Title:	Director

- 11 -

EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into effective as of January 1, 2005 (the “Effective Date”), by and between Gary L. Smith (“Executive”) and International Textile Group, Inc. (“Company” or “ITG”), a Delaware corporation.

R E C I T A L S:

A. Executive serves as the Executive Vice-President and Chief Financial Officer of ITG and is a key corporate officer of ITG and is expected to make major contributions to the profitability, growth and financial strength of the ITG.

B. ITG desires to employ Executive, and Executive desires to accept such employment, under the terms and conditions of this Agreement.

C. The Board of Directors has also determined that it is in the best interests of the stockholders and ITG to promote stability among key officers.

IN CONSIDERATION OF THE FOREGOING, the mutual covenants contained herein, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1. Definitions.

1.1 “Base Salary” has the meaning set forth in Section 6.1.

1.2 “Board” means the board of directors of ITG.

1.3 “Cause” means (A) the commission by Executive of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) gross negligence or intentional misconduct by Executive with respect to ITG or in the performance of his duties to ITG; (C) failure to follow a reasonable, lawful and specific direction of the President and CEO of ITG; (D) failure by Executive to cooperate in any corporate investigation, or (E) breach by Executive of any material provision of this Agreement, which breach is not corrected by Executive within ten (10) calendar days after receipt by Executive of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by the Executive shall be considered “intentional” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of ITG.

1.4 “Disability” or “Disabled” means the absence of Executive from Executive’s duties with the Company on a full time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.

1.5 “Employee Benefits” means the “benefit plans and policies” for the limited liability companies of ITG or its predecessor that was the employer of the Executive immediately prior to the execution of this Employment Agreement and Employee Benefits shall refer to such plans until adopted by and as subsequently amended by ITG.

1.6 “Good Reason” means the termination of Executive’s employment by Executive for any of the following reasons:

(A) involuntary reduction in Executive’s Base Salary unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for Executive under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of Executive’s participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as Executive;

(D) failure to obtain an assumption of ITG’s obligations under this Agreement by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this Agreement are vested in the successor to ITG by operation of law;

(E) involuntary relocation of Executive’s primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of Executive’s duties in effect on the Effective Date; provided, however that a change in title or reporting line will not constitute Good Reason unless such change is coupled with a material reduction in the actual duties of Executive.

1.7 “Incentive or Bonus Plan” has the meaning set forth in Section 6.2 hereof.

1.8 “ITG” means International Textile Group Inc. and each of the affiliates of International Textile Group Inc. (meaning any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, International Textile Group Inc.), along with all successors and assigns of each of such entities.

1.9 “Plan” has the meaning set forth in Section 7.3.

1.10 “Restricted Customers” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

- 2 -

1.11 “Restricted Industry” means the specific industry segment or segments for which the Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.12 “Restricted Territory” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

1.13 “Target Bonus” has the meaning set forth in the Incentive or Bonus Plan as defined in Section 6.2 hereof.

1.14 “Term” has the meaning set forth in Section 5.

1.15 “Termination Date” means the date on which the termination of Executive’s employment with ITG becomes effective.

2. Termination of Prior Agreements.

The parties hereto acknowledge and agree that, effective as of the date hereof, all prior employment agreements if any are terminated and each and every provision of each of such agreements is rendered void and of no further force or effect whatsoever.

3. Employment.

ITG hereby employs Executive, and Executive hereby accepts employment, according to the terms and conditions set forth in this Agreement and for the period specified in Section 5 of this Agreement.

4. Duties.

During the Term, Executive shall serve ITG as its Executive Vice-President and Chief Financial Officer in accordance with reasonable and lawful directions from ITG’s President and CEO and the Board of Directors and in accordance with ITG’s Articles of Incorporation and Bylaws, as both may be amended from time to time. Executive will report directly to the President and Chief Executive Officer of ITG. While Executive is employed by ITG as a full-time employee, Executive shall serve ITG, faithfully, diligently, competently and to the best of his ability, and will exclusively devote his full time, energy and attention to the business of ITG and to the promotion of its interests. Executive shall not, without the written consent of the President and CEO of ITG, either render services to or for any person, firm, corporation or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and whether or not it is paid directly or indirectly to Executive, or serve as a board member, director or trustee of any corporation or organization regardless of whether Executive is paid for such services. Nothing in this Section 4 shall preclude Executive from managing his personal investments and affairs, provided that such activities in no way interfere with the proper performance of his duties and responsibilities as Chief Financial Officer.

- 3 -

5. Term of Employment.

Subject to Article 9, the term of this Agreement (the “Term”) shall commence on the Effective Date and end on December 31, 2006. The Term shall automatically be extended by one year on each December 31, beginning December 31, 2005, unless not later than September 30 of each year ITG notifies Executive, or Executive notifies ITG, that it or he, as the case may be, does not desire to have the Term extended. For example, if such notice of non-extension is not given by September 30, 2005, the Term of this Agreement shall automatically be extended to December 31, 2007.

6. Compensation.

6.1 Base Salary. While employed under this Agreement, Executive will receive as his compensation for the performance of his duties and obligations to ITG under this Agreement a Base Salary of Three Hundred Fifty Thousand Dollars ($350,000.00) per year, which will be payable in such installments established by ITG for all salaried employees, and which will be subject to annual review by the Board of Directors or any committee designated by the Board of Directors (the base salary, as it may be modified from time to time, is referred to herein as the “Base Salary”).

6.2 Bonus. In addition to the Base Salary, Executive will receive with respect to each plan year a bonus in accordance with ITG’s Incentive and Bonus Plan, a copy of which has been delivered to Executive.

6.3 Withholding. All compensation payable to Executive pursuant to this Section 6 shall be paid net of amounts withheld for federal, state, municipal or local income taxes, Executive’s share, if any, of any payroll taxes and such other federal, state, municipal or local taxes as may be applicable to amounts paid by an employer to its employee or to the employer/employee relationship.

7. Other Benefits of Employment.

7.1 Employee Benefits. Executive will be entitled to participate in such hospitalization, life insurance, long and short term disability, 401(k) and other employee benefit plans and programs, if any, as may be adopted by ITG from time to time, in accordance with the provisions of such plans and programs and on the same basis as other full-time salaried employees of ITG who participate in such employee benefit plans (except to the extent that the benefits provided under any of such plans or programs are expressly offset by any of the benefits provided under or pursuant to this Agreement).

7.2 Executive Benefits. Executive shall be entitled to participate in any employee benefit adopted by ITG for executive level employees.

7.3 Stock Based Awards. Executive shall be eligible to receive grants of stock options, performance units, stock appreciation rights, restricted stock, deferred shares, and other stock-based awards in accordance with the provisions of any stock-based award or long-term incentive plan (“Plan”) ITG may adopt or amend or supersede from time to time. The terms of such grants shall be determined by the Board of Directors (or its designee as provided in the Plan

- 4 -

or as appointed by the Board of Directors) in accordance with the Plan, provided, however, that notwithstanding any provision of the Plan to the contrary, in the event of any termination of Executive’s employment for any reason other than for Cause pursuant to Section 9.3, or for termination of employment for other than Good Reason pursuant to Section 9.5, any stock-based award granted to Executive prior to such Termination Date shall immediately vest and be exercisable by or issued to the Executive under the Plan.

7.4 Taxes and Withholding. Executive shall be responsible for paying all federal, state, municipal or local taxes payable by him with respect to any benefits provided under this Section 7, and ITG will, when required by law or when otherwise appropriate or customary, withhold from the benefits or other compensation amounts sufficient to satisfy such taxes, unless taxes are to be paid by ITG as set forth in the provisions of the executive benefit plan, Employee Benefit Plan, or an agreement with the Executive.

7.5 Vacation. Notwithstanding any policy of the company for salaried employees, Executive will be entitled to four (4) weeks paid vacation and ITG recognized holidays.

8. Termination.

8.1 Termination by ITG.

(A) This Agreement shall automatically terminate effective upon (i) the date of Executive’s death; (ii) the date that Executive is determined to be permanently Disabled or (iii) the date of Executive’s retirement.

(B) ITG may terminate this Agreement, and Executive’s employment with ITG, without Cause upon ninety (90) days’ prior written notice to Executive.

(C) ITG may terminate this Agreement, and Executive’s employment with ITG, with Cause effective immediately and without the requirement of prior notice to Executive.

8.2 Termination by Executive. Executive may terminate this Agreement, and his employment with ITG, with or without Good Reason, upon ninety (90) days’ prior written notice to ITG.

8.3 Notice. Any purported termination of this Agreement by ITG or Executive shall be communicated by written notice of termination to the other party. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provisions so indicated, and shall specify the Termination Date (which shall not be earlier than the date of the notice).

9. Compensation and Benefits Upon Termination of Employment.

9.1 Termination of Employment upon Death. If Executive’s employment is terminated by reason of death, his estate shall be entitled to receive only the Base Salary to which Executive was entitled through the date of death, any accrued unpaid bonus compensation

- 5 -

for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive or his estate through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.2 Termination of Employment upon Disability. If Executive’s employment is terminated due to his Disability, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date due to Disability, any accrued unpaid bonus compensation for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.3 Termination of Employment by ITG for Cause. If Executive’s employment is terminated for Cause as provided in Section 8.1(C), Executive shall be entitled to receive the Base Salary to which he was entitled through the Termination Date, and such other benefits as may be available to him through ITG’s benefit plans and policies in effect on the Termination Date, other than any accrued but unpaid bonus compensation, which shall be forfeited.

9.4 Termination Without Cause or Termination For Good Reason. If ITG terminates Executive’s employment without Cause pursuant to Section 8.1(B) or if Executive terminates his employment for Good Reason pursuant to Section 8.2, Executive shall receive severance pay equal to (A) two (2) times his Base Salary; (B) two (2) times the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term); and (C) medical and dental coverage under the plan(s) in effect under the COBRA eligibility period for Executive and any eligible dependents with the costs absorbed by the Company on a tax protected basis to Executive for the period of time Executive and/or dependents(s) remain eligible for COBRA but not to exceed two (2) years from the Termination Date. Said severance shall be in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Executive agrees that he shall not be entitled to any additional compensation or benefits other than what is set out in this Section 9.4. Executive and ITG agree that the receipt of severance benefits as defined in this Section 9.4 are conditioned upon and subject to Executive and ITG executing a valid mutual release agreement releasing any and all claims which either of them have or may have against the other arising out of Executive’s employment (other than enforcement of this Agreement).

9.5 Termination of Employment other than for Good Reason. If Executive terminates employment with ITG pursuant to Section 8.2 other than for Good Reason or Executive elects to not renew this Agreement for an additional term, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date, accrued unpaid bonus compensation due to Executive for the plan year prior and such other benefits as may be available to him through ITG’s benefit plans and policies through the Termination Date. Such bonus payments shall be paid at the same time bonus payments are made for all plan

- 6 -

participants. If the Company elects not to renew this Agreement for an additional term, Executive shall be entitled to receive compensation equal to one (1) year of his Base Salary plus the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term). Severance compensation shall be paid in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Such severance payments shall commence immediately after the Termination Date.

9.6 Effect of Termination. Upon termination of Executive’s employment, the obligations of each of the parties under this Agreement shall expire as of the Termination Date, including, without limitation, the obligations of ITG to pay any compensation to Executive, except to the extent otherwise specifically provided in this Agreement. Notwithstanding the foregoing, the obligations contained in Sections 9.7 and 10 of this Agreement, the provisions hereof relating to the obligations of ITG described in the preceding sentence and any other provision of this Agreement that is intended to continue in full force and effect after the termination of Executive’s employment, shall survive the termination or expiration of this Agreement in accordance with the terms set forth therein.

9.7 Other Compensation. The amount of any payment provided for in this Section 9 shall be reduced by any compensation earned or benefits provided as the result of the employment of Executive by another employer or as a result of Executive being self-employed after the Termination Date. If any such compensation received by Executive from another employer or as a result of his self-employment is less than the payment payable under this Section 9, the Company shall pay to the Executive only the difference between such amounts to Executive in accordance with the applicable payment terms set forth in this Section 9.

9.8 Non-Payment Due to Breach. In the event Executive breaches any of the covenants and obligations set forth in this Agreement, including without limitation any of the covenants set forth in Section 10 hereof, then ITG’s obligation to make any remaining payments under this Agreement that have not already been paid to Executive shall be terminated.

10. Confidentiality, Non-Compete, and Non-Solicitation.

10.1 Non-Disclosure. Executive expressly covenants and agrees that he will not reveal, use, divulge or make known to any person, firm, company or corporation any secret or confidential information of any nature concerning ITG or its business, or anything connected therewith.

10.2 Return of Materials. Executive agrees to deliver or return to ITG upon termination or expiration of this Agreement or as soon thereafter as possible, all written information and any other similar items furnished by ITG or prepared by Executive in connection with his services hereunder. Executive will retain no copies thereof after termination of this Agreement or Executive’s employment with ITG.

10.3 Non-Competition. In the event of termination or non-renewal of this Agreement by either ITG or Executive, for any reason, Executive shall not (except as an officer, director,

- 7 -

employee, agent or consultant of ITG) during the two (2) year period following the Termination Date, directly or indirectly, (a) own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit his name to be used in connection with, or be otherwise connected in any manner with any business or enterprise that is actively engaged in any business in the Restricted Industry within the Restricted Territory; provided that the foregoing restriction shall not be construed to prohibit the ownership by Executive of not more than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, having a class of securities registered pursuant to the Securities Exchange Act of 1934, which securities are publicly owned and regularly traded on any national exchange or in the over-the-counter market, provided, further, that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes part in its business other than exercising his rights as a shareholder, or seeks to do any of the foregoing or (b) solicit, call upon, divert or take away any Restricted Customers for purposes of conducting a business in the Restricted Industry.

10.4 No Solicitation. In addition to the limitation imposed by Section 10.3, Executive hereby further agrees and covenants that during the term of this Agreement, and for a period of two (2) years thereafter, he shall not, directly or indirectly, on his own behalf or with others (A) induce or attempt to induce any employee of ITG to leave the employ of ITG, or in any way interfere with the relationship between ITG and any employee; (B) knowingly hire any employee of ITG; or (C) induce or attempt to induce any referral source or other business relation of ITG not to do business with ITG, or to cease doing business with ITG, or in any way interfere with the relationship between any such referral source or business relation and ITG.

10.5 Injunctive Relief. Executive acknowledges that it is impossible to measure in money the damages that will accrue to ITG by reason of Executive’s failure to observe any of the obligations imposed on him by this Section 10. Accordingly, if ITG shall institute an action to enforce the provisions hereof, Executive hereby waives the claim or defense that an adequate remedy at law is available to ITG, and Executive agrees not to urge in any such action the claim or defense that such remedy at law exists.

10.6 Severability. If a final determination is made by a court having competent jurisdiction that the time or territory or any other restriction contained in Sections 10.1, 10.3 or 10.4 is an unenforceable restriction on Executive’s activities, the provisions of Sections 10.1, 10.3 or 10.4 shall not be rendered void but shall be deemed amended to apply such maximum time and territory and such other restrictions as such court may judicially determine or otherwise indicate to be reasonable.

11. Miscellaneous.

11.1 Assignment. This Agreement shall be binding upon the parties hereto, their respective heirs, personal representatives, executors, administrators and successors; provided, however, that Executive shall not assign this Agreement.

- 8 -

11.2 Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

11.3 Entire Agreement. This Agreement between Executive and ITG, set forth the entire agreement of the parties concerning the employment of Executive by ITG, and any other oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Both parties hereto have participated in the selection of the words and phrases set forth in this Agreement in order to express their joint intentions in entering into this employment relationship, and the parties hereto agree that there shall not be strict interpretation against either party in connection with any review of this Agreement in which interpretation thereof is an issue.

11.4 Notices. Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, or mailed properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to the address of Executive on the books and records of ITG at the time of the delivery of such notice, and properly addressed to ITG if addressed to:

Corporate Secretary

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro NC 27408

11.5 Severability. Wherever there is any conflict between any provision of this Agreement and any statute, law regulation or judicial precedent, the latter shall prevail, but in such event the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring them within the requirements of law. In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be indefinite, invalid, void or voidable or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an unconscionable injustice.

11.6 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

- 9 -

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed the day and year first above written.

INTERNATIONAL TEXTILE GROUP, INC.
By:	/s/ Joseph L. Gorga
Name:	Joseph L. Gorga
Its:	President and Chief Executive Officer
/s/ Gary L. Smith
Gary L. Smith

- 10 -

EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into effective as of January 1, 2005 (the “Effective Date”), by and between John L. Bakane (“Executive”) and International Textile Group, Inc. (“Company” or “ITG”), a Delaware corporation.

R E C I T A L S:

A. Executive serves as the President of Cone Denim and is a key corporate officer of Cone Denim and is expected to make major contributions to the profitability, growth and financial strength of the ITG.

B. ITG desires to employ Executive, and Executive desires to accept such employment, under the terms and conditions of this Agreement.

C. The Board of Directors has also determined that it is in the best interests of the stockholders and ITG to promote stability among key officers.

IN CONSIDERATION OF THE FOREGOING, the mutual covenants contained herein, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1. Definitions.

1.1 “Base Salary” has the meaning set forth in Section 6.1.

1.2 “Board” means the board of directors of ITG.

1.3 “Cause” means (A) the commission by Executive of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) gross negligence or intentional misconduct by Executive with respect to ITG or in the performance of his duties to ITG; (C) failure to follow a reasonable, lawful and specific direction of the President and CEO of ITG; (D) failure by Executive to cooperate in any corporate investigation, or (E) breach by Executive of any material provision of this Agreement, which breach is not corrected by Executive within ten (10) calendar days after receipt by Executive of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by the Executive shall be considered “intentional” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of ITG.

1.4 “Disability” or “Disabled” means the absence of Executive from Executive’s duties with the Company on a full time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.

1.5 “Employee Benefits” means the “benefit plans and policies” for the limited liability companies of ITG or its predecessor that was the employer of the Executive immediately prior to the execution of this Employment Agreement and Employee Benefits shall refer to such plans until adopted by and as subsequently amended by ITG.

1.6 “Good Reason” means the termination of Executive’s employment by Executive for any of the following reasons:

(A) involuntary reduction in Executive’s Base Salary exceeding twenty percent (20%) unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for Executive under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of Executive’s participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as Executive;

(D) failure to obtain an assumption of ITG’s obligations under this Agreement by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this Agreement are vested in the successor to ITG by operation of law;

(E) involuntary relocation of Executive’s primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of Executive’s duties in effect on the Effective Date; provided, however that a change in title or reporting line will not constitute Good Reason unless such change is coupled with a material reduction in the actual duties of Executive.

1.7 “Incentive or Bonus Plan” has the meaning set forth in Section 6.2 hereof.

1.8 “ITG” means International Textile Group Inc. and each of the affiliates of International Textile Group Inc. (meaning any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, International Textile Group Inc.), along with all successors and assigns of each of such entities.

1.9 “Plan” has the meaning set forth in Section 7.3.

1.10 “Restricted Customers” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

- 2 -

1.11 “Restricted Industry” means the specific industry segment or segments for which the Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.12 “Restricted Territory” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

1.13 “Target Bonus” has the meaning set forth in the Incentive or Bonus Plan as defined in Section 6.2 hereof.

1.14 “Term” has the meaning set forth in Section 5.

1.15 “Termination Date” means the date on which the termination of Executive’s employment with ITG becomes effective.

2. Termination of Prior Agreements.

The parties hereto acknowledge and agree that, effective as of the date hereof, all prior employment agreements if any are terminated and each and every provision of each of such agreements is rendered void and of no further force or effect whatsoever.

3. Employment.

ITG hereby employs Executive, and Executive hereby accepts employment, according to the terms and conditions set forth in this Agreement and for the period specified in Section 5 of this Agreement.

4. Duties.

During the Term, Executive shall serve ITG as its President of Cone Denim in accordance with reasonable and lawful directions from ITG’s President and CEO and the Board of Directors and in accordance with ITG’s Articles of Incorporation and Bylaws, as both may be amended from time to time. Executive will report directly to the President and Chief Executive Officer of ITG. While Executive is employed by ITG as a full-time employee, Executive shall serve ITG, faithfully, diligently, competently and to the best of his ability, and will exclusively devote his full time, energy and attention to the business of ITG and to the promotion of its interests. Executive shall not, without the written consent of the President and CEO of ITG, either render services to or for any person, firm, corporation or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and whether or not it is paid directly or indirectly to Executive, or serve as a board member, director or trustee of any corporation or organization regardless of whether Executive is paid for such services. Nothing in this Section 4 shall preclude Executive from managing his personal investments and affairs, provided that such activities in no way interfere with the proper performance of his duties and responsibilities as President of Cone Denim.

- 3 -

5. Term of Employment.

Subject to Article 9, the term of this Agreement (the “Term”) shall commence on the Effective Date and end on December 31, 2006. The Term shall automatically be extended by one year on each December 31, beginning December 31, 2005, unless not later than September 30 of each year ITG notifies Executive, or Executive notifies ITG, that it or he, as the case may be, does not desire to have the Term extended. For example, if such notice of non-extension is not given by September 30, 2005, the Term of this Agreement shall automatically be extended to December 31, 2007.

6. Compensation.

6.1 Base Salary. While employed under this Agreement, Executive will receive as his compensation for the performance of his duties and obligations to ITG under this Agreement a Base Salary of Five Hundred Fifty Thousand Dollars ($550,000.00) per year, which will be payable in such installments established by ITG for all salaried employees, and which will be subject to review by the Board of Directors or any committee designated by the Board of Directors (the base salary, as it may be modified from time to time, is referred to herein as the “Base Salary”).

6.2 Bonus. In addition to the Base Salary, Executive will receive with respect to each plan year a bonus in accordance with ITG’s Incentive and Bonus Plan, a copy of which has been delivered to Executive.

6.3 Withholding. All compensation payable to Executive pursuant to this Section 6 shall be paid net of amounts withheld for federal, state, municipal or local income taxes, Executive’s share, if any, of any payroll taxes and such other federal, state, municipal or local taxes as may be applicable to amounts paid by an employer to its employee or to the employer/employee relationship.

7. Other Benefits of Employment.

7.1 Employee Benefits. Executive will be entitled to participate in such hospitalization, life insurance, long and short term disability, 401(k) and other employee benefit plans and programs, if any, as may be adopted by ITG from time to time, in accordance with the provisions of such plans and programs and on the same basis as other full-time salaried employees of ITG who participate in such employee benefit plans (except to the extent that the benefits provided under any of such plans or programs are expressly offset by any of the benefits provided under or pursuant to this Agreement).

7.2 Executive Benefits. Executive shall be entitled to participate in any employee benefit adopted by ITG for executive level employees.

7.3 Stock Based Awards. Executive shall be eligible to receive grants of stock options, performance units, stock appreciation rights, restricted stock, deferred shares, and other stock-based awards in accordance with the provisions of any stock-based award or long-term incentive plan (“Plan”) ITG may adopt or amend or supersede from time to time. The terms of such grants shall be determined by the Board of Directors (or its designee as provided in the Plan

- 4 -

or as appointed by the Board of Directors) in accordance with the Plan, provided, however, that notwithstanding any provision of the Plan to the contrary, in the event of any termination of Executive’s employment for any reason other than for Cause pursuant to Section 9.3, or for termination of employment for other than Good Reason pursuant to Section 9.5, any stock-based award granted to Executive prior to such Termination Date shall immediately vest and be exercisable by or issued to the Executive under the Plan.

7.4 Taxes and Withholding. Executive shall be responsible for paying all federal, state, municipal or local taxes payable by him with respect to any benefits provided under this Section 7, and ITG will, when required by law or when otherwise appropriate or customary, withhold from the benefits or other compensation amounts sufficient to satisfy such taxes, unless taxes are to be paid by ITG as set forth in the provisions of the executive benefit plan, Employee Benefit Plan, or an agreement with the Executive.

7.5 Vacation. Notwithstanding any policy of the company for salaried employees, Executive will be entitled to four (4) weeks paid vacation and ITG recognized holidays.

8. Termination.

8.1 Termination by ITG.

(A) This Agreement shall automatically terminate effective upon (i) the date of Executive’s death; (ii) the date that Executive is determined to be permanently Disabled or (iii) the date of Executive’s retirement.

(B) ITG may terminate this Agreement, and Executive’s employment with ITG, without Cause upon ninety (90) days’ prior written notice to Executive.

(C) ITG may terminate this Agreement, and Executive’s employment with ITG, with Cause effective immediately and without the requirement of prior notice to Executive.

8.2 Termination by Executive. Executive may terminate this Agreement, and his employment with ITG, with or without Good Reason, upon ninety (90) days’ prior written notice to ITG.

8.3 Notice. Any purported termination of this Agreement by ITG or Executive shall be communicated by written notice of termination to the other party. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provisions so indicated, and shall specify the Termination Date (which shall not be earlier than the date of the notice).

9. Compensation and Benefits Upon Termination of Employment.

9.1 Termination of Employment upon Death. If Executive’s employment is terminated by reason of death, his estate shall be entitled to receive only the Base Salary to which Executive was entitled through the date of death, any accrued unpaid bonus compensation

- 5 -

for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive or his estate through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.2 Termination of Employment upon Disability. If Executive’s employment is terminated due to his Disability, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date due to Disability, any accrued unpaid bonus compensation for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.3 Termination of Employment by ITG for Cause. If Executive’s employment is terminated for Cause as provided in Section 8.1(C), Executive shall be entitled to receive the Base Salary to which he was entitled through the Termination Date, and such other benefits as may be available to him through ITG’s benefit plans and policies in effect on the Termination Date, other than any accrued but unpaid bonus compensation, which shall be forfeited.

9.4 Termination Without Cause or Termination For Good Reason. If ITG terminates Executive’s employment without Cause pursuant to Section 8.1(B) or if Executive terminates his employment for Good Reason pursuant to Section 8.2, Executive shall receive severance pay equal to (A) two (2) times his Base Salary; (B) two (2) times the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term); and (C) medical and dental coverage under the plan(s) in effect under the COBRA eligibility period for Executive and any eligible dependents with the costs absorbed by the Company on a tax protected basis to Executive for the period of time Executive and/or dependents(s) remain eligible for COBRA but not to exceed two (2) years from the Termination Date. Said severance shall be in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Executive agrees that he shall not be entitled to any additional compensation or benefits other than what is set out in this Section 9.4. Executive and ITG agree that the receipt of severance benefits as defined in this Section 9.4 are conditioned upon and subject to Executive and ITG executing a valid mutual release agreement releasing any and all claims which either of them have or may have against the other arising out of Executive’s employment (other than enforcement of this Agreement).

9.5 Termination of Employment other than for Good Reason. If Executive terminates employment with ITG pursuant to Section 8.2 other than for Good Reason or Executive elects to not renew this Agreement for an additional term, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date, accrued unpaid bonus compensation due to Executive for the plan year prior and such other benefits as may be available to him through ITG’s benefit plans and policies through the Termination Date. Such bonus payments shall be paid at the same time bonus payments are made for all plan

- 6 -

participants. If the Company elects not to renew this Agreement for an additional term, Executive shall be entitled to receive compensation equal to one (1) year of his Base Salary plus the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term). Severance compensation shall be paid in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Such severance payments shall commence immediately after the Termination Date.

9.6 Effect of Termination. Upon termination of Executive’s employment, the obligations of each of the parties under this Agreement shall expire as of the Termination Date, including, without limitation, the obligations of ITG to pay any compensation to Executive, except to the extent otherwise specifically provided in this Agreement. Notwithstanding the foregoing, the obligations contained in Sections 9.7 and 10 of this Agreement, the provisions hereof relating to the obligations of ITG described in the preceding sentence and any other provision of this Agreement that is intended to continue in full force and effect after the termination of Executive’s employment, shall survive the termination or expiration of this Agreement in accordance with the terms set forth therein.

9.7 Other Compensation. The amount of any payment provided for in this Section 9 shall be reduced by any compensation earned or benefits provided as the result of the employment of Executive by another employer or as a result of Executive being self-employed after the Termination Date. If any such compensation received by Executive from another employer or as a result of his self-employment is less than the payment payable under this Section 9, the Company shall pay to the Executive only the difference between such amounts to Executive in accordance with the applicable payment terms set forth in this Section 9.

9.8 Non-Payment Due to Breach. In the event Executive breaches any of the covenants and obligations set forth in this Agreement, including without limitation any of the covenants set forth in Section 10 hereof, then ITG’s obligation to make any remaining payments under this Agreement that have not already been paid to Executive shall be terminated.

10. Confidentiality, Non-Compete, and Non-Solicitation.

10.1 Non-Disclosure. Executive expressly covenants and agrees that he will not reveal, use, divulge or make known to any person, firm, company or corporation any secret or confidential information of any nature concerning ITG or its business, or anything connected therewith.

10.2 Return of Materials. Executive agrees to deliver or return to ITG upon termination or expiration of this Agreement or as soon thereafter as possible, all written information and any other similar items furnished by ITG or prepared by Executive in connection with his services hereunder. Executive will retain no copies thereof after termination of this Agreement or Executive’s employment with ITG.

10.3 Non-Competition. In the event of termination or non-renewal of this Agreement by either ITG or Executive, for any reason, Executive shall not (except as an officer, director,

- 7 -

employee, agent or consultant of ITG) during the two (2) year period following the Termination Date, directly or indirectly, (a) own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit his name to be used in connection with, or be otherwise connected in any manner with any business or enterprise that is actively engaged in any business in the Restricted Industry within the Restricted Territory; provided that the foregoing restriction shall not be construed to prohibit the ownership by Executive of not more than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, having a class of securities registered pursuant to the Securities Exchange Act of 1934, which securities are publicly owned and regularly traded on any national exchange or in the over-the-counter market, provided, further, that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes part in its business other than exercising his rights as a shareholder, or seeks to do any of the foregoing or (b) solicit, call upon, divert or take away any Restricted Customers for purposes of conducting a business in the Restricted Industry.

10.4 No Solicitation. In addition to the limitation imposed by Section 10.3, Executive hereby further agrees and covenants that during the term of this Agreement, and for a period of two (2) years thereafter, he shall not, directly or indirectly, on his own behalf or with others (A) induce or attempt to induce any employee of ITG to leave the employ of ITG, or in any way interfere with the relationship between ITG and any employee; (B) knowingly hire any employee of ITG; or (C) induce or attempt to induce any referral source or other business relation of ITG not to do business with ITG, or to cease doing business with ITG, or in any way interfere with the relationship between any such referral source or business relation and ITG.

10.5 Injunctive Relief. Executive acknowledges that it is impossible to measure in money the damages that will accrue to ITG by reason of Executive’s failure to observe any of the obligations imposed on him by this Section 10. Accordingly, if ITG shall institute an action to enforce the provisions hereof, Executive hereby waives the claim or defense that an adequate remedy at law is available to ITG, and Executive agrees not to urge in any such action the claim or defense that such remedy at law exists.

10.6 Severability. If a final determination is made by a court having competent jurisdiction that the time or territory or any other restriction contained in Sections 10.1, 10.3 or 10.4 is an unenforceable restriction on Executive’s activities, the provisions of Sections 10.1, 10.3 or 10.4 shall not be rendered void but shall be deemed amended to apply such maximum time and territory and such other restrictions as such court may judicially determine or otherwise indicate to be reasonable.

11. Miscellaneous.

11.1 Assignment. This Agreement shall be binding upon the parties hereto, their respective heirs, personal representatives, executors, administrators and successors; provided, however, that Executive shall not assign this Agreement.

- 8 -

11.2 Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

11.3 Entire Agreement. This Agreement between Executive and ITG, set forth the entire agreement of the parties concerning the employment of Executive by ITG, and any other oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Both parties hereto have participated in the selection of the words and phrases set forth in this Agreement in order to express their joint intentions in entering into this employment relationship, and the parties hereto agree that there shall not be strict interpretation against either party in connection with any review of this Agreement in which interpretation thereof is an issue.

11.4 Notices. Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, or mailed properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to the address of Executive on the books and records of ITG at the time of the delivery of such notice, and properly addressed to ITG if addressed to:

Corporate Secretary

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro NC 27408

11.5 Severability. Wherever there is any conflict between any provision of this Agreement and any statute, law regulation or judicial precedent, the latter shall prevail, but in such event the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring them within the requirements of law. In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be indefinite, invalid, void or voidable or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an unconscionable injustice.

11.6 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

- 9 -

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed the day and year first above written.

INTERNATIONAL TEXTILE GROUP, INC.
By:	/s/ Joseph L. Gorga
Name:	Joseph L. Gorga
Its:	President and Chief Executive Officer
/s/ John L. Bakane
John L. Bakane

- 10 -

EX-10.8

Exhibit 10.8

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into effective as of January 1, 2005 (the “Effective Date”), by and between Kenneth T. Kunberger (“Executive”) and International Textile Group, Inc. (“Company” or “ITG”), a Delaware corporation.

R E C I T A L S:

A. Executive serves as the President of Burlington WorldWide and is a key corporate officer of Burlington WorldWide and is expected to make major contributions to the profitability, growth and financial strength of the ITG.

B. ITG desires to employ Executive, and Executive desires to accept such employment, under the terms and conditions of this Agreement.

C. The Board of Directors has also determined that it is in the best interests of the stockholders and ITG to promote stability among key officers.

IN CONSIDERATION OF THE FOREGOING, the mutual covenants contained herein, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1. Definitions.

1.1 “Base Salary” has the meaning set forth in Section 6.1.

1.2 “Board” means the board of directors of ITG.

1.3 “Cause” means (A) the commission by Executive of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) gross negligence or intentional misconduct by Executive with respect to ITG or in the performance of his duties to ITG; (C) failure to follow a reasonable, lawful and specific direction of the President and CEO of ITG; (D) failure by Executive to cooperate in any corporate investigation, or (E) breach by Executive of any material provision of this Agreement, which breach is not corrected by Executive within ten (10) calendar days after receipt by Executive of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by the Executive shall be considered “intentional” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of ITG.

1.4 “Disability” or “Disabled” means the absence of Executive from Executive’s duties with the Company on a full time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.

1.5 “Employee Benefits” means the “benefit plans and policies” for the limited liability companies of ITG or its predecessor that was the employer of the Executive immediately prior to the execution of this Employment Agreement and Employee Benefits shall refer to such plans until adopted by and as subsequently amended by ITG.

1.6 “Good Reason” means the termination of Executive’s employment by Executive for any of the following reasons:

(A) involuntary reduction in Executive’s Base Salary unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for Executive under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of Executive’s participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as Executive;

(D) failure to obtain an assumption of ITG’s obligations under this Agreement by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this Agreement are vested in the successor to ITG by operation of law;

(E) involuntary relocation of Executive’s primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of Executive’s duties in effect on the Effective Date; provided, however that a change in title or reporting line will not constitute Good Reason unless such change is coupled with a material reduction in the actual duties of Executive.

1.7 “Incentive or Bonus Plan” has the meaning set forth in Section 6.2 hereof.

1.8 “ITG” means International Textile Group Inc. and each of the affiliates of International Textile Group Inc. (meaning any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, International Textile Group Inc.), along with all successors and assigns of each of such entities.

1.9 “Plan” has the meaning set forth in Section 7.3.

1.10 “Restricted Customers” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

- 2 -

1.11 “Restricted Industry” means the specific industry segment or segments for which the Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.12 “Restricted Territory” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

1.13 “Target Bonus” has the meaning set forth in the Incentive or Bonus Plan as defined in Section 6.2 hereof.

1.14 “Term” has the meaning set forth in Section 5.

1.15 “Termination Date” means the date on which the termination of Executive’s employment with ITG becomes effective.

2. Termination of Prior Agreements.

The parties hereto acknowledge and agree that, effective as of the date hereof, all prior employment agreements if any are terminated and each and every provision of each of such agreements is rendered void and of no further force or effect whatsoever.

3. Employment.

ITG hereby employs Executive, and Executive hereby accepts employment, according to the terms and conditions set forth in this Agreement and for the period specified in Section 5 of this Agreement.

4. Duties.

During the Term, Executive shall serve ITG as its President of Burlington WorldWide in accordance with reasonable and lawful directions from ITG’s President and CEO and the Board of Directors and in accordance with ITG’s Articles of Incorporation and Bylaws, as both may be amended from time to time. Executive will report directly to the President and Chief Executive Officer of ITG. While Executive is employed by ITG as a full-time employee, Executive shall serve ITG, faithfully, diligently, competently and to the best of his ability, and will exclusively devote his full time, energy and attention to the business of ITG and to the promotion of its interests. Executive shall not, without the written consent of the President and CEO of ITG, either render services to or for any person, firm, corporation or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and whether or not it is paid directly or indirectly to Executive, or serve as a board member, director or trustee of any corporation or organization regardless of whether Executive is paid for such services. Nothing in this Section 4 shall preclude Executive from managing his personal investments and affairs, provided that such activities in no way interfere with the proper performance of his duties and responsibilities as President of Burlington WorldWide.

- 3 -

5. Term of Employment.

Subject to Article 9, the term of this Agreement (the “Term”) shall commence on the Effective Date and end on December 31, 2006. The Term shall automatically be extended by one year on each December 31, beginning December 31, 2005, unless not later than September 30 of each year ITG notifies Executive, or Executive notifies ITG, that it or he, as the case may be, does not desire to have the Term extended. For example, if such notice of non-extension is not given by September 30, 2005, the Term of this Agreement shall automatically be extended to December 31, 2007.

6. Compensation.

6.1 Base Salary. While employed under this Agreement, Executive will receive as his compensation for the performance of his duties and obligations to ITG under this Agreement a Base Salary of Three Hundred Thousand Dollars ($300,000.00) per year, which will be payable in such installments established by ITG for all salaried employees, and which will be subject to annual review by the Board of Directors or any committee designated by the Board of Directors (the base salary, as it may be modified from time to time, is referred to herein as the “Base Salary”).

6.2 Bonus. In addition to the Base Salary, Executive will receive with respect to each plan year a bonus in accordance with ITG’s Incentive and Bonus Plan, a copy of which has been delivered to Executive.

6.3 Withholding. All compensation payable to Executive pursuant to this Section 6 shall be paid net of amounts withheld for federal, state, municipal or local income taxes, Executive’s share, if any, of any payroll taxes and such other federal, state, municipal or local taxes as may be applicable to amounts paid by an employer to its employee or to the employer/employee relationship.

7. Other Benefits of Employment.

7.1 Employee Benefits. Executive will be entitled to participate in such hospitalization, life insurance, long and short term disability, 401(k) and other employee benefit plans and programs, if any, as may be adopted by ITG from time to time, in accordance with the provisions of such plans and programs and on the same basis as other full-time salaried employees of ITG who participate in such employee benefit plans (except to the extent that the benefits provided under any of such plans or programs are expressly offset by any of the benefits provided under or pursuant to this Agreement).

7.2 Executive Benefits. Executive shall be entitled to participate in any employee benefit adopted by ITG for executive level employees.

7.3 Stock Based Awards. Executive shall be eligible to receive grants of stock options, performance units, stock appreciation rights, restricted stock, deferred shares, and other stock-based awards in accordance with the provisions of any stock-based award or long-term incentive plan (“Plan”) ITG may adopt or amend or supersede from time to time. The terms of such grants shall be determined by the Board of Directors (or its designee as provided in the Plan

- 4 -

or as appointed by the Board of Directors) in accordance with the Plan, provided, however, that notwithstanding any provision of the Plan to the contrary, in the event of any termination of Executive’s employment for any reason other than for Cause pursuant to Section 9.3, or for termination of employment for other than Good Reason pursuant to Section 9.5, any stock-based award granted to Executive prior to such Termination Date shall immediately vest and be exercisable by or issued to the Executive under the Plan.

7.4 Taxes and Withholding. Executive shall be responsible for paying all federal, state, municipal or local taxes payable by him with respect to any benefits provided under this Section 7, and ITG will, when required by law or when otherwise appropriate or customary, withhold from the benefits or other compensation amounts sufficient to satisfy such taxes, unless taxes are to be paid by ITG as set forth in the provisions of the executive benefit plan, Employee Benefit Plan, or an agreement with the Executive.

7.5 Vacation. Notwithstanding any policy of the company for salaried employees, Executive will be entitled to four (4) weeks paid vacation and ITG recognized holidays.

8. Termination.

8.1 Termination by ITG.

(A) This Agreement shall automatically terminate effective upon (i) the date of Executive’s death; (ii) the date that Executive is determined to be permanently Disabled or (iii) the date of Executive’s retirement.

(B) ITG may terminate this Agreement, and Executive’s employment with ITG, without Cause upon ninety (90) days’ prior written notice to Executive.

(C) ITG may terminate this Agreement, and Executive’s employment with ITG, with Cause effective immediately and without the requirement of prior notice to Executive.

8.2 Termination by Executive. Executive may terminate this Agreement, and his employment with ITG, with or without Good Reason, upon ninety (90) days’ prior written notice to ITG.

8.3 Notice. Any purported termination of this Agreement by ITG or Executive shall be communicated by written notice of termination to the other party. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provisions so indicated, and shall specify the Termination Date (which shall not be earlier than the date of the notice).

9. Compensation and Benefits Upon Termination of Employment.

9.1 Termination of Employment upon Death. If Executive’s employment is terminated by reason of death, his estate shall be entitled to receive only the Base Salary to which Executive was entitled through the date of death, any accrued unpaid bonus compensation

- 5 -

for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive or his estate through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.2 Termination of Employment upon Disability. If Executive’s employment is terminated due to his Disability, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date due to Disability, any accrued unpaid bonus compensation for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.3 Termination of Employment by ITG for Cause. If Executive’s employment is terminated for Cause as provided in Section 8.1(C), Executive shall be entitled to receive the Base Salary to which he was entitled through the Termination Date, and such other benefits as may be available to him through ITG’s benefit plans and policies in effect on the Termination Date, other than any accrued but unpaid bonus compensation, which shall be forfeited.

9.4 Termination Without Cause or Termination For Good Reason. If ITG terminates Executive’s employment without Cause pursuant to Section 8.1(B) or if Executive terminates his employment for Good Reason pursuant to Section 8.2, Executive shall receive severance pay equal to (A) two (2) times his Base Salary; (B) two (2) times the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term); and (C) medical and dental coverage under the plan(s) in effect under the COBRA eligibility period for Executive and any eligible dependents with the costs absorbed by the Company on a tax protected basis to Executive for the period of time Executive and/or dependents(s) remain eligible for COBRA but not to exceed two (2) years from the Termination Date. Said severance shall be in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Executive agrees that he shall not be entitled to any additional compensation or benefits other than what is set out in this Section 9.4. Executive and ITG agree that the receipt of severance benefits as defined in this Section 9.4 are conditioned upon and subject to Executive and ITG executing a valid mutual release agreement releasing any and all claims which either of them have or may have against the other arising out of Executive’s employment (other than enforcement of this Agreement).

9.5 Termination of Employment other than for Good Reason. If Executive terminates employment with ITG pursuant to Section 8.2 other than for Good Reason or Executive elects to not renew this Agreement for an additional term, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date, accrued unpaid bonus compensation due to Executive for the plan year prior and such other benefits as may be available to him through ITG’s benefit plans and policies through the Termination Date. Such bonus payments shall be paid at the same time bonus payments are made for all plan

- 6 -

participants. If the Company elects not to renew this Agreement for an additional term, Executive shall be entitled to receive compensation equal to one (1) year of his Base Salary plus the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term). Severance compensation shall be paid in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Such severance payments shall commence immediately after the Termination Date.

9.6 Effect of Termination. Upon termination of Executive’s employment, the obligations of each of the parties under this Agreement shall expire as of the Termination Date, including, without limitation, the obligations of ITG to pay any compensation to Executive, except to the extent otherwise specifically provided in this Agreement. Notwithstanding the foregoing, the obligations contained in Sections 9.7 and 10 of this Agreement, the provisions hereof relating to the obligations of ITG described in the preceding sentence and any other provision of this Agreement that is intended to continue in full force and effect after the termination of Executive’s employment, shall survive the termination or expiration of this Agreement in accordance with the terms set forth therein.

9.7 Other Compensation. The amount of any payment provided for in this Section 9 shall be reduced by any compensation earned or benefits provided as the result of the employment of Executive by another employer or as a result of Executive being self-employed after the Termination Date. If any such compensation received by Executive from another employer or as a result of his self-employment is less than the payment payable under this Section 9, the Company shall pay to the Executive only the difference between such amounts to Executive in accordance with the applicable payment terms set forth in this Section 9.

9.8 Non-Payment Due to Breach. In the event Executive breaches any of the covenants and obligations set forth in this Agreement, including without limitation any of the covenants set forth in Section 10 hereof, then ITG’s obligation to make any remaining payments under this Agreement that have not already been paid to Executive shall be terminated.

10. Confidentiality, Non-Compete, and Non-Solicitation.

10.1 Non-Disclosure. Executive expressly covenants and agrees that he will not reveal, use, divulge or make known to any person, firm, company or corporation any secret or confidential information of any nature concerning ITG or its business, or anything connected therewith.

10.2 Return of Materials. Executive agrees to deliver or return to ITG upon termination or expiration of this Agreement or as soon thereafter as possible, all written information and any other similar items furnished by ITG or prepared by Executive in connection with his services hereunder. Executive will retain no copies thereof after termination of this Agreement or Executive’s employment with ITG.

10.3 Non-Competition. In the event of termination or non-renewal of this Agreement by either ITG or Executive, for any reason, Executive shall not (except as an officer, director,

- 7 -

employee, agent or consultant of ITG) during the two (2) year period following the Termination Date, directly or indirectly, (a) own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit his name to be used in connection with, or be otherwise connected in any manner with any business or enterprise that is actively engaged in any business in the Restricted Industry within the Restricted Territory; provided that the foregoing restriction shall not be construed to prohibit the ownership by Executive of not more than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, having a class of securities registered pursuant to the Securities Exchange Act of 1934, which securities are publicly owned and regularly traded on any national exchange or in the over-the-counter market, provided, further, that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes part in its business other than exercising his rights as a shareholder, or seeks to do any of the foregoing or (b) solicit, call upon, divert or take away any Restricted Customers for purposes of conducting a business in the Restricted Industry.

10.4 No Solicitation. In addition to the limitation imposed by Section 10.3, Executive hereby further agrees and covenants that during the term of this Agreement, and for a period of two (2) years thereafter, he shall not, directly or indirectly, on his own behalf or with others (A) induce or attempt to induce any employee of ITG to leave the employ of ITG, or in any way interfere with the relationship between ITG and any employee; (B) knowingly hire any employee of ITG; or (C) induce or attempt to induce any referral source or other business relation of ITG not to do business with ITG, or to cease doing business with ITG, or in any way interfere with the relationship between any such referral source or business relation and ITG.

10.5 Injunctive Relief. Executive acknowledges that it is impossible to measure in money the damages that will accrue to ITG by reason of Executive’s failure to observe any of the obligations imposed on him by this Section 10. Accordingly, if ITG shall institute an action to enforce the provisions hereof, Executive hereby waives the claim or defense that an adequate remedy at law is available to ITG, and Executive agrees not to urge in any such action the claim or defense that such remedy at law exists.

10.6 Severability. If a final determination is made by a court having competent jurisdiction that the time or territory or any other restriction contained in Sections 10.1, 10.3 or 10.4 is an unenforceable restriction on Executive’s activities, the provisions of Sections 10.1, 10.3 or 10.4 shall not be rendered void but shall be deemed amended to apply such maximum time and territory and such other restrictions as such court may judicially determine or otherwise indicate to be reasonable.

11. Miscellaneous.

11.1 Assignment. This Agreement shall be binding upon the parties hereto, their respective heirs, personal representatives, executors, administrators and successors; provided, however, that Executive shall not assign this Agreement.

- 8 -

11.2 Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

11.3 Entire Agreement. This Agreement between Executive and ITG, set forth the entire agreement of the parties concerning the employment of Executive by ITG, and any other oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Both parties hereto have participated in the selection of the words and phrases set forth in this Agreement in order to express their joint intentions in entering into this employment relationship, and the parties hereto agree that there shall not be strict interpretation against either party in connection with any review of this Agreement in which interpretation thereof is an issue.

11.4 Notices. Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, or mailed properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to the address of Executive on the books and records of ITG at the time of the delivery of such notice, and properly addressed to ITG if addressed to:

Corporate Secretary

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro NC 27408

11.5 Severability. Wherever there is any conflict between any provision of this Agreement and any statute, law regulation or judicial precedent, the latter shall prevail, but in such event the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring them within the requirements of law. In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be indefinite, invalid, void or voidable or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an unconscionable injustice.

11.6 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

- 9 -

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed the day and year first above written.

INTERNATIONAL TEXTILE GROUP, INC.
By:	/s/ Joseph L. Gorga
Name:	Joseph L. Gorga
Its:	President and Chief Executive Officer
/s/ Kenneth T. Kunberger
Kenneth T. Kunberger

- 10 -

EX-10.9

Exhibit 10.9

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into effective as of January 1, 2005 (the “Effective Date”), by and between Thomas E. McKenna (“Executive”) and International Textile Group, Inc. (“Company” or “ITG”), a Delaware corporation.

RECITALS:

A. Executive serves as the President of Marketing and Sales for Cone Denim and is a key corporate officer of Cone Denim and is expected to make major contributions to the profitability, growth and financial strength of the ITG.

B. ITG desires to employ Executive, and Executive desires to accept such employment, under the terms and conditions of this Agreement.

C. The Board of Directors has also determined that it is in the best interests of the stockholders and ITG to promote stability among key officers.

IN CONSIDERATION OF THE FOREGOING, the mutual covenants contained herein, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1. Definitions.

1.1 “Base Salary” has the meaning set forth in Section 6.1.

1.2 “Board” means the board of directors of ITG.

1.3 “Cause” means (A) the commission by Executive of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) gross negligence or intentional misconduct by Executive with respect to ITG or in the performance of his duties to ITG; (C) failure to follow a reasonable, lawful and specific direction of the President and CEO of ITG; (D) failure by Executive to cooperate in any corporate investigation, or (E) breach by Executive of any material provision of this Agreement, which breach is not corrected by Executive within ten (10) calendar days after receipt by Executive of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by the Executive shall be considered “intentional” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of ITG.

1.4 “Disability” or “Disabled” means the absence of Executive from Executive’s duties with the Company on a full time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.

1.5 “Employee Benefits” means the “benefit plans and policies” for the limited liability companies of ITG or its predecessor that was the employer of the Executive immediately prior to the execution of this Employment Agreement and Employee Benefits shall refer to such plans until adopted by and as subsequently amended by ITG.

1.6 “Good Reason” means the termination of Executive’s employment by Executive for any of the following reasons:

(A) involuntary reduction in Executive’s Base Salary unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for Executive under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of Executive’s participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as Executive;

(D) failure to obtain an assumption of ITG’s obligations under this Agreement by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this Agreement are vested in the successor to ITG by operation of law;

(E) involuntary relocation of Executive’s primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of Executive’s duties in effect on the Effective Date; provided, however that a change in title or reporting line will not constitute Good Reason unless such change is coupled with a material reduction in the actual duties of Executive.

1.7 “Incentive or Bonus Plan” has the meaning set forth in Section 6.2 hereof.

1.8 “ITG” means International Textile Group Inc. and each of the affiliates of International Textile Group Inc. (meaning any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, International Textile Group Inc.), along with all successors and assigns of each of such entities.

1.9 “Plan” has the meaning set forth in Section 7.3.

1.10 “Restricted Customers” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

- 2 -

1.11 “Restricted Industry” means the specific industry segment or segments for which the Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.12 “Restricted Territory” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

1.13 “Target Bonus” has the meaning set forth in the Incentive or Bonus Plan as defined in Section 6.2 hereof.

1.14 “Term” has the meaning set forth in Section 5.

1.15 “Termination Date” means the date on which the termination of Executive’s employment with ITG becomes effective.

2. Termination of Prior Agreements.

The parties hereto acknowledge and agree that, effective as of the date hereof, all prior employment agreements if any are terminated and each and every provision of each of such agreements is rendered void and of no further force or effect whatsoever.

3. Employment.

ITG hereby employs Executive, and Executive hereby accepts employment, according to the terms and conditions set forth in this Agreement and for the period specified in Section 5 of this Agreement.

4. Duties.

During the Term, Executive shall serve ITG as its President of Marketing and Sales for Cone Denim in accordance with reasonable and lawful directions from Cone Denim’s President, ITG’s President and CEO and the Board of Directors and in accordance with ITG’s Articles of Incorporation and Bylaws, as both may be amended from time to time. Executive will report directly to the President of Cone Denim. While Executive is employed by ITG as a full-time employee, Executive shall serve ITG, faithfully, diligently, competently and to the best of his ability, and will exclusively devote his full time, energy and attention to the business of ITG and to the promotion of its interests. Executive shall not, without the written consent of the President and CEO of ITG, either render services to or for any person, firm, corporation or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and whether or not it is paid directly or indirectly to Executive, or serve as a board member, director or trustee of any corporation or organization regardless of whether Executive is paid for such services. Nothing in this Section 4 shall preclude Executive from managing his personal investments and affairs, provided that such activities in no way interfere with the proper performance of his duties and responsibilities as President of Marketing and Sales for Cone Denim.

- 3 -

5. Term of Employment.

Subject to Article 9, the term of this Agreement (the “Term”) shall commence on the Effective Date and end on December 31, 2006. The Term shall automatically be extended by one year on each December 31, beginning December 31, 2005, unless not later than September 30 of each year ITG notifies Executive, or Executive notifies ITG, that it or he, as the case may be, does not desire to have the Term extended. For example, if such notice of non-extension is not given by September 30, 2005, the Term of this Agreement shall automatically be extended to December 31, 2007.

6. Compensation.

6.1 Base Salary. While employed under this Agreement, Executive will receive as his compensation for the performance of his duties and obligations to ITG under this Agreement a Base Salary of Three Hundred Thousand Dollars ($300,000.00) per year, which will be payable in such installments established by ITG for all salaried employees, and which will be subject to annual review by the Board of Directors or any committee designated by the Board of Directors (the base salary, as it may be modified from time to time, is referred to herein as the “Base Salary”).

6.2 Bonus. In addition to the Base Salary, Executive will receive with respect to each plan year a bonus in accordance with ITG’s Incentive and Bonus Plan, a copy of which has been delivered to Executive.

6.3 Withholding. All compensation payable to Executive pursuant to this Section 6 shall be paid net of amounts withheld for federal, state, municipal or local income taxes, Executive’s share, if any, of any payroll taxes and such other federal, state, municipal or local taxes as may be applicable to amounts paid by an employer to its employee or to the employer/employee relationship.

7. Other Benefits of Employment.

7.1 Employee Benefits. Executive will be entitled to participate in such hospitalization, life insurance, long and short term disability, 401(k) and other employee benefit plans and programs, if any, as may be adopted by ITG from time to time, in accordance with the provisions of such plans and programs and on the same basis as other full-time salaried employees of ITG who participate in such employee benefit plans (except to the extent that the benefits provided under any of such plans or programs are expressly offset by any of the benefits provided under or pursuant to this Agreement).

7.2 Executive Benefits. Executive shall be entitled to participate in any employee benefit adopted by ITG for executive level employees.

7.3 Stock Based Awards. Executive shall be eligible to receive grants of stock options, performance units, stock appreciation rights, restricted stock, deferred shares, and other stock-based awards in accordance with the provisions of any stock-based award or long-term incentive plan (“Plan”) ITG may adopt or amend or supersede from time to time. The terms of such grants shall be determined by the Board of Directors (or its designee as provided in the Plan

- 4 -

or as appointed by the Board of Directors) in accordance with the Plan, provided, however, that notwithstanding any provision of the Plan to the contrary, in the event of any termination of Executive’s employment for any reason other than for Cause pursuant to Section 9.3, or for termination of employment for other than Good Reason pursuant to Section 9.5, any stock-based award granted to Executive prior to such Termination Date shall immediately vest and be exercisable by or issued to the Executive under the Plan.

7.4 Taxes and Withholding. Executive shall be responsible for paying all federal, state, municipal or local taxes payable by him with respect to any benefits provided under this Section 7, and ITG will, when required by law or when otherwise appropriate or customary, withhold from the benefits or other compensation amounts sufficient to satisfy such taxes, unless taxes are to be paid by ITG as set forth in the provisions of the executive benefit plan, Employee Benefit Plan, or an agreement with the Executive.

7.5 Vacation. Notwithstanding any policy of the company for salaried employees, Executive will be entitled to four (4) weeks paid vacation and ITG recognized holidays.

8. Termination.

8.1 Termination by ITG.

(A) This Agreement shall automatically terminate effective upon (i) the date of Executive’s death; (ii) the date that Executive is determined to be permanently Disabled or (iii) the date of Executive’s retirement.

(B) ITG may terminate this Agreement, and Executive’s employment with ITG, without Cause upon ninety (90) days’ prior written notice to Executive.

(C) ITG may terminate this Agreement, and Executive’s employment with ITG, with Cause effective immediately and without the requirement of prior notice to Executive.

8.2 Termination by Executive. Executive may terminate this Agreement, and his employment with ITG, with or without Good Reason, upon ninety (90) days’ prior written notice to ITG.

8.3 Notice. Any purported termination of this Agreement by ITG or Executive shall be communicated by written notice of termination to the other party. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provisions so indicated, and shall specify the Termination Date (which shall not be earlier than the date of the notice).

9. Compensation and Benefits Upon Termination of Employment.

9.1 Termination of Employment upon Death. If Executive’s employment is terminated by reason of death, his estate shall be entitled to receive only the Base Salary to which Executive was entitled through the date of death, any accrued unpaid bonus compensation

- 5 -

for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive or his estate through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.2 Termination of Employment upon Disability. If Executive’s employment is terminated due to his Disability, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date due to Disability, any accrued unpaid bonus compensation for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.3 Termination of Employment by ITG for Cause. If Executive’s employment is terminated for Cause as provided in Section 8.1(C), Executive shall be entitled to receive the Base Salary to which he was entitled through the Termination Date, and such other benefits as may be available to him through ITG’s benefit plans and policies in effect on the Termination Date, other than any accrued but unpaid bonus compensation, which shall be forfeited.

9.4 Termination Without Cause or Termination For Good Reason. If ITG terminates Executive’s employment without Cause pursuant to Section 8.1(B) or if Executive terminates his employment for Good Reason pursuant to Section 8.2, Executive shall receive severance pay equal to (A) two (2) times his Base Salary; (B) two (2) times the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term); and (C) medical and dental coverage under the plan(s) in effect under the COBRA eligibility period for Executive and any eligible dependents with the costs absorbed by the Company on a tax protected basis to Executive for the period of time Executive and/or dependents(s) remain eligible for COBRA but not to exceed two (2) years from the Termination Date. Said severance shall be in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Executive agrees that he shall not be entitled to any additional compensation or benefits other than what is set out in this Section 9.4. Executive and ITG agree that the receipt of severance benefits as defined in this Section 9.4 are conditioned upon and subject to Executive and ITG executing a valid mutual release agreement releasing any and all claims which either of them have or may have against the other arising out of Executive’s employment (other than enforcement of this Agreement).

9.5 Termination of Employment other than for Good Reason. If Executive terminates employment with ITG pursuant to Section 8.2 other than for Good Reason or Executive elects to not renew this Agreement for an additional term, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date, accrued unpaid bonus compensation due to Executive for the plan year prior and such other benefits as may be available to him through ITG’s benefit plans and policies through the Termination Date. Such bonus payments shall be paid at the same time bonus payments are made for all plan

- 6 -

participants. If the Company elects not to renew this Agreement for an additional term, Executive shall be entitled to receive compensation equal to one (1) year of his Base Salary plus the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term). Severance compensation shall be paid in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Such severance payments shall commence immediately after the Termination Date.

9.6 Effect of Termination. Upon termination of Executive’s employment, the obligations of each of the parties under this Agreement shall expire as of the Termination Date, including, without limitation, the obligations of ITG to pay any compensation to Executive, except to the extent otherwise specifically provided in this Agreement. Notwithstanding the foregoing, the obligations contained in Sections 9.7 and 10 of this Agreement, the provisions hereof relating to the obligations of ITG described in the preceding sentence and any other provision of this Agreement that is intended to continue in full force and effect after the termination of Executive’s employment, shall survive the termination or expiration of this Agreement in accordance with the terms set forth therein.

9.7 Other Compensation. The amount of any payment provided for in this Section 9 shall be reduced by any compensation earned or benefits provided as the result of the employment of Executive by another employer or as a result of Executive being self-employed after the Termination Date. If any such compensation received by Executive from another employer or as a result of his self-employment is less than the payment payable under this Section 9, the Company shall pay to the Executive only the difference between such amounts to Executive in accordance with the applicable payment terms set forth in this Section 9.

9.8 Non-Payment Due to Breach. In the event Executive breaches any of the covenants and obligations set forth in this Agreement, including without limitation any of the covenants set forth in Section 10 hereof, then ITG’s obligation to make any remaining payments under this Agreement that have not already been paid to Executive shall be terminated.

10. Confidentiality, Non-Compete, and Non-Solicitation.

10.1 Non-Disclosure. Executive expressly covenants and agrees that he will not reveal, use, divulge or make known to any person, firm, company or corporation any secret or confidential information of any nature concerning ITG or its business, or anything connected therewith.

10.2 Return of Materials. Executive agrees to deliver or return to ITG upon termination or expiration of this Agreement or as soon thereafter as possible, all written information and any other similar items furnished by ITG or prepared by Executive in connection with his services hereunder. Executive will retain no copies thereof after termination of this Agreement or Executive’s employment with ITG.

10.3 Non-Competition. In the event of termination or non-renewal of this Agreement by either ITG or Executive, for any reason, Executive shall not (except as an officer, director,

- 7 -

employee, agent or consultant of ITG) during the two (2) year period following the Termination Date, directly or indirectly, (a) own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit his name to be used in connection with, or be otherwise connected in any manner with any business or enterprise that is actively engaged in any business in the Restricted Industry within the Restricted Territory; provided that the foregoing restriction shall not be construed to prohibit the ownership by Executive of not more than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, having a class of securities registered pursuant to the Securities Exchange Act of 1934, which securities are publicly owned and regularly traded on any national exchange or in the over-the-counter market, provided, further, that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes part in its business other than exercising his rights as a shareholder, or seeks to do any of the foregoing or (b) solicit, call upon, divert or take away any Restricted Customers for purposes of conducting a business in the Restricted Industry.

10.4 No Solicitation. In addition to the limitation imposed by Section 10.3, Executive hereby further agrees and covenants that during the term of this Agreement, and for a period of two (2) years thereafter, he shall not, directly or indirectly, on his own behalf or with others (A) induce or attempt to induce any employee of ITG to leave the employ of ITG, or in any way interfere with the relationship between ITG and any employee; (B) knowingly hire any employee of ITG; or (C) induce or attempt to induce any referral source or other business relation of ITG not to do business with ITG, or to cease doing business with ITG, or in any way interfere with the relationship between any such referral source or business relation and ITG.

10.5 Injunctive Relief. Executive acknowledges that it is impossible to measure in money the damages that will accrue to ITG by reason of Executive’s failure to observe any of the obligations imposed on him by this Section 10. Accordingly, if ITG shall institute an action to enforce the provisions hereof, Executive hereby waives the claim or defense that an adequate remedy at law is available to ITG, and Executive agrees not to urge in any such action the claim or defense that such remedy at law exists.

10.6 Severability. If a final determination is made by a court having competent jurisdiction that the time or territory or any other restriction contained in Sections 10.1, 10.3 or 10.4 is an unenforceable restriction on Executive’s activities, the provisions of Sections 10.1, 10.3 or 10.4 shall not be rendered void but shall be deemed amended to apply such maximum time and territory and such other restrictions as such court may judicially determine or otherwise indicate to be reasonable.

11. Miscellaneous.

11.1 Assignment. This Agreement shall be binding upon the parties hereto, their respective heirs, personal representatives, executors, administrators and successors; provided, however, that Executive shall not assign this Agreement.

- 8 -

11.2 Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

11.3 Entire Agreement. This Agreement between Executive and ITG, set forth the entire agreement of the parties concerning the employment of Executive by ITG, and any other oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Both parties hereto have participated in the selection of the words and phrases set forth in this Agreement in order to express their joint intentions in entering into this employment relationship, and the parties hereto agree that there shall not be strict interpretation against either party in connection with any review of this Agreement in which interpretation thereof is an issue.

11.4 Notices. Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, or mailed properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to the address of Executive on the books and records of ITG at the time of the delivery of such notice, and properly addressed to ITG if addressed to:

Corporate Secretary

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro NC 27408

11.5 Severability. Wherever there is any conflict between any provision of this Agreement and any statute, law regulation or judicial precedent, the latter shall prevail, but in such event the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring them within the requirements of law. In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be indefinite, invalid, void or voidable or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an unconscionable injustice.

11.6 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

- 9 -

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed the day and year first above written.

INTERNATIONAL TEXTILE GROUP, INC.
By:	/s/ Joseph L. Gorga
Name:	Joseph L. Gorga
Its:	President and Chief Executive Officer
/s/ Thomas E. McKenna
Thomas E. McKenna

- 10 -

EX-10.10

Exhibit 10.10

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into effective as of January 1, 2005 (the “Effective Date”), by and between J. Derrill Rice (“Executive”) and International Textile Group, Inc. (“Company” or “ITG”), a Delaware corporation.

RECITALS:

A. Executive serves as the President of Burlington Interior Fabrics and is a key corporate officer of Burlington Interior Fabrics and is expected to make major contributions to the profitability, growth and financial strength of the ITG.

B. ITG desires to employ Executive, and Executive desires to accept such employment, under the terms and conditions of this Agreement.

C. The Board of Directors has also determined that it is in the best interests of the stockholders and ITG to promote stability among key officers.

IN CONSIDERATION OF THE FOREGOING, the mutual covenants contained herein, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1. Definitions.

1.1 “Base Salary” has the meaning set forth in Section 6.1.

1.2 “Board” means the board of directors of ITG.

1.3 “Cause” means (A) the commission by Executive of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) gross negligence or intentional misconduct by Executive with respect to ITG or in the performance of his duties to ITG; (C) failure to follow a reasonable, lawful and specific direction of the President and CEO of ITG; (D) failure by Executive to cooperate in any corporate investigation, or (E) breach by Executive of any material provision of this Agreement, which breach is not corrected by Executive within ten (10) calendar days after receipt by Executive of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by the Executive shall be considered “intentional” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of ITG.

1.4 “Disability” or “Disabled” means the absence of Executive from Executive’s duties with the Company on a full time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.

1.5 “Employee Benefits” means the “benefit plans and policies” for the limited liability companies of ITG or its predecessor that was the employer of the Executive immediately prior to the execution of this Employment Agreement and Employee Benefits shall refer to such plans until adopted by and as subsequently amended by ITG.

1.6 “Good Reason” means the termination of Executive’s employment by Executive for any of the following reasons:

(A) involuntary reduction in Executive’s Base Salary unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for Executive under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of Executive’s participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as Executive;

(D) failure to obtain an assumption of ITG’s obligations under this Agreement by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this Agreement are vested in the successor to ITG by operation of law;

(E) involuntary relocation of Executive’s primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of Executive’s duties in effect on the Effective Date; provided, however that a change in title or reporting line will not constitute Good Reason unless such change is coupled with a material reduction in the actual duties of Executive.

1.7 “Incentive or Bonus Plan” has the meaning set forth in Section 6.2 hereof.

1.8 “ITG” means International Textile Group Inc. and each of the affiliates of International Textile Group Inc. (meaning any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, International Textile Group Inc.), along with all successors and assigns of each of such entities.

1.9 “Plan” has the meaning set forth in Section 7.3.

1.10 “Restricted Customers” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

- 2 -

1.11 “Restricted Industry” means the specific industry segment or segments for which the Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.12 “Restricted Territory” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

1.13 “Target Bonus” has the meaning set forth in the Incentive or Bonus Plan as defined in Section 6.2 hereof.

1.14 “Term” has the meaning set forth in Section 5.

1.15 “Termination Date” means the date on which the termination of Executive’s employment with ITG becomes effective.

2. Termination of Prior Agreements.

The parties hereto acknowledge and agree that, effective as of the date hereof, all prior employment agreements if any are terminated and each and every provision of each of such agreements is rendered void and of no further force or effect whatsoever.

3. Employment.

ITG hereby employs Executive, and Executive hereby accepts employment, according to the terms and conditions set forth in this Agreement and for the period specified in Section 5 of this Agreement.

4. Duties.

During the Term, Executive shall serve ITG as its President of Interior Fabrics in accordance with reasonable and lawful directions from ITG’s President and CEO and the Board of Directors and in accordance with ITG’s Articles of Incorporation and Bylaws, as both may be amended from time to time. Executive will report directly to the President and Chief Executive Officer of ITG. While Executive is employed by ITG as a full-time employee, Executive shall serve ITG, faithfully, diligently, competently and to the best of his ability, and will exclusively devote his full time, energy and attention to the business of ITG and to the promotion of its interests. Executive shall not, without the written consent of the President and CEO of ITG, either render services to or for any person, firm, corporation or other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and whether or not it is paid directly or indirectly to Executive, or serve as a board member, director or trustee of any corporation or organization regardless of whether Executive is paid for such services. Nothing in this Section 4 shall preclude Executive from managing his personal investments and affairs, provided that such activities in no way interfere with the proper performance of his duties and responsibilities as President of Interior Fabrics.

- 3 -

5. Term of Employment.

Subject to Article 9, the term of this Agreement (the “Term”) shall commence on the Effective Date and end on December 31, 2006. The Term shall automatically be extended by one year on each December 31, beginning December 31, 2005, unless not later than September 30 of each year ITG notifies Executive, or Executive notifies ITG, that it or he, as the case may be, does not desire to have the Term extended. For example, if such notice of non-extension is not given by September 30, 2005, the Term of this Agreement shall automatically be extended to December 31, 2007.

6. Compensation.

6.1 Base Salary. While employed under this Agreement, Executive will receive as his compensation for the performance of his duties and obligations to ITG under this Agreement a Base Salary of Two Hundred Forty Thousand Dollars ($240,000.00) per year, which will be payable in such installments established by ITG for all salaried employees, and which will be subject to annual review by the Board of Directors or any committee designated by the Board of Directors (the base salary, as it may be modified from time to time, is referred to herein as the “Base Salary”).

6.2 Bonus. In addition to the Base Salary, Executive will receive with respect to each plan year a bonus in accordance with ITG’s Incentive and Bonus Plan, a copy of which has been delivered to Executive.

6.3 Withholding. All compensation payable to Executive pursuant to this Section 6 shall be paid net of amounts withheld for federal, state, municipal or local income taxes, Executive’s share, if any, of any payroll taxes and such other federal, state, municipal or local taxes as may be applicable to amounts paid by an employer to its employee or to the employer/employee relationship.

7. Other Benefits of Employment.

7.1 Employee Benefits. Executive will be entitled to participate in such hospitalization, life insurance, long and short term disability, 401(k) and other employee benefit plans and programs, if any, as may be adopted by ITG from time to time, in accordance with the provisions of such plans and programs and on the same basis as other full-time salaried employees of ITG who participate in such employee benefit plans (except to the extent that the benefits provided under any of such plans or programs are expressly offset by any of the benefits provided under or pursuant to this Agreement).

7.2 Executive Benefits. Executive shall be entitled to participate in any employee benefit adopted by ITG for executive level employees.

7.3 Stock Based Awards. Executive shall be eligible to receive grants of stock options, performance units, stock appreciation rights, restricted stock, deferred shares, and other stock-based awards in accordance with the provisions of any stock-based award or long-term incentive plan (“Plan”) ITG may adopt or amend or supersede from time to time. The terms of such grants shall be determined by the Board of Directors (or its designee as provided in the Plan

- 4 -

or as appointed by the Board of Directors) in accordance with the Plan, provided, however, that notwithstanding any provision of the Plan to the contrary, in the event of any termination of Executive’s employment for any reason other than for Cause pursuant to Section 9.3, or for termination of employment for other than Good Reason pursuant to Section 9.5, any stock-based award granted to Executive prior to such Termination Date shall immediately vest and be exercisable by or issued to the Executive under the Plan.

7.4 Taxes and Withholding. Executive shall be responsible for paying all federal, state, municipal or local taxes payable by him with respect to any benefits provided under this Section 7, and ITG will, when required by law or when otherwise appropriate or customary, withhold from the benefits or other compensation amounts sufficient to satisfy such taxes, unless taxes are to be paid by ITG as set forth in the provisions of the executive benefit plan, Employee Benefit Plan, or an agreement with the Executive.

7.5 Vacation. Notwithstanding any policy of the company for salaried employees, Executive will be entitled to four (4) weeks paid vacation and ITG recognized holidays.

8. Termination.

8.1 Termination by ITG.

(A) This Agreement shall automatically terminate effective upon (i) the date of Executive’s death; (ii) the date that Executive is determined to be permanently Disabled or (iii) the date of Executive’s retirement.

(B) ITG may terminate this Agreement, and Executive’s employment with ITG, without Cause upon ninety (90) days’ prior written notice to Executive.

(C) ITG may terminate this Agreement, and Executive’s employment with ITG, with Cause effective immediately and without the requirement of prior notice to Executive.

8.2 Termination by Executive. Executive may terminate this Agreement, and his employment with ITG, with or without Good Reason, upon ninety (90) days’ prior written notice to ITG.

8.3 Notice. Any purported termination of this Agreement by ITG or Executive shall be communicated by written notice of termination to the other party. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provisions so indicated, and shall specify the Termination Date (which shall not be earlier than the date of the notice).

9. Compensation and Benefits Upon Termination of Employment.

9.1 Termination of Employment upon Death. If Executive’s employment is terminated by reason of death, his estate shall be entitled to receive only the Base Salary to which Executive was entitled through the date of death, any accrued unpaid bonus compensation

- 5 -

for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive or his estate through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.2 Termination of Employment upon Disability. If Executive’s employment is terminated due to his Disability, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date due to Disability, any accrued unpaid bonus compensation for the prior plan year, any unpaid Target Bonus compensation (calculated on a pro rata basis) due to Executive with respect to the plan year in which the Termination Date occurs, and such other benefits as may be available to Executive through ITG’s benefit plans and policies. The payment of said bonus compensation shall be made in a lump sum within sixty (60) days from the Termination Date.

9.3 Termination of Employment by ITG for Cause. If Executive’s employment is terminated for Cause as provided in Section 8.1(C), Executive shall be entitled to receive the Base Salary to which he was entitled through the Termination Date, and such other benefits as may be available to him through ITG’s benefit plans and policies in effect on the Termination Date, other than any accrued but unpaid bonus compensation, which shall be forfeited.

9.4 Termination Without Cause or Termination For Good Reason. If ITG terminates Executive’s employment without Cause pursuant to Section 8.1(B) or if Executive terminates his employment for Good Reason pursuant to Section 8.2, Executive shall receive severance pay equal to (A) two (2) times his Base Salary; (B) two (2) times the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term); and (C) medical and dental coverage under the plan(s) in effect under the COBRA eligibility period for Executive and any eligible dependents with the costs absorbed by the Company on a tax protected basis to Executive for the period of time Executive and/or dependents(s) remain eligible for COBRA but not to exceed two (2) years from the Termination Date. Said severance shall be in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Executive agrees that he shall not be entitled to any additional compensation or benefits other than what is set out in this Section 9.4. Executive and ITG agree that the receipt of severance benefits as defined in this Section 9.4 are conditioned upon and subject to Executive and ITG executing a valid mutual release agreement releasing any and all claims which either of them have or may have against the other arising out of Executive’s employment (other than enforcement of this Agreement).

9.5 Termination of Employment other than for Good Reason. If Executive terminates employment with ITG pursuant to Section 8.2 other than for Good Reason or Executive elects to not renew this Agreement for an additional term, Executive shall be entitled to receive only the Base Salary to which he was entitled through the Termination Date, accrued unpaid bonus compensation due to Executive for the plan year prior and such other benefits as may be available to him through ITG’s benefit plans and policies through the Termination Date. Such bonus payments shall be paid at the same time bonus payments are made for all plan

- 6 -

participants. If the Company elects not to renew this Agreement for an additional term, Executive shall be entitled to receive compensation equal to one (1) year of his Base Salary plus the average of Executive’s previous three (3) years annual bonus (or if Executive was employed for less than three (3) years, the average of Executive’s bonus during the actual employment term). Severance compensation shall be paid in such installments established by ITG for all salaried employees and bonus payments shall be paid at the same time bonus payments are made for all plan participants. Such severance payments shall commence immediately after the Termination Date.

9.6 Effect of Termination. Upon termination of Executive’s employment, the obligations of each of the parties under this Agreement shall expire as of the Termination Date, including, without limitation, the obligations of ITG to pay any compensation to Executive, except to the extent otherwise specifically provided in this Agreement. Notwithstanding the foregoing, the obligations contained in Sections 9.7 and 10 of this Agreement, the provisions hereof relating to the obligations of ITG described in the preceding sentence and any other provision of this Agreement that is intended to continue in full force and effect after the termination of Executive’s employment, shall survive the termination or expiration of this Agreement in accordance with the terms set forth therein.

9.7 Other Compensation. The amount of any payment provided for in this Section 9 shall be reduced by any compensation earned or benefits provided as the result of the employment of Executive by another employer or as a result of Executive being self-employed after the Termination Date. If any such compensation received by Executive from another employer or as a result of his self-employment is less than the payment payable under this Section 9, the Company shall pay to the Executive only the difference between such amounts to Executive in accordance with the applicable payment terms set forth in this Section 9.

9.8 Non-Payment Due to Breach. In the event Executive breaches any of the covenants and obligations set forth in this Agreement, including without limitation any of the covenants set forth in Section 10 hereof, then ITG’s obligation to make any remaining payments under this Agreement that have not already been paid to Executive shall be terminated.

10. Confidentiality, Non-Compete, and Non-Solicitation.

10.1 Non-Disclosure. Executive expressly covenants and agrees that he will not reveal, use, divulge or make known to any person, firm, company or corporation any secret or confidential information of any nature concerning ITG or its business, or anything connected therewith.

10.2 Return of Materials. Executive agrees to deliver or return to ITG upon termination or expiration of this Agreement or as soon thereafter as possible, all written information and any other similar items furnished by ITG or prepared by Executive in connection with his services hereunder. Executive will retain no copies thereof after termination of this Agreement or Executive’s employment with ITG.

10.3 Non-Competition. In the event of termination or non-renewal of this Agreement by either ITG or Executive, for any reason, Executive shall not (except as an officer, director,

- 7 -

employee, agent or consultant of ITG) during the two (2) year period following the Termination Date, directly or indirectly, (a) own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit his name to be used in connection with, or be otherwise connected in any manner with any business or enterprise that is actively engaged in any business in the Restricted Industry within the Restricted Territory; provided that the foregoing restriction shall not be construed to prohibit the ownership by Executive of not more than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, having a class of securities registered pursuant to the Securities Exchange Act of 1934, which securities are publicly owned and regularly traded on any national exchange or in the over-the-counter market, provided, further, that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes part in its business other than exercising his rights as a shareholder, or seeks to do any of the foregoing or (b) solicit, call upon, divert or take away any Restricted Customers for purposes of conducting a business in the Restricted Industry.

10.4 No Solicitation. In addition to the limitation imposed by Section 10.3, Executive hereby further agrees and covenants that during the term of this Agreement, and for a period of two (2) years thereafter, he shall not, directly or indirectly, on his own behalf or with others (A) induce or attempt to induce any employee of ITG to leave the employ of ITG, or in any way interfere with the relationship between ITG and any employee; (B) knowingly hire any employee of ITG; or (C) induce or attempt to induce any referral source or other business relation of ITG not to do business with ITG, or to cease doing business with ITG, or in any way interfere with the relationship between any such referral source or business relation and ITG.

10.5 Injunctive Relief. Executive acknowledges that it is impossible to measure in money the damages that will accrue to ITG by reason of Executive’s failure to observe any of the obligations imposed on him by this Section 10. Accordingly, if ITG shall institute an action to enforce the provisions hereof, Executive hereby waives the claim or defense that an adequate remedy at law is available to ITG, and Executive agrees not to urge in any such action the claim or defense that such remedy at law exists.

10.6 Severability. If a final determination is made by a court having competent jurisdiction that the time or territory or any other restriction contained in Sections 10.1, 10.3 or 10.4 is an unenforceable restriction on Executive’s activities, the provisions of Sections 10.1, 10.3 or 10.4 shall not be rendered void but shall be deemed amended to apply such maximum time and territory and such other restrictions as such court may judicially determine or otherwise indicate to be reasonable.

11. Miscellaneous.

11.1 Assignment. This Agreement shall be binding upon the parties hereto, their respective heirs, personal representatives, executors, administrators and successors; provided, however, that Executive shall not assign this Agreement.

- 8 -

11.2 Governing Law. This Agreement shall be construed under and governed by the internal laws of the State of New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

11.3 Entire Agreement. This Agreement between Executive and ITG, set forth the entire agreement of the parties concerning the employment of Executive by ITG, and any other oral or written statements, representations, agreements, or understandings made or entered into prior to or contemporaneously with the execution of this Agreement, are hereby rescinded, revoked, and rendered null and void by the parties. Both parties hereto have participated in the selection of the words and phrases set forth in this Agreement in order to express their joint intentions in entering into this employment relationship, and the parties hereto agree that there shall not be strict interpretation against either party in connection with any review of this Agreement in which interpretation thereof is an issue.

11.4 Notices. Any notice required or permitted under this Agreement shall be deemed to have been effectively made or given if in writing and personally delivered, or mailed properly addressed in a sealed envelope, postage prepaid by certified or registered mail, delivered by a reputable overnight delivery service or sent by facsimile. Unless otherwise changed by notice, notice shall be properly addressed to Executive if addressed to the address of Executive on the books and records of ITG at the time of the delivery of such notice, and properly addressed to ITG if addressed to:

Corporate Secretary

International Textile Group, Inc.

804 Green Valley Road, Suite 300

Greensboro NC 27408

11.5 Severability. Wherever there is any conflict between any provision of this Agreement and any statute, law regulation or judicial precedent, the latter shall prevail, but in such event the provisions of this Agreement thus affected shall be curtailed and limited only to the extent necessary to bring them within the requirements of law. In the event that any provision of this Agreement shall be held by a court of competent jurisdiction to be indefinite, invalid, void or voidable or otherwise unenforceable, the balance of this Agreement shall continue in full force and effect unless such construction would clearly be contrary to the intentions of the parties or would result in an unconscionable injustice.

11.6 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

- 9 -

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed the day and year first above written.

INTERNATIONAL TEXTILE GROUP, INC.
By:	/s/ Joseph L. Gorga
Name:	Joseph L. Gorga
Its:	President and Chief Executive Officer
/s/ J. Derrill Rice
J. Derrill Rice

- 10 -

EX-10.11

Exhibit 10.11

FORM OF SEVERANCE LETTER

NAME

TITLE

Dear                             :

You are a key employee of International Textile Group, and I know that you will make major contributions to the profitability, growth, and financial strength of ITG as we move forward. I believe that ITG has great promise for many reasons, among them the talent of its workforce and the dedication and extraordinary efforts of its leaders. I also believe that it is in the best interest of ITG to promote stability among key employees of ITG.

In recognition of your key role in ITG and to encourage your continued focus on driving the key success factors for ITG, I want to provide you certain assurances as to severance benefits payable to you in the event that your employment were to terminate under certain circumstances. These benefits would be payable to you if your employment with ITG (or any of its affiliated companies) terminates for any of the following reasons:

1. Termination by ITG without “Cause.” The term “Cause” means (A) the commission by you of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) your gross negligence or intentional misconduct with respect to ITG or in the performance of your duties to ITG; (C) your failure to follow a reasonable, lawful and specific direction of the President and CEO of ITG; (D) your failure to cooperate in any corporate investigation, or (E) your breach of any material provision of this letter, which breach is not corrected by you within ten (10) calendar days after receipt of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by you shall be considered “intentional” unless done or omitted to be done by in bad faith and without reasonable belief that your action or omission was in the best interests of ITG.

2. Termination for “Good Reason.” The term “Good Reason” is defined as termination of your employment by you for any of the following reasons:

(A) involuntary reduction in your base salary unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for you under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of your participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as you are; and

(D) failure to obtain an assumption of ITG’s obligations under this letter by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this letter are vested in the successor to ITG by operation of law;

(E) involuntary relocation of your primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of your duties in effect on the date hereof; provided, however that a change in title or reporting line alone would not be sufficient to constitute Good Reason unless such change is coupled with a material reduction in your actual duties.

The grant of severance compensation pursuant to this letter agreement is in lieu of any severance to which you would otherwise be entitled under any terminal leave or severance program of ITG; however, you will be entitled to receive any benefits to which you are entitled as a terminating employee under provisions of any other benefit program offered by ITG, such as 401(k) benefits.

In the event that your employment terminates for any of the above reasons, you will be eligible to receive the following severance compensation:

1) Twelve months of base salary payments at the base salary level in effect at the time of your termination.

2) A pro-rata share of any incentive or bonus payment earned for performance results for the plan year during which your employment is terminated. Such a pro-rata payment must be approved by the Board of Directors when all bonus payments for all participants are approved. Any such pro-rata bonus payment will be made at the same time as bonus payments are made for all participants.

3) Continued coverage under any group medical, dental, pharmaceutical, life insurance and flexible spending account benefit plans then offered by the Company but not any long term disability plan for the period you are receiving the base salary payments noted in paragraph 1 above. You will be responsible for the payment of any required contribution for this coverage. You will also maintain eligibility status for the 401(k) program and may continue participation during the severance period.

2

Except as set forth in the preceding sentence, all payments due hereunder as a result of the termination of your employment shall be paid in such installments established by ITG for all salaried employees. Such severance payments shall commence immediately after the termination date of your employment. The amount of any payment provided for in this letter shall be reduced by any compensation earned or benefits provided as the result of your employment by another employer or as a result of your self-employment after the termination of your employment with ITG. If any such compensation received by you from another employer or as a result of your self-employment is less than the payment payable under this letter as a result of your termination, ITG shall pay to you only the difference between such amounts in accordance with the applicable payment terms set forth in his letter. The granting of these benefits shall not confer upon you any right with respect to continuance of employment by ITG, nor limit or affect in any manner the right of ITG to terminate your employment at any time or modify your base salary.

In consideration for your employment and your right to receive these benefits, you expressly agree to the following:

1. During your employment with ITG and thereafter with respect to any confidential information that constitutes a “trade secret” under applicable law, and with respect to all other confidential information, during your employment of ITG and for three years following the termination of such employment, you will not reveal, use, divulge, or make known to any person, firm, company or corporation any secret or confidential information of any nature concerning ITG or its business, or anything connected therewith.

2. You will return to ITG all written or electronic information and any other similar items furnished by ITG or prepared by you in connection with your position with ITG. You will not retain copies of any such materials after termination of your employment.

3. Upon the termination of your employment either by ITG or by you, for any reason, you will not (except as an officer, director, employee, agent or consultant of ITG) during the one (1) year period following the termination of your employment, directly or indirectly, (A) own, manage, operate, join, or have a financial interest in, control or participate in the ownership, management, operation or control of, or be employed as an employee, agent or consultant, or in any other individual or representative capacity whatsoever, or use or permit your name to be used in connection with, or be otherwise connected in any manner with any business or enterprise that is actively engaged in any business in the Restricted Industry within the Restricted Territory; provided that the foregoing restriction shall not be construed to prohibit the ownership by you of not more than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses, having a class of securities registered pursuant to the Securities Exchange Act of 1934, which securities are publicly owned and regularly traded on any national exchange or in the over-the-counter market, provided, further, that such ownership represents a passive investment and that neither you nor any group of persons including you in any way,

3

either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes part in its business other than exercising your rights as a shareholder, or seeks to do any of the foregoing or (B) solicit, call upon, divert or take away any Restricted Customers for purposes of conducting a business in the Restricted Industry. For purposes of this clause 3, the following capitalized terms shall have the meaning given below:

“Restricted Customers” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which you had any contact or for which you had any responsibility (either direct or supervisory) at the time of termination of your employment and at any time during the two (2)-year period prior to such termination.

“Restricted Industry” means the specific industry segment or segments for which you any responsibility (either direct or supervisory) at the time of termination of your employment and at any time during the two (2)-year period prior to such termination.

“Restricted Territory” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which you worked, to which you were assigned or had any responsibility (either direct or supervisory) at the time of termination of your employment and at any time during the two-year period prior to such termination.

4. During your employment with ITG, and for a period of two (2) years thereafter, you will not, directly or indirectly, on your own behalf or with others (A) induce or attempt to induce any employee of ITG to leave the employ of ITG, or in any way interfere with the relationship between ITG and any employee; (B) knowingly hire any employee of ITG; or (C) induce or attempt to induce any referral source or other business relation of ITG not to do business with ITG, or to cease doing business with ITG, or in any way interfere with the relationship between any such referral source or business relation and ITG.

You also hereby acknowledge that it is impossible to measure in money the damages that will accrue to ITG by reason of your failure to observe any of the obligations assumed by you in this letter. Accordingly, if ITG shall institute an action to enforce the provisions hereof, you hereby waive the claim or defense that an adequate remedy at law is available to ITG, and you agree not to urge in any such action the claim or defense that such remedy at law exists. Also, if a final determination is made by a court having competent jurisdiction that the time or territory or any other restriction contained in Sections 1, 3 or 4 is an unenforceable restriction on your activities, the provisions of such sections shall not be rendered void but shall be deemed amended to apply such maximum time and territory and such other restrictions as such court may judicially determine or otherwise indicate to be reasonable.

4

Finally, the agreement between you and ITG set forth in this letter shall be construed under and governed by the internal laws of the State of New York without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

I appreciate your contribution to the success of ITG and value the role you will play in our success in the future. Please sign below indicating your receipt of and agreement to these terms.

Sincerely,	Received and Agreed to by:
Joseph L. Gorga	[NAME]
President and Chief Executive Officer	Date:

5

EX-10.14

Exhibit 10.14

DESCRIPTION OF MANAGEMENT SERVICES ARRANGEMENT

Description of Management Services Arrangement Between

International Textile Group, Inc. and W.L. Ross & Co. LLC

International Textile Group, Inc. (the “Company”) pays to W.L. Ross & Co. LLC (“WLR”) fees for certain management services provided by WLR to the Company pursuant to an unwritten arrangement. These services may include, but are not limited to, consulting and advisory services in connection with strategic and financial planning, investment management and administration, as well as other matters relating to the business and operations of the Company of a type customarily provided by sponsors of U.S. private equity firms to companies in which they have substantial investments, including, without limitation, any such consulting or advisory services which the Board of Directors of the Company reasonably requests that WLR provide to the Company (the “Services”).

In exchange for the provision of the Services, the Company pays WLR $500,000 per calendar quarter.

EX-10.16

Exhibit 10.16

$165,000,000 CREDIT FACILITY

CREDIT AGREEMENT

Dated as of December 29, 2006

by and among

INTERNATIONAL TEXTILE GROUP, INC.,

ITG HOLDINGS, INC.,

BURLINGTON INDUSTRIES LLC,

CARLISLE FINISHING LLC,

CONE DENIM LLC,

CONE JACQUARDS LLC,

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.,

SAFETY COMPONENTS FABRIC TECHNOLOGIES, INC.,

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL LIMITED,

as the Borrowers,

THE OTHER PERSONS PARTY HERETO THAT ARE

DESIGNATED AS CREDIT PARTIES

GENERAL ELECTRIC CAPITAL CORPORATION

for itself, as a Lender, as L/C Issuer, Swingline Lender and as the Agent for all Lenders,

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

as Lenders,

UBS SECURITIES LLC,

as Lead Arranger and Bookrunner

GE CAPITAL MARKETS, INC.,

as Co-Lead Arranger and Co-Bookrunner

WACHOVIA BANK NATIONAL ASSOCIATION,

as Co-Documentation Agent

and

BANK OF AMERICA, N.A.,

as Co-Documentation Agent

TABLE OF CONTENTS

ARTICLE I - THE CREDITS		2
1.1	Amounts and Terms of Commitments	2
1.2	Notes	10
1.3	Interest	10
1.4	Loan Accounts	11
1.5	Procedure for Revolving Credit Borrowing	13
1.6	Conversion and Continuation Elections	13
1.7	Optional Prepayments	14
1.8	Mandatory Prepayments of Loans and Commitment Reductions	15
1.9	Fees	16
1.10	Payments by the Borrowers	17
1.11	Payments by the Lenders to the Agent; Settlement	20
1.12	Eligible Accounts.	22
1.13	Eligible Inventory.	24
1.14	Eligible Equipment and Real Property.	26
1.15	Borrower Representative	28
ARTICLE II - CONDITIONS PRECEDENT		28
2.1	Conditions of Initial Loans	28
2.2	Conditions to All Borrowings	29
ARTICLE III - REPRESENTATIONS AND WARRANTIES		29
3.1	Corporate Existence and Power	29
3.2	Corporate Authorization; No Contravention	30
3.3	Governmental Authorization	31
3.4	Binding Effect	31
3.5	Litigation	31
3.6	No Default	32
3.7	ERISA Compliance	32
3.8	Use of Proceeds; Margin Regulations	33
3.9	Title to Properties	33
3.10	Taxes	33
3.11	Financial Condition	33
3.12	Environmental Matters	34
3.13	Regulated Entities	35
3.14	Solvency	35
3.15	Labor Relations	35
3.16	Intellectual Property	36
3.17	Subsidiaries	36
3.18	Brokers’ Fees; Transaction Fees	36
3.19	Insurance	36
3.20	Full Disclosure	36
3.21	Foreign Assets Control Regulations and Anti-Money Laundering.	37
3.22	UK Pensions/UK Employees	37

i

3.23	UK Financial Assistance	37
ARTICLE IV - AFFIRMATIVE COVENANTS		37
4.1	Financial Statements	37
4.2	Certificates; Other Information	38
4.3	Notices	41
4.4	Preservation of Corporate Existence, Etc	42
4.5	Maintenance of Property	43
4.6	Insurance	43
4.7	Payment of Obligations	44
4.8	Compliance with Laws	45
4.9	Inspection of Property and Books and Records	45
4.10	Use of Proceeds	46
4.11	Cash Management Systems	46
4.12	Landlord Agreements	46
4.13	Further Assurances; Limitation on Guarantees and Liens	46
4.14	Mandatory Investments	48
4.15	Corporate Separateness	48
4.16	Centre of Main Interest	50
4.17	UK Data Protection	50
ARTICLE V - NEGATIVE COVENANTS		50
5.1	Limitation on Liens	50
5.2	Disposition of Assets	52
5.3	Consolidations and Mergers	53
5.4	Loans and Investments	54
5.5	Limitation on Indebtedness	55
5.6	Transactions with Affiliates	56
5.7	Management Fees and Compensation	57
5.8	Use of Proceeds	57
5.9	Contingent Obligations	57
5.10	Compliance with ERISA	58
5.11	Restricted Payments	58
5.12	Change in Business	59
5.13	Amendment to Organization Documents	59
5.14	Accounting Changes	59
5.15	Amendments to Related Agreements and Subordinated Indebtedness	59
5.16	No Negative Pledges	60
5.17	OFAC	61
5.18	Press Release and Related Matters	61
5.19	Sale-Leasebacks; Synthetic Leases; Factoring; etc	61
5.20	Hazardous Materials	61
5.21	Food Security Act	61
5.22	UK Employees	62
ARTICLE VI - FINANCIAL COVENANTS		62
6.1	Fixed Charge Coverage Ratio.	62

ii

6.2	Capital Expenditures.	62
ARTICLE VII - EVENTS OF DEFAULT		62
7.1	Event of Default	62
7.2	Remedies	66
7.3	Rights Not Exclusive	66
7.4	Cash Collateral for Letters of Credit	66
ARTICLE VIII - THE AGENT		67
8.1	Appointment and Duties.	67
8.2	Binding Effect	68
8.3	Use of Discretion.	69
8.4	Delegation of Rights and Duties	69
8.5	Reliance and Liability.	69
8.6	Agent Individually	71
8.7	Lender Credit Decision	71
8.8	Expenses; Indemnities.	71
8.9	Resignation of Agent or L/C Issuer.	72
8.10	Release of Collateral or Guarantors	73
8.11	Additional Secured Parties	73
ARTICLE IX - MISCELLANEOUS		74
9.1	Amendments and Waivers	74
9.2	Notices	75
9.3	Electronic Transmissions	76
9.4	No Waiver; Cumulative Remedies	77
9.5	Costs and Expenses	77
9.6	Indemnity	78
9.7	Marshaling; Payments Set Aside	79
9.8	Successors and Assigns	79
9.9	Assignments and Participations; Binding Effect	80
9.10	Confidentiality.	82
9.11	Set-off; Sharing of Payments	83
9.12	Counterparts	84
9.13	Severability; Facsimile Signature	84
9.14	Captions	84
9.15	Independence of Provisions	84
9.16	Interpretation	84
9.17	No Third Parties Benefited	84
9.18	Governing Law and Jurisdiction	84
9.19	Waiver of Jury Trial	85
9.20	Entire Agreement; Release; Survival	86
9.21	Patriot Act	86
9.22	Replacement of Lender	86
9.23	Joint and Several	87
9.24	Lender-Creditor Relationship	87
9.25	Judgment Currency	87

iii

9.26	Non-Reliance	88
ARTICLE X - TAXES, YIELD PROTECTION AND ILLEGALITY		88
10.1	Taxes	88
10.2	Illegality	91
10.3	Increased Costs and Reduction of Return	92
10.4	Funding Losses	93
10.5	Inability to Determine Rates	93
10.6	Reserves on LIBOR Rate Loans	94
10.7	Certificates of Lenders	94
10.8	Survival	94
ARTICLE XI - DEFINITIONS		94
11.1	Defined Terms	94
11.2	Other Interpretive Provisions.	122
11.3	Accounting Terms and Principles	123
11.4	Payments	123

iv

SCHEDULES

Schedule 1.1(a)	Revolving Loan Commitments
Schedule 1.1(b)	Letters of Credit
Schedule 1.12	Eligible Accounts
Schedule 1.14	Eligible Real Property and Equipment
Schedule 3.2	Capitalization
Schedule 3.5	Litigation
Schedule 3.7	ERISA
Schedule 3.10	Tax Matters
Schedule 3.12	Environmental
Schedule 3.15	Labor Relations
Schedule 5.1	Liens
Schedule 5.2	Other Dispositions
Schedule 5.4	Investments
Schedule 5.5	Indebtedness
Schedule 5.6	Transactions with Affiliates
Schedule 5.9	Contingent Obligations
Schedule 5.16	Negative Pledges
Schedule 11.1(a)	Prior Indebtedness

EXHIBITS

Exhibit 1.1(b)	Form of L/C Request
Exhibit 1.1(d)	Form of Swing Loan Request
Exhibit 1.6	Form of Notice of Conversion/Continuation
Exhibit 2.1	Closing Checklist
Exhibit 4.2(b)	Compliance Certificate
Exhibit 11.1(a)	Form of Assignment
Exhibit 11.1(b)	Borrowing Base Certificate
Exhibit 11.1(c)	Notice of Borrowing
Exhibit 11.1(d)	Revolving Note
Exhibit 11.1(e)	Form of Swing Line Note

v

CREDIT AGREEMENT

This CREDIT AGREEMENT (including all exhibits and schedules hereto, as the same may be amended, modified and/or restated from time to time, this “Agreement”) is entered into as of December 29, 2006, by and among International Textile Group, Inc., a Delaware corporation (f/k/a Safety Components International, Inc.) (“ITG”), ITG Holdings, Inc., a Delaware corporation (f/k/a International Textile Group, Inc.) (“Holdings”), Burlington Industries LLC, a Delaware limited liability company (“Burlington”), Carlisle Finishing LLC, a Delaware limited liability company (“Carlisle”), Cone Denim LLC, a Delaware limited liability company (“Denim”), Cone Jacquards LLC, a Delaware limited liability company (“Jacquards”), Automotive Safety Components International, Inc., a Delaware corporation (“ASCI”), Safety Components Fabric Technologies, Inc., a Delaware corporation (“SCFTI”), Automotive Safety Components International Limited, a limited liability company incorporated in England and Wales with registered number 02640241 (the “UK Borrower”) (ITG, Holdings, Burlington, Carlisle, Denim, Jacquards, ASCI, SCFTI and the UK Borrower are sometimes referred to herein together as the “Borrowers” and individually as a “Borrower”), the other Persons party hereto that are designated as a “Credit Party”, General Electric Capital Corporation, a Delaware corporation (in its individual capacity, “GE Capital”), as the Agent for the several financial institutions from time to time party to this Agreement (collectively, the “Lenders” and individually each a “Lender”) and for itself as a Lender (including as Swingline Lender) and L/C Issuer, and such Lenders.

WITNESSETH:

WHEREAS, the Borrowers have requested, and the Lenders have agreed to make available to the Borrowers, a revolving credit facility (including a letter of credit subfacility) upon and subject to the terms and conditions set forth in this Agreement to (a) refinance Prior Indebtedness, provide for working capital, capital expenditures and other general corporate purposes of the Borrowers and (b) fund certain fees and expenses associated with the funding of the Loans;

WHEREAS, each Borrower desires to secure all of its Obligations under the Loan Documents by granting to the Agent, for the benefit of the Secured Parties, a security interest in and lien upon substantially all of its personal and real property in accordance with and subject to the limitations set forth in the Loan Documents;

WHEREAS, subject to the terms hereof, each (a) US Credit Party is willing to guarantee all of the Obligations of Borrowers and to grant to Agent, for the benefit of Agent, Lenders and L/C Issuers, a security interest in and lien upon substantially all of its personal and real property and (b) Foreign Credit Party is willing to guarantee all of the UK Obligations and to grant to Agent, for the benefit of Agent, Lenders and L/C Issuers, a security interest in and lien upon substantially all of its personal and real property to support the UK Obligations;

1

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows:

ARTICLE I—THE CREDITS

1.1 Amounts and Terms of Commitments.

(a) The Revolving Credit.

(i) Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Credit Parties contained herein, each Revolving Lender severally and not jointly agrees to make Loans to any of the Borrowers (each such Loan, a “Revolving Loan”) from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the amount set forth opposite such Lender’s name in Schedule 1.1(a) under the heading “Revolving Loan Commitment” (such amount as the same may be reduced or increased from time to time as a result of one or more assignments pursuant to Section 9.9 or as a result of a Commitment Increase in accordance with Section 1.1(a)(ii), being referred to herein as such Lender’s “Revolving Loan Commitment”); provided, however, that, after giving effect to any Borrowing of Revolving Loans, the aggregate principal amount of all outstanding Revolving Loans shall not exceed the Maximum Revolving Loan Balance. Subject to the other terms and conditions hereof, amounts borrowed under this subsection 1.1(a) may be repaid and reborrowed from time to time. The “Maximum Revolving Loan Balance” from time to time will be the lesser of:

(A) the “Borrowing Base” (as calculated pursuant to the Borrowing Base Certificate) in effect from time to time, or

(B) the Aggregate Revolving Loan Commitment then in effect;

less, in either case, the sum of (w) the Availability Block, plus (x) the aggregate amount of Letter of Credit Obligations plus (y) outstanding Swing Loans plus (z) such Reserves as may be imposed by the Agent in accordance with the terms of this Agreement.

If at any time the then outstanding principal balance of (x) Revolving Loans exceeds the Maximum Revolving Loan Balance or (y) the Revolving Loans advanced to US Borrowers exceeds the US Borrowing Base Limit, then in each case the Borrowers (or the US Borrowers, as applicable) shall immediately prepay outstanding Revolving Loans in an amount sufficient to eliminate such excess; provided that if such excess results from fluctuations in foreign currency exchange rates relating to any outstanding Letter of Credit which is denominated in a currency other than Dollars (a “Currency Overadvance”), such excess must be prepaid within five (5) Business Days.

2

If the Borrower Representative requests that Revolving Lenders make, or permit to remain outstanding Revolving Loans in excess of the Borrowing Base (any such excess Revolving Loan is herein referred to as an “Overadvance”), the Agent may, in its sole discretion, elect to make, or permit to remain outstanding such Overadvance; provided, however, that the Agent may not cause Revolving Lenders to make, or permit to remain outstanding, (x) aggregate Revolving Loans in excess of the Aggregate Revolving Loan Commitment less the sum of outstanding Swing Loans plus the aggregate amount of Letter of Credit Obligations or (y) an Overadvance in an aggregate amount in excess of 5% of the Aggregate Revolving Loan Commitment. If an Overadvance is made, or permitted to remain outstanding, pursuant to the preceding sentence, then all Revolving Lenders shall be bound to make, or permit to remain outstanding, such Overadvance based upon their Commitment Percentage of the Aggregate Revolving Loan Commitment in accordance with the terms of this Agreement. If an Overadvance remains outstanding for more than ninety (90) days during any three hundred sixty (360) day period, Revolving Loans must be repaid immediately in an amount sufficient to eliminate all of such Overadvance. Furthermore, the Required Lenders may prospectively revoke the Agent’s ability to make or permit Overadvances by written notice to the Agent. All Overadvances shall constitute Base Rate Loans and shall bear interest at the Base Rate plus the Applicable Margin for Revolving Loans and shall bear interest at the default rate under Section 1.3(c) only if not repaid within five (5) Business Days. The funding or sufferance of any Overadvance shall not constitute a waiver by the Agent or Lenders of any Event of Default caused thereby.

(ii) Commitment Increase. From time to time after the Closing Date but on or prior to ninety-one (91) days before the Revolving Termination Date, the Revolving Loan Commitments may be increased (but in no event in excess of $50,000,000 in the aggregate for all such increases) (the “Commitment Increase Cap”) such that the Aggregate Revolving Loan Commitment shall at no time exceed $215,000,000 (any such increase, a “Commitment Increase”) at the option of the Borrowers pursuant to delivery of written notice from the Borrowers of a proposed Commitment Increase (the “Increased Commitment Proposal”) to the Agent if each of the following conditions have been met:

(A) no Default or Event of Default shall exist on the effective date of such increase;

(B) no Commitment Increase may be in an amount less than $25,000,000 (or if less, the remaining amount of the Commitment Increase Cap);

(C) the proposed Commitment Increase shall have been consented to in writing by each existing Lender (if any) who is increasing its Revolving Commitment;

3

(D) the proposed Commitment Increase, together with any prior Commitment Increase, shall not exceed the Commitment Increase Cap; and

(E) the Agent shall have received amendments to this Agreement and the Loan Documents, joinder agreements for any new Lenders, and all other promissory notes, agreements, documents and instruments reasonably satisfactory to the Agent in its reasonable discretion evidencing and setting forth the conditions of the Commitment Increase.

The Increased Commitment Proposal shall be offered on a first priority basis to existing Lenders, who may accept, but are not obligated to accept, based on their respective Commitment Percentage of the Commitment Increase. If the existing Lenders do not accept the total amount of the Commitment Increase on such pro rata basis, then existing Lenders may accept, but are not obligated to accept, the remaining portions on a non-pro rata basis. To the extent that existing Lenders do not accept the Commitment Increase, the Increased Commitment Proposal may be offered to Persons who would otherwise be assignees in accordance with Section 9.9(b) (“Eligible Assignee”). The Agent shall have discretion to adjust the allocation of the proposed additional commitments, as the case may be, between and among Lenders that accept the Increased Commitment Proposal and Eligible Assignees that accept the Increased Commitment Proposal.

Each of the Borrowers, Lenders and the Agent acknowledges and agrees that each Commitment Increase meeting the conditions set forth in this Section 1.1(a)(ii) shall not require the consent of any Lender other than those Lenders, if any, which have agreed to increase their Revolving Loan Commitments in connection with such proposed Commitment Increase. After giving effect to any Commitment Increase, it may be the case that the outstanding Revolving Loans are not held pro rata in accordance with the new Revolving Loan Commitments. In order to remedy the foregoing, on the effective date of the applicable Commitment Increase, the Revolving Lenders (including, without limitation, any new Lenders) shall make advances among themselves so that after giving effect thereto the Revolving Loans will be held by the Revolving Lenders (including, without limitation, any new Lenders), pro rata in accordance with the Commitment Percentage hereunder (after giving effect to the applicable Commitment Increase).

(b) Letters of Credit. (i) Commitment and Conditions. On the terms and subject to the conditions contained herein, each L/C Issuer agrees to Issue, at the request of the Borrower Representative, in accordance with such L/C Issuer’s usual and customary business practices, and for the account of the US Borrowers (or, as long as the applicable US Borrowers remain responsible for the payment in full of all amounts drawn thereunder and related fees, costs and expenses, and subject to Section 5.4(a), for the account of any Subsidiary of a US Borrower), Letters of Credit (denominated in Dollars

4

or any other Available Currency) from time to time on any Business Day during the period from the Closing Date through the earlier of the Revolving Termination Date and 7 days prior to the date specified in clause (a) of the definition of Revolving Termination Date; provided, however, that such L/C Issuer shall not be under any obligation to Issue any Letter of Credit upon the occurrence of any of the following, after giving effect to such Issuance:

(A) (i) the aggregate outstanding principal balance of Revolving Loans would exceed the Maximum Revolving Loan Balance, (ii) the Letter of Credit Obligations for all Letters of Credit would exceed the US Dollar Equivalent of $25,000,000 (the “L/C Sublimit”) or (iii) the aggregate outstanding principal balance of the Revolving Loans would exceed the US Borrowing Base Limit;

(B) the expiration date of such Letter of Credit (i) is not a Business Day, (ii) is more than one year after the date of issuance thereof or (iii) is later than 7 days prior to the date specified in clause (a) of the definition of Revolving Termination Date; provided, however, that any Letter of Credit with a term not exceeding one year may provide for its renewal for additional periods not exceeding one year as long as (x) the applicable Borrower and such L/C Issuer have the option to prevent such renewal before the expiration of such term or any such period and (y) neither such L/C Issuer nor any Borrower shall permit any such renewal to extend such expiration date beyond the date set forth in clause (iii) above; or

(C) (i) any fee due in connection with, and on or prior to, such Issuance has not been paid, (ii) such Letter of Credit is requested to be issued in a form that is not reasonably acceptable to such L/C Issuer or (iii) such L/C Issuer shall not have received, each in form and substance reasonably acceptable to it and duly executed by the applicable US Borrowers or the Borrower Representative on their behalf (and, if such Letter of Credit is issued for the account of any Subsidiary of a US Borrower, such Person), the documents that such L/C Issuer generally uses in the ordinary course of its business for the Issuance of letters of credit of the type of such Letter of Credit (collectively, the “L/C Reimbursement Agreement”). Notwithstanding anything in this Agreement or any other Loan Document to the contrary, in the event of any conflict between the terms or provisions of this Agreement and the terms or provisions of any L/C Reimbursement Agreement, the terms and provisions of this Agreement shall control.

For each such Issuance, the applicable L/C Issuer may, but shall not be required to, determine that, or take notice whether, the conditions precedent set forth in Section 2.2 have been satisfied or waived in connection with the Issuance of any Letter of Credit; provided, however, that no Letter of Credit shall be Issued during the period starting on the first Business Day after the receipt by such L/C Issuer of notice from the Agent or the Required Lenders that any condition precedent contained in Section 2.2 is not satisfied and ending on the date all such conditions are satisfied or duly waived.

5

(ii) Notice of Issuance. The Borrower Representative shall give the relevant L/C Issuer and the Agent a notice of any requested Issuance of any Letter of Credit, which shall be effective only if received by such L/C Issuer and the Agent not later than 12:00 noon (New York time) on the third Business Day prior to the date of such requested Issuance, or such later time as is agreed by such L/C Issuer. Such notice may be made in a writing substantially the form of Exhibit 1.1(b) duly completed or in a writing in any other form acceptable to such L/C Issuer (an “L/C Request”) or by telephone if confirmed promptly, but in any event within one Business Day and prior to such Issuance, with such an L/C Request.

(iii) Reporting Obligations of L/C Issuers. Each L/C Issuer agrees to provide the Agent (which, after receipt, the Agent shall provide to each Revolving Lender), in form and substance satisfactory to the Agent, each of the following on the following dates: (A) (i) on or prior to any Issuance of any Letter of Credit by such L/C Issuer, (ii) immediately after any drawing under any such Letter of Credit or (iii) immediately after any payment (or failure to pay when due) by the applicable US Borrowers of any related L/C Reimbursement Obligation, notice thereof, which shall contain a reasonably detailed description of such Issuance, drawing or payment; (B) upon the request of the Agent (or any Revolving Lender through the Agent), copies of any Letter of Credit Issued by such L/C Issuer and any related L/C Reimbursement Agreement and such other documents and information as may reasonably be requested by the Agent; and (C) on the first Business Day of each calendar week, a schedule of the Letters of Credit Issued by such L/C Issuer, in form and substance reasonably satisfactory to the Agent, setting forth the Letter of Credit Obligations for such Letters of Credit outstanding on the last Business Day of the previous calendar week.

(iv) Acquisition of Participations. Upon any Issuance of a Letter of Credit in accordance with the terms of this Agreement resulting in any increase in the Letter of Credit Obligations, each Revolving Lender shall be deemed to have acquired, without recourse or warranty, an undivided interest and participation in such Letter of Credit and the related Letter of Credit Obligations in an amount equal to its Commitment Percentage of such Letter of Credit Obligations.

(v) Reimbursement Obligations of the US Borrowers. The US Borrowers agree to pay to the L/C Issuer of any Letter of Credit each L/C Reimbursement Obligation owing with respect to such Letter of Credit no later than the first Business Day after the applicable US Borrowers or the Borrower Representative receive notice from such L/C Issuer that payment has been made under such Letter of Credit or that such L/C Reimbursement Obligation is otherwise due (the “L/C Reimbursement Date”) with interest thereon computed as set forth in clause (A) below. In the event that any L/C Issuer incurs any L/C Reimbursement Obligation not repaid by the US Borrowers as provided in this clause (v) (or any such payment by the US Borrowers is rescinded or set aside for any reason), such L/C Issuer shall promptly notify the Agent of such failure (and,

6

upon receipt of such notice, the Agent shall forward a copy to each Revolving Lender) and, irrespective of whether such notice is given, such L/C Reimbursement Obligation shall be payable on demand (which shall be deemed paid in full upon the making of the Revolving Loans described in subsection (vi) below) by the US Borrowers with interest thereon computed (A) from the date on which such L/C Reimbursement Obligation arose to the L/C Reimbursement Date, at the interest rate applicable during such period to Revolving Loans that are Base Rate Loans and (B) thereafter until payment in full, at the interest rate applicable during such period to past due Revolving Loans that are Base Rate Loans.

(vi) Reimbursement Obligations of the Revolving Credit Lenders. Upon receipt of the notice described in clause (v) above from the Agent, each Revolving Lender shall pay to the Agent for the account of such L/C Issuer its Commitment Percentage of such L/C Reimbursement Obligation. By making such payment (other than during the continuation of an Event of Default under subsection 7.1(f) or 7.1(g)), such Lender shall be deemed to have made a Revolving Loan to the US Borrowers, which, upon receipt thereof by such L/C Issuer, the Borrowers shall be deemed to have used in whole to repay such L/C Reimbursement Obligation. Any such payment that is not deemed a Revolving Loan shall be deemed a funding by such Lender of its participation in the applicable Letter of Credit and the related L/C Obligations. Such participation shall not otherwise be required to be funded. Upon receipt by any L/C Issuer of any payment from any Lender pursuant to this clause (vi) with respect to any portion of any L/C Reimbursement Obligation, such L/C Issuer shall promptly pay over to such Lender all payments received by such L/C Issuer after such payment by such Lender with respect to such portion.

(vii) Obligations Absolute. The obligations of the US Borrowers and the Revolving Lenders pursuant to clauses (iv), (v) and (vi) above shall be absolute, unconditional and irrevocable and performed strictly in accordance with the terms of this Agreement irrespective of (A) (i) the invalidity or unenforceability of any term or provision in any Letter of Credit, any document transferring or purporting to transfer a Letter of Credit, any Loan Document (including the sufficiency of any such instrument), or any modification to any provision of any of the foregoing, (ii) any document presented under a Letter of Credit being forged, fraudulent, invalid, insufficient or inaccurate in any respect or failing to comply with the terms of such Letter of Credit or (iii) any loss or delay, including in the transmission of any document, (B) the existence of any setoff, claim, abatement, recoupment, defense or other right that any Person (including any Credit Party) may have against the beneficiary of any Letter of Credit or any other Person, whether in connection with any Loan Document or any other Contractual Obligation or transaction, or the existence of any other withholding, abatement or reduction, (C) in the case of the obligations of any Revolving Lender, (i) the failure of any condition precedent set forth in Section 2.2 to be satisfied (each of which conditions precedent the Revolving Lenders hereby irrevocably waive) or (ii) any adverse change in the condition (financial or

7

otherwise) of any Credit Party and (D) any other act or omission to act or delay of any kind of the Agent, any Lender or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this subsection 1.1(b)(vii), constitute a legal or equitable discharge of any obligation of the Borrowers or any Revolving Lender hereunder.

(viii) Outstanding Letters of Credit. The parties hereto agree that the letters of credit issued by Bank of America, N.A. and set forth on Schedule 1.1(b) shall constitute Letters of Credit hereunder.

(c) [Intentionally Omitted].

(d) Swing Loans. (i) Availability. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Credit Parties contained herein, the Swingline Lender shall make Loans (each a “Swing Loan”) available to the US Borrowers under the Revolving Loan Commitments from time to time on any Business Day during the period from the Closing Date until the Revolving Termination Date in an aggregate principal amount at any time outstanding not to exceed the Swingline Commitment; provided, however, that the Swingline Lender may not make any Swing Loan (x) to the extent that after giving effect to such Swing Loan, the aggregate principal amount of all Loans would exceed the Maximum Revolving Loan Balance and (y) during the period commencing on the first Business Day after it receives notice from the Agent or the Required Lenders that one or more of the conditions precedent contained in Section 2.2 are not satisfied and ending when such conditions are satisfied or duly waived. In connection with the making of any Swing Loan, the Swingline Lender may but shall not be required to determine that, or take notice whether, the conditions precedent set forth in Section 2.2 have been satisfied or waived. Each Swing Loan shall be a Base Rate Loan and must be repaid in full on the earliest of (A) the funding date of any Borrowing of Revolving Loans and (B) the Revolving Termination Date. Within the limits set forth in the first sentence of this clause (i), amounts of Swing Loans repaid may be reborrowed under this clause (i).

(ii) Borrowing Procedures. In order to request a Swing Loan, the Borrower Representative shall give to the Agent a notice to be received not later than 2:00 p.m. (New York time) on the day of the proposed Borrowing, which may be made in a writing substantially in the form of Exhibit 1.1(d) duly completed (a “Swingline Request”) or by telephone if confirmed promptly but, in any event, prior to such Borrowing, with such a Swingline Request. In addition, if any Notice of Borrowing of Revolving Loans requests a Borrowing of Base Rate Loans (other than a Borrowing to refinance outstanding Swing Loans), the Swingline Lender may, notwithstanding anything else to the contrary herein, make a Swing Loan available to the US Borrowers in an aggregate amount not to exceed such proposed Borrowing, and the aggregate amount of the corresponding proposed Borrowing shall be reduced accordingly by the principal amount of such Swing Loan. The Agent shall promptly notify the Swingline Lender of the details of any requested Swing Loan. Upon receipt of such notice and subject to the

8

terms of this Agreement, the Swingline Lender shall make a Swing Loan available to the US Borrowers by making the proceeds thereof available to the Agent and, in turn, the Agent shall make such proceeds available to the US Borrowers on the date set forth in the relevant Swingline Request or Notice of Borrowing.

(iii) Refinancing Swing Loans. The Swingline Lender may (and shall no less frequently than once each week) or, subject to subsection 1.5(a), the Borrower Representative, may at any time forward a demand to the Agent (which the Agent shall, upon receipt, forward to each Revolving Lender) that each Revolving Lender pay to the Agent, for the account of the Swingline Lender, such Revolving Lender’s Commitment Percentage of all or a portion of the outstanding Swing Loans. Each Revolving Lender shall pay such Commitment Percentage to the Agent for the account of the Swingline Lender (A) if the notice or demand therefor was received by such Lender prior to 12:00 p.m. (New York time) on any Business Day, on such Business Day and (B) otherwise, on the Business Day following such receipt. Payments received by the Agent after 2:00 p.m. (New York time) shall be deemed to be received on the next Business Day. Upon receipt by the Agent of such payment (other than during the continuation of any Event of Default under subsection 7.1(f) or 7.1(g)), such Revolving Lender shall be deemed to have made a Revolving Loan to the US Borrowers, which, upon receipt of such payment by the Swingline Lender from the Agent, the US Borrowers shall be deemed to have used in whole to refinance such Swing Loan. In addition, regardless of whether any such demand is made, upon the occurrence of any Event of Default under subsection 7.1(f) or 7.1(g), each Revolving Lender shall be deemed to have acquired, without recourse or warranty, an undivided interest and participation in each Swing Loan in an amount equal to such Lender’s Commitment Percentage of such Swing Loan. If any payment made by any Revolving Lender as a result of any such demand is not deemed a Revolving Loan, such payment shall be deemed a funding by such Lender of such participation. Such participation shall not be otherwise required to be funded. Upon receipt by the Swingline Lender of any payment from any Revolving Lender pursuant to this clause (iii) with respect to any portion of any Swing Loan, the Swingline Lender shall promptly pay over to such Revolving Lender all payments of principal (to the extent received after such payment by such Lender) and interest (to the extent accrued with respect to periods after such payment) received by the Swingline Lender from any Borrower with respect to such portion.

(iv) Obligation to Fund Absolute. Each Revolving Lender’s obligations pursuant to clause (iii) above 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, including (A) the existence of any setoff, claim, abatement, recoupment, defense or other right that such Lender, any Affiliate thereof or any other Person may have against the Swingline Lender, the Agent, any other Lender or L/C Issuer or any other Person, (B) the failure of any condition precedent set forth in Section 2.2 to be satisfied or

9

the failure of the Borrower Representative to deliver a Notice of Borrowing (each of which requirements the Revolving Lenders hereby irrevocably waive) and (C) any adverse change in the condition (financial or otherwise) of any Credit Party.

(e) Interest and principal on all Loans shall be paid in Dollars. For purposes of preparing Borrowing Base Certificates, financial statements, calculating financial covenants and determining compliance with covenants expressed in Dollars, Pounds Sterling, Canadian Dollars and Euros will be converted to Dollars based on (i) GAAP, consistently applied, for the purposes of preparing cash flow statements and income statements and (ii) as of the last day of the relevant period or as of the date of Borrowing Base Certificates for the purposes of preparing balance sheets, Borrowing Base Certificates, or covenants determined as of a specified date. If the Agent receives any payment from or on behalf of any Credit Party in a currency other than the currency in which the relevant Obligation is denominated, the Agent may convert the payment (including the monetary proceeds of realization upon any Collateral and any funds held in a cash collateral account) into the currency in which the relevant Obligation is payable at the exchange rate published in The Wall Street Journal on the Business Day closest in time to the date on which such payment was due. The relevant Obligations shall be satisfied only to the extent of the amount actually received by the Agent upon such conversion. Unless otherwise specified herein, all determinations of US Dollar Equivalents shall be determined by reference to The Wall Street Journal published on the Business Day closest in time to the relevant date of determination or for the relevant period of determination.

1.2 Notes.

(a) The Revolving Loans made by each Revolving Lender shall be evidenced by this Agreement and, if requested by such Lender, a Revolving Note payable to the order of such Lender in an amount equal to such Lender’s Revolving Loan Commitment.

(b) Swing Loans made by the Swingline Lender shall be evidenced by this Agreement and, if requested by such Lender, a Swingline Note in an amount equal to the Swingline Commitment.

1.3 Interest.

(a) Subject to subsections 1.3(c) and 1.3(d), each Loan shall bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to the LIBOR or the Base Rate, as the case may be, plus the Applicable Margin plus in the case of Loans made to the UK Borrower, the Mandatory Cost; provided Swing Loans may not be LIBOR Rate Loans. Commencing on February 1, 2007, and continuing thereafter, the Applicable Margin for Loans shall be adjusted as set forth in the definition of Applicable Margin. Each determination of an interest rate by the Agent shall be conclusive and binding on each Borrower and the Lenders in the absence of demonstrable error. All computations of fees and interest payable under this

10

Agreement shall be made on the basis of a 360-day year and actual days elapsed; provided, that, computations with respect to interest on Base Rate Loans shall be based on a 365/366 day year and actual days elapsed. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof.

(b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any payment or prepayment of any Loan in full.

(c) At the election of the Required Lenders while any Event of Default exists (or automatically while any Event of Default under subsection 7.1(f) or 7.1(g) exists), the Borrowers shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the Obligations owing by them under the Loan Documents from and after the date of occurrence of such Event of Default, at a rate per annum which is determined by adding two percent (2.0%) per annum to the Applicable Margin then in effect for such Loans (plus the LIBOR or Base Rate, as the case may be) and, in the case of Obligations under the Loan Documents not subject to an Applicable Margin (other than the fees described in subsection 1.9(c)), at a rate per annum equal to the rate per annum applicable to Revolving Loans which are Base Rate Loans (including the Applicable Margin with respect thereto) plus two percent (2.0%). All such interest shall be payable on demand of the Agent or the Required Lenders.

(d) Anything herein to the contrary notwithstanding, the obligations of the Borrowers hereunder shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for, charging or receiving such payment by the respective Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest which may be lawfully contracted for, charged or received by such Lender, and in such event the Borrowers shall pay such Lender interest at the highest rate permitted by applicable law (“Maximum Lawful Rate”); provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by the Agent, on behalf of Lenders, is equal to the total interest that would have been received since the Closing Date had the interest payable hereunder been (but for the operation of this paragraph) permitted at the interest rate payable as provided in this Agreement.

1.4 Loan Accounts.

(a) The Agent, on behalf of the Lenders, shall record on its books and records the amount of each Loan made, the interest rate applicable, all payments of principal and interest thereon and the principal balance thereof from time to time outstanding. The Agent shall deliver to the Borrower Representative on a monthly basis a loan statement setting forth such record for the immediately preceding month. Such record shall, absent manifest error, be conclusive evidence of the amount of the Loans made by the Lenders to the Borrowers and the interest and payments thereon. Any

11

failure to so record or any error in doing so, or any failure to deliver such loan statement shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder (and under any Note) to pay any amount owing with respect to the Loans or provide the basis for any claim against the Agent.

(b) The Agent, acting as agent of the Borrowers solely for tax purposes to the extent provided for in this Agreement and solely with respect to the actions described in this subsection 1.4(b), shall establish and maintain at its address referred to in Section 9.2 (or at such other address as the Agent may notify the Borrower Representative) (A) a record of ownership (the “Register”) in which the Agent agrees to register by book entry the interests (including any rights to receive payment hereunder) of the Agent, each Lender and each L/C Issuer in the Revolving Loans, Swing Loans and Letter of Credit Obligations, each of their obligations under this Agreement to participate in each Loan, Letter of Credit and L/C Reimbursement Obligations, and any assignment of any such interest, obligation or right and (B) accounts in the Register in accordance with its usual practice in which it shall record (1) the names and addresses of the Lenders and the L/C Issuers (and each change thereto pursuant to Sections 9.9 and 9.22), (2) the Commitments of each Lender, (3) the amount of each Loan and each funding of any participation described in clause (A) above, for LIBOR Rate Loans, the Interest Period applicable thereto, (4) the amount of any principal or interest due and payable or paid, (5) the amount of the L/C Reimbursement Obligations due and payable or paid in respect of Letters of Credit and (6) any other payment received by the Agent from a Borrower and its application to the Obligations.

(c) Notwithstanding anything to the contrary contained in this Agreement, the Loans (including any Notes evidencing such Loans and, in the case of Revolving Loans, the corresponding obligations to participate in Letter of Credit Obligations and Swing Loans) and the L/C Reimbursement Obligations are registered obligations, the right, title and interest of the Lenders and the L/C Issuers and their assignees in and to such Loans or L/C Reimbursement Obligations, as the case may be, shall be transferable only upon notation of such transfer in the Register and no assignment thereof shall be effective until recorded therein. This Section 1.4 and Section 9.9 shall be construed so that the Loans and L/C Reimbursement Obligations are at all times maintained in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code.

(d) The Credit Parties, the Agent, the Lenders and the L/C Issuers shall treat each Person whose name is recorded in the Register as a Lender or L/C Issuer, as applicable, for all purposes of this Agreement. Information contained in the Register with respect to any Lender or any L/C Issuer shall be available for access by the Borrowers, the Borrower Representative, the Agent, such Lender or such L/C Issuer at any reasonable time and from time to time upon reasonable prior notice. No Lender or L/C Issuer shall, in such capacity, have access to or be otherwise permitted to review any information in the Register other than information with respect to such Lender or L/C Issuer unless otherwise agreed by the Agent.

12

1.5 Procedure for Revolving Credit Borrowing.

(a) Each Borrowing of a Revolving Loan shall be made upon the Borrower Representative’s irrevocable (subject to Section 10.5 hereof) written notice delivered to the Agent in the form of a Notice of Borrowing, which notice must be received by the Agent prior to 2:00 p.m. (New York time) on the requested Borrowing date in the case of each Base Rate Loan and (ii) on the day which is three (3) Business Days prior to the requested Borrowing date in the case of each LIBOR Rate Loan and, notwithstanding anything herein to the contrary, each Revolving Loan to be advanced to the UK Borrower. Such Notice of Borrowing shall specify:

(i) the amount of the Borrowing (which shall be in an aggregate minimum principal amount of $100,000 and multiples of $50,000 in excess thereof);

(ii) the requested Borrowing date, which shall be a Business Day;

(iii) whether the Borrowing is to be comprised of LIBOR Rate Loans or Base Rate Loans; and

(iv) if the Borrowing is to be LIBOR Rate Loans, the Interest Period applicable to such Loans.

(b) Upon receipt of a Notice of Borrowing, the Agent will promptly notify each Revolving Lender of such Notice of Borrowing and of the amount of such Lender’s Commitment Percentage of the Borrowing.

(c) Unless the Agent is otherwise directed in writing by the Borrower Representative, the proceeds of each requested Borrowing after the Closing Date will be made available to the Borrowers by the Agent by wire transfer of such amount to the Borrowers pursuant to the wire transfer instructions specified on the signature page hereto.

1.6 Conversion and Continuation Elections.

(a) Borrowers shall have the option to (i) request that any Revolving Loan be made as a LIBOR Rate Loan, (ii) convert at any time all or any part of outstanding Loans (other than Swing Loans) from Base Rate Loans to LIBOR Rate Loans, (iii) convert any LIBOR Rate Loan to a Base Rate Loan, subject to Section 10.4 if such conversion is made prior to the expiration of the Interest Period applicable thereto, or (iv) continue all or any portion of any Loan as a LIBOR Rate Loan upon the expiration of the applicable Interest Period. Any Loan or group of Loans having the same proposed Interest Period to be made or continued as, or converted into, a LIBOR Rate Loan must be in a minimum amount of $1,000,000 and integral multiples of $100,000 in excess of such amount. Any such election must be made by the Borrower Representative by 2:00 p.m. (New York time) on the 3rd Business Day prior to (1) the date of any proposed Revolving Loan which is to bear interest at LIBOR, (2) the end of each Interest Period

13

with respect to any LIBOR Rate Loans to be continued as such, or (3) the date on which Borrowers wish to convert any Base Rate Loan to a LIBOR Rate Loan for a Interest Period designated by the Borrower Representative in such election. If no election is received with respect to a LIBOR Rate Loan by 2:00 p.m. (New York time) on the 3rd Business Day prior to the end of the Interest Period with respect thereto, that LIBOR Rate Loan shall be converted to a Base Rate Loan at the end of its Interest Period. The Borrower Representative must make such election by notice to the Agent in writing, by fax or overnight courier (or by telephone, to be confirmed in writing on such day) or Electronic Transmission. In the case of any conversion or continuation, such election must be made pursuant to a written notice (a “Notice of Conversion/Continuation”) in the form of Exhibit 1.6. No Loan shall be made, converted into or continued as a LIBOR Rate Loan, if an Event of Default has occurred and is continuing and the Agent or the Required Lenders have determined not to make or continue any Loan as a LIBOR Rate Loan as a result thereof. No Loan may be made as or converted into a LIBOR Rate Loan until 15 days after the Closing Date.

(b) Upon receipt of a Notice of Conversion/Continuation, the Agent will promptly notify each Lender thereof. In addition, the Agent will, with reasonable promptness, notify the Borrower Representative and the Lenders of each determination of LIBOR; provided that any failure to do so shall not relieve any Borrower of any liability hereunder or provide the basis for any claim against the Agent. All conversions and continuations shall be made pro rata according to the respective outstanding principal amounts of the Loans held by each Lender with respect to which the notice was given.

(c) Notwithstanding any other provision contained in this Agreement, after giving effect to any Borrowing, or to any continuation or conversion of any Loans, there shall not be more than ten (10) different Interest Periods in effect.

1.7 Optional Prepayments.

(a) The Borrowers may at any time prepay the Loans in whole or in part (other than prepayments which have the effect of permanently reducing the Commitments) in an amount greater than or equal to $100,000 (other than Swing Loans for which no minimum shall apply), in each instance, without penalty or premium but subject to payment of LIBOR breakage costs as provided in Section 10.4.

(b) The Borrowers may at any time upon at least two (2) Business Days’ prior written notice by the Borrower Representative to the Agent, prepay the Loans in whole or in part, which has the effect of permanently reducing the Commitments, in an amount greater than or equal to $1,000,000 (other than Swing Loans for which prior written notice is not required and for which no minimum shall apply), in each instance, without penalty or premium but subject to payment of LIBOR breakage costs as provided in Section 10.4.

(c) The notice of any prepayment shall not thereafter be revocable by the Borrowers or the Borrower Representative and the Agent will promptly notify each Lender thereof and of such Lender’s Commitment Percentage of such prepayment. The

14

payment amount specified in such notice shall be due and payable on the date specified therein. Together with each prepayment under this Section 1.7, the Borrowers shall pay any amounts required pursuant to Section 10.4.

1.8 Mandatory Prepayments of Loans and Commitment Reductions.

(a) Revolving Loan. The Borrowers shall repay to the Lenders in full on the date specified in clause (a) of the definition of “Revolving Termination Date” the aggregate principal amount of the Revolving Loans and Swing Loans owing by such Borrowers outstanding on the Revolving Termination Date.

(b) Asset Dispositions. If a Borrower or any Guarantor shall at any time or from time to time:

(i) make a Disposition; or

(ii) suffer an Event of Loss;

and, in each case, the aggregate amount of the Net Proceeds received by such Borrower or Guarantor in connection with such Disposition or Event of Loss and all other Dispositions and Events of Loss occurring during the fiscal year exceeds the US Dollar Equivalent of $2,500,000, then (A) the Borrower Representative shall promptly notify the Agent of such Disposition or Event of Loss (including the amount of the estimated Net Proceeds to be received by such Borrower or Guarantor in respect thereof) and (B) promptly upon receipt by such Borrower or Guarantor of the Net Proceeds of such Disposition or Event of Loss, the Borrowers shall deliver, or cause to be delivered, such Net Proceeds to the Agent for distribution to the Lenders as a prepayment of the Loans owing, in the case of a Disposition or Event of Loss by a US Credit Party, by the US Borrowers, or, in the case of a Disposition or Event of Loss by a Foreign Credit Party, by the UK Borrower, which prepayment in either case shall be applied in accordance with subsection 1.8(d) hereof. Notwithstanding the foregoing and provided no Event of Default has occurred and is continuing, such prepayment shall not be required to the extent a Borrower or a Subsidiary reinvests or enters into any binding commitment that would effect such a reinvestment of the Net Proceeds of such Disposition or Event of Loss in productive assets (other than Inventory) of a kind then used or usable in the business of a Borrower or such Guarantor, within one hundred eighty (180) days after the date of such Disposition or Event of Loss and in the case of a binding commitment, such funds are reinvested within ninety (90) days after the date such binding commitment is entered into. Pending such reinvestment, the Net Proceeds shall be delivered to the Agent, for distribution first, to the Swingline Lender as a prepayment of Swing Loans (to the extent of Swing Loans outstanding), but not as a permanent reduction of the Swingline Commitment) and thereafter to the Revolving Lenders, as a prepayment of the Revolving Loans (to the extent of Revolving Loans then outstanding), but not as a permanent reduction of the Revolving Loan Commitment.

(c) Issuance of Securities/Indebtedness. Immediately upon the receipt by ITG, or any Holding Company of ITG or BST, of the Net Issuance Proceeds of (i) the

15

issuance of Stock or Stock Equivalents (including any capital contribution but excluding any Net Issuance Proceeds from Excluded Equity Issuances) or (ii) Holdco Debt, the Borrowers shall deliver, or cause to be delivered, to the Agent an amount equal to the Relative Commitment Factor as of such date multiplied by such Net Issuance Proceeds in each case for application to the Loans in accordance with subsection 1.8(d); provided, however, that to the extent that there are Net Issuance Proceeds remaining as described in this clause (c) after application to the Loans in accordance with subsection 1.8(d), such amounts shall be applied first to outstanding Indebtedness existing under the Mexican Facility and second to outstanding Indebtedness existing under the BST Facility.

(d) Application of Prepayments. Subject to subsection 1.10(c), any prepayments pursuant to subsection 1.8(b) (other than prepayments of Swing Loans and Revolving Loans as set forth therein) or subsection 1.8(c) shall be applied first to prepay outstanding Swing Loans, and second to prepay outstanding Revolving Loans owing, in the case of prepayment by a US Credit Party, by the US Borrower or UK Borrower, or in the case of prepayment by a Foreign Credit Party, by the UK Borrower. Prepayments pursuant to subsection 1.8(c) shall result in a permanent reduction of the Commitments by a corresponding amount. Amounts prepaid shall be applied first to any Base Rate Loans then outstanding and then to outstanding LIBOR Rate Loans with the shortest Interest Periods remaining. Together with each prepayment under this Section 1.8, the Borrowers shall pay any amounts required pursuant to Section 10.4 hereof. Notwithstanding anything to the contrary contained in this Section 1.8(d), the UK Borrower shall not be required to make any prepayment of any US Obligation.

(e) No Implied Consent. Provisions contained in this Section 1.8 for the application of proceeds of certain transactions shall not be deemed to constitute consent of the Lenders to transactions that are not otherwise permitted by the term hereof.

1.9 Fees.

(a) Agent’s Fees. The US Borrowers shall pay to the Agent, for the Agent’s own account, fees in the amounts and at the times set forth in a letter agreement between the Borrowers and the Agent dated November 10, 2006 (as amended from time to time, the “Fee Letter”).

(b) Unused Commitment Fee. The US Borrowers shall pay to the Agent, for the ratable benefit of the Revolving Lenders, a fee (the “Unused Commitment Fee”) in an amount equal to

(i) the Aggregate Revolving Loan Commitment, less

(ii) the sum of (x) the average daily principal balance of all Revolving Loans outstanding plus (y) the average daily amount of Letter of Credit Obligations plus (z) the average daily principal balance of Swing Loans, in each case, during the preceding month (the sum of (x), (y) and (z), the “Average Daily Revolving Amount”),

16

multiplied by (A) 0.375%, so long as the Average Daily Revolving Amount during the immediately preceding month is less than or equal to $40,000,000 or (B) 0.25%, so long as the Average Daily Revolving Amount for the immediately preceding month is greater than $40,000,000. Such fee shall be payable monthly in arrears on the first day of the month following the date hereof and the first day of each month thereafter. The Unused Commitment Fee provided in this subsection 1.9(b) shall accrue at all times from and after mutual execution and delivery of this Agreement.

(c) Letter of Credit Fee. The applicable Borrower agrees to pay to the Agent for the ratable benefit of the Revolving Lenders, as compensation to such Lenders for Letter of Credit Obligations incurred hereunder, (i) without duplication of costs and expenses otherwise payable to the Agent or Revolving Lenders hereunder or fees otherwise paid by the Borrowers, all reasonable costs and expenses incurred by the Agent or any Lender on account of such Letter of Credit Obligations, and (ii) for each month during which any Letter of Credit Obligation shall remain outstanding, a fee (the “Letter of Credit Fee”) in an amount equal to the product of the average daily undrawn face amount of all Letters of Credit issued, guaranteed or supported by risk participation agreements multiplied by a per annum rate equal to the Applicable Margin with respect to Revolving Loans which are LIBOR Rate Loans; provided, however, at the Required Lenders’ option, while an Event of Default exists (or automatically while an Event of Default under subsection 7.1(f) or 7.1(g) exists), such rate shall be increased by two percent (2.00%) per annum. Such fee shall be paid to the Agent for the benefit of the Revolving Lenders in arrears, on the first day of each calendar month and on the Revolving Termination Date. In addition, the Borrowers shall pay to any L/C Issuer, on demand, such reasonable fees, without duplication of fees otherwise payable hereunder (including all per annum fees), charges and expenses of such L/C Issuer in respect of the issuance, negotiation, acceptance, amendment, transfer and payment of such Letter of Credit or otherwise payable pursuant to the application and related documentation under which such Letter of Credit is issued.

1.10 Payments by the Borrowers.

(a) All payments (including prepayments) to be made by each Credit Party on account of principal, interest, fees and other amounts required hereunder shall be made without set-off, recoupment, counterclaim, withholding or deduction of any kind, shall, except as otherwise expressly provided herein, be made to the Agent (for the ratable account of the Persons entitled thereto) at the address for payment specified in the signature page hereof in relation to the Agent (or such other address as the Agent may from time to time specify in accordance with Section 9.2), and shall be made in Dollars and in immediately available funds, no later than 2:00 p.m. (New York time) on the date due. Any payment which is received by the Agent later than 2:00 p.m. (New York time) shall be deemed to have been received on the immediately succeeding Business Day and any applicable interest or fee shall continue to accrue. Each Borrower and each other Credit Party hereby irrevocably waives the right to direct the application during the continuance of an Event of Default of any and all payments in respect of any Obligation and any proceeds of Collateral, provided, however, that all payments in respect of any Obligation of any Foreign Credit Party and any proceeds of Collateral of a Foreign Credit

17

Party shall be applied in accordance with Section 1.10(d). Each Borrower hereby authorizes the Agent and each Lender to make a Revolving Loan (which shall be a Base Rate Loan and which may be a Swing Loan) to pay (i) interest, principal (including Swing Loans), Unused Commitment Fees, Letter of Credit Fees and fees payable to Agent pursuant to the Fee Letter owing, in the case of a US Borrower, by the US Borrowers and the UK Borrower, and in the case of the UK Borrower, by the UK Borrower in each instance, on the date due, or (ii) after ten (10) days prior notice to the Borrower Representative, other fees, costs or expenses payable by such Borrower or any of its Subsidiaries hereunder or under the other Loan Documents.

(b) Subject to the provisions set forth in the definition of “Interest Period” herein, if any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.

(c) During the continuance of an Event of Default, the Agent may, and shall upon the direction of the Required Lenders apply any and all payments in respect of any US Obligation in accordance with clauses first through eleventh below. Notwithstanding any provision herein to the contrary, all amounts collected or received by the Agent from US Borrowers or their Domestic Subsidiaries after any or all of the Obligations have been accelerated (so long as such acceleration has not been rescinded) and all proceeds of Collateral of any US Borrower and its Domestic Subsidiaries received by the Agent from any US Borrowers or its Domestic Subsidiaries as a result of the exercise of its remedies under the Collateral Documents after the occurrence and during the continuance of an Event of Default shall be applied as follows:

first, to payment of costs and expenses, including Attorney Costs, of the Agent payable or reimbursable by the US Credit Parties under the Loan Documents;

second, to payment of Attorney Costs of Lenders payable or reimbursable by the US Borrowers under this Agreement;

third, to payment of all accrued unpaid interest on the US Obligations and fees owed to the Agent, Lenders and US L/C Issuers;

fourth, to payment of principal of the Revolving Loan constituting part of the US Obligations (including, without limitation, L/C Reimbursement Obligations then due and payable) and cash collateralization of L/C Reimbursement Obligations to the extent not then due and payable);

fifth, to payment of any other amounts owing constituting US Obligations;

sixth, to payment of costs and expenses, including Attorney Costs, of the Agent payable or reimbursable by the Foreign Credit Parties under the Loan Documents;

seventh, to payment of Attorney Costs of Lenders payable or reimbursable by the UK Borrower under this Agreement;

18

eighth, to payment of all accrued unpaid interest on the UK Obligations and fees owed to the Agent and the Lenders;

ninth, to payment of principal of the UK Obligations;

tenth, to payment of any other amounts owing constituting UK Obligations;

eleventh, to payment of Obligations with respect to Bank Products; and

twelfth, any remainder shall be for the account of and paid to whoever may be lawfully entitled thereto.

In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category and (ii) each of the Lenders or other Persons entitled to payment shall receive an amount equal to its pro rata share of amounts available to be applied pursuant to clauses third, fourth and fifth above.

(d) During the continuance of an Event of Default, the Agent may, and shall upon the direction of the Required Lenders apply any and all payments in respect of any UK Obligation in accordance with clauses first through sixth below. Notwithstanding any provision herein to the contrary, all amounts collected or received by the Agent, other than from US Borrowers and their Domestic Subsidiaries, after any or all of the Obligations have been accelerated (so long as such acceleration has not been rescinded) and all proceeds of Collateral of the UK Borrower and Foreign Subsidiaries of US Borrowers received by the Agent as a result of the exercise of its remedies under the Collateral Documents after the occurrence and during the continuance of an Event of Default shall be applied as follows:

first, to payment of costs and expenses, including Attorney Costs, of the Agent payable or reimbursable by the Foreign Credit Parties under the Loan Documents;

second, to payment of Attorney Costs of Lenders payable or reimbursable by the UK Borrower under this Agreement;

third, to payment of all accrued unpaid interest on the UK Obligations and fees owed to the Agent and the Lenders;

fourth, to payment of principal of the Revolving Loan constituting part of the UK Obligations;

fifth, to payment of any other amounts owing constituting UK Obligations;

sixth, to payment of Obligations with respect to Bank Products; and

19

seventh, any remainder shall be for the account of and paid to whoever may be lawfully entitled thereto, as directed by Borrowers or by a court of competent jurisdiction.

In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category and (ii) each of the Lenders or other Persons entitled to payment shall receive an amount equal to its pro rata share of amounts available to be applied pursuant to clauses third, fourth and fifth above.

Notwithstanding anything in clause (c) and (d) above to the contrary, to the extent the Agent receives proceeds of voting equity interests in any Foreign Subsidiary of a US Credit Party, such proceeds shall be applied (i) until proceeds from the sale of 35% of such voting equity interest have been received by the Agent, such proceeds shall be applied to the payments described in (and in the order of) clauses first through fifth of clause (d) above (and then in accordance with (and in the order of) clauses first through eleventh of clause (c) above) and (ii) thereafter (1) 50% of such remaining proceeds shall be applied to the payments described in (and in the order of) clauses first through fifth of clause (d) above (and then in accordance with (and in order of) clauses first through eleventh of clauses (c) above) and (2) the remaining 50% of such proceeds shall be applied to the payments described in (and in the order of) clauses first through eleventh of clause (c) above; provided, however, that in no case shall proceeds from the sale of more than 65% of such voting equity interests be applied to the payments described in clauses first through fifth of clause (c) above.

1.11 Payments by the Lenders to the Agent; Settlement.

(a) The Agent may, on behalf of Lenders, disburse funds to the Borrowers for Loans requested. Each Lender shall reimburse the Agent on demand for all funds disbursed on its behalf by the Agent, or if the Agent so requests, each Lender will remit to the Agent its Commitment Percentage of any Loan before the Agent disburses same to the Borrowers. If the Agent elects to require that each Lender make funds available to the Agent prior to disbursement by the Agent to the Borrowers, the Agent shall advise each Lender by telephone, fax or email of the amount of such Lender’s Commitment Percentage of the Loan requested by the Borrower Representative no later than 2:00 p.m. (New York time) on the scheduled Borrowing date applicable thereto, and each such Lender shall pay the Agent such Lender’s Commitment Percentage of such requested Loan, in same day funds, by wire transfer to the Agent’s account on such scheduled Borrowing date. If any Lender fails to pay its Commitment Percentage within one (1) Business Day after the Agent’s demand, the Agent shall promptly notify the Borrower Representative, and the Borrowers shall immediately repay such amount to the Agent. Any repayment required pursuant to this subsection 1.11(a) shall be without premium or penalty. Nothing in this subsection 1.11(a) or elsewhere in this Agreement or the other Loan Documents, including the remaining provisions of Section 1.11, shall be deemed to require the Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that the Agent, Swingline Lender or Borrowers may have against any Lender as a result of any default by such Lender hereunder.

20

(b) At least once each calendar week or more frequently at the Agent’s election (each, a “Settlement Date”), the Agent shall advise each Lender by telephone, fax or email of the amount of such Lender’s Commitment Percentage of principal, interest and fees paid for the benefit of Lenders with respect to each applicable Loan. Provided that each Lender has funded all payments required to be made by it and funded all purchases of participations required to be funded by it under this Agreement and the other Loan Documents as of such Settlement Date, the Agent shall pay to each Lender such Lender’s Commitment Percentage of principal, interest and fees paid by the Borrowers since the previous Settlement Date for the benefit of such Lender with respect to the Loans held by it. Such payments shall be made by wire transfer to such Lender not later than 2:00 p.m. (New York time) on the next Business Day following each Settlement Date. To the extent that any Lender (a “Non-Funding Lender”) has failed to fund all such payments or failed to fund the purchase of all such participations required to be funded by such Lender pursuant to this Agreement, the Agent shall be entitled to set off the funding shortfall against that Non-Funding Lender’s Commitment Percentage of all payments received from the Borrowers.

(c) Availability of Lender’s Commitment Percentage. The Agent may assume that each Revolving Lender will make its Commitment Percentage of each Revolving Loan available to the Agent on each Borrowing date. If such Commitment Percentage is not, in fact, paid to the Agent by such Revolving Lender when due, the Agent will be entitled to recover such amount on demand from such Revolving Lender without setoff, counterclaim, withholding or deduction of any kind. If any Revolving Lender fails to pay the amount of its Commitment Percentage forthwith upon the Agent’s demand, the Agent shall promptly notify the Borrower Representative and the applicable Borrowers shall immediately repay such amount to the Agent. Nothing in this subsection 1.11(c) or elsewhere in this Agreement or the other Loan Documents shall be deemed to require the Agent to advance funds on behalf of any Revolving Lender or to relieve any Revolving Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that the Borrowers may have against any Revolving Lender as a result of any default by such Revolving Lender hereunder. To the extent that the Agent advances funds to the Borrowers on behalf of any Revolving Lender and is not reimbursed therefor on the same Business Day as such advance is made, the Agent shall be entitled to retain for its account all interest accrued on such advance until reimbursed by the applicable Revolving Lender.

(d) Return of Payments.

(i) If the Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by the Agent from the Borrowers and such related payment is not received by the Agent, then the Agent will be entitled to recover such amount from such Lender on demand without setoff, counterclaim, withholding or deduction of any kind.

21

(ii) If the Agent determines at any time that any amount received by the Agent under this Agreement must be returned to any Credit Party or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Loan Document, the Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to the Agent on demand any portion of such amount that the Agent has distributed to such Lender, together with interest at such rate, if any, as the Agent is required to pay to any Borrower or such other Person, without setoff, counterclaim, withholding or deduction of any kind.

(e) Non-Funding Lenders. The failure of any Non-Funding Lender to make any Revolving Loan or any payment required by it hereunder, or to fund any purchase of any participation to be made or funded by it on the date specified therefor shall not relieve any other Lender (each such other Revolving Lender, an “Other Lender”) of its obligations to make such loan or fund the purchase of any such participation on such date, but neither any Other Lender nor the Agent shall be responsible for the failure of any Non-Funding Lender to make a loan, fund the purchase of a participation or make any other payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Loan Document or constitute a “Lender” or a “Revolving Lender” (or be included in the calculation of “Required Lenders” hereunder) for any voting or consent rights under or with respect to any Loan Document.

1.12 Eligible Accounts.

(a) All of the Accounts owned by the Borrowers and properly reflected as “Eligible Accounts” (as defined below in clause (b) below) in the most recent Borrowing Base Certificate delivered by the Borrower Representative to the Agent shall be “Eligible Accounts” for purposes of this Agreement. The Agent shall have the right to establish, modify or eliminate Reserves against Eligible Accounts from time to time in its reasonable credit judgment. In addition, the Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the applicable criteria or to establish new criteria for the determination of Eligible Accounts in its reasonable credit judgment, subject to the approval of the Super-Majority Lenders in the case of adjustments or new criteria for the determination of Eligible Accounts that would have the effect of making more credit available under the new determination criteria than what was available under the determination criteria in place as of the Closing Date.

(b) “Eligible Accounts” means on any date of determination, all Accounts, but excluding Accounts:

(i) that are unpaid more than 120 days after the invoice date (or 150 days in the case of Extended Terms Accounts) or more than 60 days past due;

(ii) that are owed by an Account Debtor who is obligated on Accounts owed to Borrowers more than fifty percent (50%) of the aggregate unpaid balance of which have been unpaid for longer than the relevant period specified in clause (a) above, unless the Agent has approved the continued eligibility thereof;

22

(iii) that do not arise out of the sale by a Borrower or by any German Subsidiary of Inventory and/or the rendition by a Borrower or by German Subsidiaries of services in the ordinary course of business to an Account Debtor;

(iv) owing by Account Debtors located outside of the United States or Canada, except: (A) aggregate Accounts of up to the US Dollar Equivalent of $30,000,000 (x) owing by Account Debtors set forth on Schedule 1.12 (as amended from time to time with the consent of Agent) and subject to the sub-limits set forth on Schedule 1.12 and (y) such other Account Debtors set forth in the Borrowing Base Certificate which are approved by the Agent; (B) Accounts owing by subsidiaries of Autoliv located in Mexico not to exceed the US Dollar Equivalent of $1,000,000 in the aggregate; and (C) without duplication of clause (A) and (B) above, Accounts which are insured through credit insurance issued by insurers and with coverage reasonably satisfactory to the Agent pursuant to documents in form and substance reasonably satisfactory to the Agent and which are otherwise Eligible Accounts (“Insured Accounts”);

(v) with respect to which the Account Debtor is (A) an Affiliate of a Borrower, (B) a director, officer or employee of a Borrower or an Affiliate of a Borrower, (C) the United States of America or any department, agency or instrumentality thereof, unless the applicable Borrower shall have complied with the Federal Assignment of Claims Act of 1940, as amended, to the satisfaction of the Agent or proceeds of the Accounts arising under the applicable contract are deposited in a depository account subject to a Control Agreement, (D) any government other than the United States of America, including any department, agency or instrumentality thereof, (E) a debtor under any proceeding under the Bankruptcy Code or any other comparable bankruptcy or insolvency law applicable under the law of any other country or political subdivision thereof unless otherwise agreed by the Agent, or (F) an assignor for the benefit of creditors;

(vi) that are not subject to a first priority perfected Lien in favor of the Agent for the benefit of the Secured Parties, or Accounts which are subject to any Lien, in each case, other than Permitted Liens;

(vii) of any US Borrower which are not subject to a valid and binding sales contract (or if there is no sales contract, purchase order or order confirmation) governed by the laws of the United States or if disputes arising thereunder are not subject to the jurisdiction of the United States or any state of the United States;

(viii) of the UK Borrower which are not subject to a sales contract (or if there is no sales contract, purchase order) governed by the laws of a Member State of the European Union or if disputes arising thereunder are not subject to the jurisdiction of any Member State of the European Union;

23

(ix) with respect to which there is an unresolved dispute (or in respect of which any setoff, counterclaim or defense is asserted) (but only to the extent of the disputed amount or asserted claim);

(x) otherwise Eligible Accounts, only to the extent that including such Accounts as Eligible Accounts would cause the total Eligible Accounts owing from the Account Debtor obligated thereon or its Affiliates to exceed twenty percent (20%) of all Eligible Accounts;

(xi) that arise from a sale to an Account Debtor on a bill-and-hold guaranteed sale, sale-or-return, sale-on-approval, consignment, trial approval, evaluation or any other repurchase or return basis or with respect to which the obligations of the applicable Account Debtor thereon are contingent upon any further performance or delivery to be made by a Borrower or one of its Subsidiaries;

(xii) that are not payable in Dollars, Canadian Dollars, Euros or Pounds Sterling;

(xiii) in the case of the UK Borrower, (A) Accounts owing by an Account Debtor which has not purchased the relevant inventory for its business, and (B) Accounts regulated by the UK Consumer Credit Act 1974 or other local consumer protection legislation;

(xiv) originated by Parras Cone, unless (A) such Accounts have been sold to Denim pursuant to the Mexican Sale Agreement, (B) such Accounts are owing by Account Debtors located in the United States, and (C) the contracts giving rise to such Accounts are governed by the laws of a jurisdiction within the United States; and

(xv) originated by a German Subsidiary, unless (A) such Accounts have been sold and assigned to UK Borrower pursuant to the German Factoring Agreement from and after the effective date thereof, (B) such Accounts are owing by Account Debtors located in a Member State of the European Union, (C) the contracts giving rise to such Accounts are, pursuant to the conflicts of laws provisions applied by the courts having jurisdiction for such Accounts, governed by the laws of a jurisdiction within a Member State of the European Union and (D) the Accounts are subject to the jurisdiction of the courts of a Member State of the European Union.

1.13 Eligible Inventory.

(a) All of the Inventory owned by a US Borrower and properly reflected as “Eligible Inventory” (as defined in clause (b) below) in the most recent Borrowing Base Certificate delivered by the Borrower Representative to the Agent shall be “Eligible Inventory” for purposes of this Agreement. The Agent shall have the right to establish, modify, or eliminate Reserves against Eligible Inventory from time to time in its reasonable credit judgment. In addition, the Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the applicable criteria or to establish new criteria, in its reasonable credit judgment, subject to the approval of the

24

Super-Majority Lenders in the case of adjustments or new criteria for the determination of Eligible Inventory that would have the effect of making more credit available under the new determination criteria than what was available under the determination criteria in place as of the Closing Date.

(b) “Eligible Inventory” means all Inventory in the possession of a US Borrower and located within the United States of America or Canada, including, but not limited to all raw material inventory, Greige Goods and finished goods inventory, and as to which such US Borrower has title, valued at the lower of cost (on a FIFO basis) or market, excluding Inventory:

(i) which is not subject to a perfected first priority Lien in favor of the Agent for the benefit of the Agent and the Lenders, or Inventory which is subject to any Lien, in each case, other than Permitted Liens;

(ii) which has been acquired by a US Borrower on consignment or has been placed out on consignment by a US Borrower, unless such Inventory is subject to a first priority perfected security interest in favor of the Agent for the benefit of the Secured Parties;

(iii) which is obsolete, non-first quality, without sales activity (or with minimal sales activity) in the past twelve months, or which consists of Inventory returned by a buyer, or which is not free from any defects which might adversely affect the market value thereof;

(iv) produced in violation of the Fair Labor Standards Act and subject to the so-called “hot goods” provision contained in Title § 29 U.S.C. 215(a)(1);

(v) subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party for the sale or disposition of such Inventory (which consent has not been obtained) or the payment of any monies to any third party upon such sale or other disposition (to the extent of such monies);

(vi) which is located at any site in the United States or Canada where the aggregate value of all Inventory at that site is less than $100,000;

(vii) which is work-in-process (other than Greige Goods), or which consists of packing or shipping materials, replacement parts, dyes, chemicals, fuel and supplies;

(viii) which consists of costs associated with “freight-in” charges;

(ix) consists of Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available; and

(x) which is not covered by insurance in accordance herewith.

25

Notwithstanding anything to the contrary herein, Agent may include Inventory located in Mexico in the Borrowing Base with the consent of, and subject to any requested terms required by, Super-Majority Lenders.

1.14 Eligible Equipment and Real Property.

(a) All of the Equipment and real Property owned by a US Borrower properly reflected on Schedule 1.14 as in effect from time to time as “Eligible Equipment” (as defined in clause (b) below) or “Eligible Real Property” (as defined in clause (c) below), shall be “Eligible Equipment” and “Eligible Real Property”, respectively, for purposes of this Agreement. The Net Forced Liquidation Value of Eligible Equipment and the appraised fair market value of Eligible Real Property as of the date of the Appraisal delivered prior to the Closing Date, are set forth on Schedule 1.14. For convenience of reference, the Fixed Asset Loan Value of US Borrowers as of the Closing Date is $22,300,000. If any Eligible Equipment or Eligible Real Property listed on Schedule 1.14 is sold, liquidated, destroyed or otherwise ceases to be Eligible Equipment or Eligible Real Property, the calculation of the Fixed Asset Loan Value of the Person who owns such Eligible Equipment or Eligible Real Property shall be reduced, in the case of Eligible Equipment, by the Net Forced Liquidation Value, and, in the case of Eligible Real Property, by the appraised fair market value and such Eligible Equipment or Eligible Real Property shall be deleted from Schedule 1.14 and the Agent shall correspondingly amend Schedule 1.14 without any further action of any party hereto. At the request of the Borrower Representative, the Agent shall in its reasonable credit judgment add newly purchased Equipment that replaces Equipment that has been sold or disposed of to Schedule 1.14 upon completion of appraisals satisfactory to the Agent, and conducted at US Borrowers’ expense, to the extent such Equipment is Eligible Equipment. The Net Forced Liquidation Value of any additional Eligible Equipment or the appraised fair market value of any additional Eligible Real Property shall be included in the calculation of the Fixed Asset Loan Value of the US Borrower that owns such Eligible Equipment or Eligible Real Property and the Agent shall correspondingly amend Schedule 1.14 without any further action of any party hereto. The Agent shall have the right to establish, modify or eliminate Reserves against Eligible Equipment and/or Eligible Real Property from time to time in its reasonable credit judgment. In addition, the Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the applicable criteria or to establish new criteria in its reasonable credit judgment for Eligible Equipment and/or Eligible Real Property, subject to the approval of the Super-Majority Lenders in the case of adjustments or new criteria for the determination of Eligible Equipment and/or Eligible Real Property that would have the effect of making more credit available under the new determination criteria than what was available under the determination criteria in place as of the Closing Date.

(b) “Eligible Equipment” means, on any date of determination, all of the Equipment of US Borrowers that is in the possession of a US Borrower, excluding Equipment that:

(i) is not located at one of the business locations in the United States of such Persons set forth on Schedule 1.14, as amended from time to time with the consent of Agent;

26

(ii) is not subject to a perfected first priority Lien in favor of the Agent for the benefit of the Agent and the Lenders, or which is subject to any Lien, in each case, other than Permitted Liens (except for Permitted Liens under Section 5.1(h));

(iii) breaches any of the representations or warranties pertaining to such Equipment set forth in this Agreement or the other Loan Documents;

(iv) is not covered by property or casualty insurance required by this Agreement;

(v) has not been appraised by an independent appraisal or audit firm designated by the Agent and reasonably acceptable to the Borrower Representative;

(vi) a US Borrower does not have good, valid, and marketable title thereto;

(vii) is located on real property leased by a US Borrower, unless such Equipment is subject to a landlord access agreement, in form and substance reasonably acceptable to Agent, executed by the lessor, or other third party, as the case may be, and unless it is segregated or otherwise separately identifiable from goods of other Persons, if any, stored on the premises;

(viii) is damaged, defective or obsolete, or constitutes furnishings, parts, fixtures or is affixed to real Property, unless such Equipment is affixed to the Eligible Real Property listed on Schedule 1.14;

(ix) is subject to a lease with any Person (other than a US Borrower unless a Lien on and security interest in the related lease shall be granted to the Agent and the Agent shall have received all control agreements and instruments and all actions shall be taken as reasonably requested by the Agent to perfect the Agent’s security interest in and other rights with respect to such lease); or

(x) is located at an owned location subject to a mortgage or other financing arrangement in favor of a lender other than the Agent (unless a reasonably satisfactory mortgagee waiver or similar waiver and/or consent has been delivered to the Agent).

(c) “Eligible Real Property” shall mean real Property which:

(i) is designated as “Eligible Real Property” on Schedule 1.14, as amended from time to time with the consent of Agent; and

(ii) is owned by a US Borrower and continues to meet, the following requirements: (A) it is subject to a valid, perfected first priority mortgage or leasehold mortgage and Lien in favor of the Agent for the benefit of

27

the Secured Parties, (B) it is owned by a US Borrower free and clear of all Liens and rights of any other Person, except the mortgage or leasehold mortgage and Lien in favor of the Agent for the benefit of the Agent and Lenders and Permitted Liens which are subordinate to such mortgage Liens of the Agent and Lenders, (C) it does not breach any of the representations or warranties pertaining to such property set forth in this Agreement or the other Loan Documents, (D) it is covered by title insurance with respect to the Lien of the Agent and casualty and property insurance reasonably acceptable to the Agent, (E) it has been appraised by an independent appraisal or audit firm designated by the Agent and reasonably acceptable to the Borrower Representative and (F) it is the subject of an environmental report reasonably acceptable to the Agent.

1.15 Borrower Representative. Each Borrower hereby designates and appoints ITG as its representative and agent on its behalf (the “Borrower Representative”) for the purposes of issuing Notices of Borrowings, Notices of Conversion/Continuation, L/C Requests and Swingline Requests, delivering certificates including Compliance Certificates and Borrowing Base Certificates, giving instructions with respect to the disbursement of the proceeds of the Loans, selecting interest rate options, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower or Borrowers under the Loan Documents. The Borrower Representative hereby accepts such appointment. The Agent and each Lender may regard any notice or other communication pursuant to any Loan Document from the Borrower Representative as a notice or communication from all Borrowers. Each warranty, covenant, agreement and undertaking made on behalf of a Borrower by the Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower.

ARTICLE II—CONDITIONS PRECEDENT

2.1 Conditions of Initial Loans. The obligation of each Lender to make its initial Loans and of each L/C Issuer to Issue, or cause to be Issued, the initial Letters of Credit hereunder is subject to satisfaction of the following conditions:

(a) Loan Documents. The Agent shall have received on or before the Closing Date all of the agreements, documents, instruments and other items set forth on the Closing Checklist attached hereto as Exhibit 2.1, each in form and substance reasonably satisfactory to the Agent;

(b) Pro Forma Balance Sheet; Sources and Uses. The Agent shall have received a pro forma balance sheet of ITG and its Subsidiaries giving effect to the Related Transactions and including the sources and uses of the Loans advanced on the Closing Date, each in form and substance reasonably satisfactory to the Agent;

28

(c) Availability. Not more than $65,000,000 in Revolving Loans shall be advanced on the Closing Date, and after giving effect to the consummation of the Related Transactions, payment of all costs and expenses due as of the Closing Date in connection therewith, funding of the initial Loans and issuance of the initial Letters of Credit, Availability shall be not less than $37,000,000; and

(d) Related Transactions. The Related Transactions shall have closed in the manner contemplated by the Related Agreements and shall otherwise be in form and substance reasonably satisfactory to the Agent.

2.2 Conditions to All Borrowings. Except as otherwise expressly provided herein, no Lender or L/C Issuer shall be obligated to fund any Loan or incur any Letter of Credit Obligation, if, as of the date thereof:

(a) any representation or warranty by any Credit Party contained herein or in any other Loan Document is untrue or incorrect in any material respect (without duplication of any materiality qualifier contained therein) as of such date, except to the extent that such representation or warranty expressly relates to an earlier date (in which event such representations and warranties were untrue or incorrect as of such earlier date);

(b) any Default or Event of Default has occurred and is continuing or would result after giving effect to any Loan (or the incurrence of any Letter of Credit Obligation); and

(c) after giving effect to any Loan (or the incurrence of any Letter of Credit Obligations), the aggregate outstanding amount of the Revolving Loans would exceed the Maximum Revolving Loan Balance (except as provided in Section 1.1(a).

The request by the Borrower Representative and acceptance by Borrowers of the proceeds of any Loan or the incurrence of any Letter of Credit Obligations shall be deemed to constitute, as of the date thereof, (i) a representation and warranty by Borrowers that the conditions in this Section 2.2 have been satisfied and (ii) a reaffirmation by each Credit Party of the granting and continuance of the Agent’s Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents.

ARTICLE III—REPRESENTATIONS AND WARRANTIES

The Credit Parties, jointly and severally, represent and warrant to the Agent and each Lender that the following are, and after giving effect to the Related Transactions will be, true, correct and complete:

3.1 Corporate Existence and Power. Each Credit Party:

(a) is a corporation, limited liability company or limited partnership, as applicable, duly organized, validly existing and in good standing (or equivalent status

29

to the extent such concept is relevant with respect to any of ITG’s Foreign Subsidiaries) under the laws of the jurisdiction of its incorporation, organization or formation, as applicable;

(b) has (i) the corporate or limited liability company power and authority and (ii) all governmental licenses, authorizations, Permits, consents and approvals to own its assets, carry on its business and execute, deliver, and perform its obligations under, the Loan Documents and the Related Agreements to which it is a party;

(c) is duly qualified as a foreign corporation, limited liability company or limited partnership, as applicable, and licensed and in good standing (or equivalent status to the extent such concept is relevant with respect to any of ITG’s Foreign Subsidiaries), under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification or license; and

(d) is in compliance with all Requirements of Law;

except, in the case of clauses (b)(ii), (c) or (d), to the extent that the failure to do so would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

3.2 Corporate Authorization; No Contravention.

(a) The execution, delivery and performance of this Agreement by each of the Credit Parties and of any other Loan Document and Related Agreement to which such Person is party, have been duly authorized by all necessary corporate or other applicable action, and do not and will not:

(i) contravene the terms of any of that Person’s Organization Documents;

(ii) conflict with or result in any breach or contravention of, or result of the creation of any Lien under, any document evidencing any material Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its Property is subject; or

(iii) violate any Requirement of Law;

except in each case referred to in clauses (i), (ii) and (iii) above, as would not reasonably be expected to result in a Material Adverse Effect.

(b) Schedule 3.2 sets forth as of the Closing Date the authorized Stock and Stock Equivalents of each of the Credit Parties other than ITG and each of their respective Subsidiaries. All issued and outstanding Stock and Stock Equivalents of each of the Credit Parties (other than ITG) are duly authorized and validly issued, fully paid, non-assessable, and free and clear of all Liens other than, with respect to the Stock and

30

Stock Equivalents of the Credit Parties (other than ITG), those in favor of the Agent, for the benefit of the Secured Parties. All such securities were issued in compliance with all applicable state and federal laws concerning the issuance of securities. As of the Closing Date, all of the issued and outstanding Stock and Stock Equivalents of each of the Credit Parties other than ITG is owned by the Persons and in the amounts set forth on Schedule 3.2. Except as set forth on Schedule 3.2, as of the Closing Date there are no pre-emptive or other outstanding rights, options, warrants, conversion rights or other similar agreements or understandings for the purchase or acquisition of any Stock and Stock Equivalents of any Credit Party other than ITG.

3.3 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Credit Party or any Subsidiary of any Credit Party of this Agreement, any other Loan Document or Related Agreement except (a) for recordings and filings in connection with the Liens granted to the Agent under the Collateral Documents, (b) those obtained or made on or prior to the Closing Date and (c) other non-material approvals, consents, exemptions, authorizations, other actions, notices or filings which, if not obtained or made, would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

3.4 Binding Effect. This Agreement and each other Loan Document and Related Agreement to which any Credit Party or any Subsidiary of any Credit Party is a party constitute the legal, valid and binding obligations of each such Person which is a party thereto, enforceable against such Person in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability.

3.5 Litigation. Except as specifically disclosed in Schedule 3.5, as of the Closing Date there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of each Credit Party, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against any Credit Party, any Subsidiary of any Credit Party or any of their respective Properties which:

(a) purport to challenge the validity or enforceability of this Agreement, any other Loan Document or Related Agreement, or any of the transactions contemplated hereby or thereby; or

(b) would reasonably be expected to result in equitable relief that would result in a Material Adverse Effect or monetary judgment(s), individually or in the aggregate, in excess of the US Dollar Equivalent of $2,000,000.

No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain any Credit Party from the execution, delivery or performance of this Agreement, any other Loan Document or any Related Agreement, or directing that the transactions provided for

31

herein or therein not be consummated as herein or therein provided. As of the Closing Date, no Credit Party or any Subsidiary of any Credit Party is the subject of an audit by the IRS or other Governmental Authority or, to each Credit Party’s knowledge, any review or investigation by the IRS or other Governmental Authority concerning the violation or possible violation of any Requirement of Law.

3.6 No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by any Credit Party or the grant or perfection of the Agent’s Liens on the Collateral or the consummation of the Related Transactions. No Credit Party and no Subsidiary of any Credit Party is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, would reasonably be expected to have a Material Adverse Effect.

3.7 ERISA Compliance.

(a) Schedule 3.7 sets forth, as of the Closing Date, a complete and correct list of, and that separately identifies, (i) all Title IV Plans, (ii) all Multiemployer Plans and (iii) all material Benefit Plans. The relevant Credit Party has received from the IRS, with respect to each Benefit Plan and each trust thereunder, intended to qualify for tax exempt status under Section 401 or Section 501 of the Code or other Requirements of Law, a determination letter stating that such Benefit Plan is a qualified plan under Section 401(a) of the Code and is exempt from United States federal income tax under Section 501(a) of the Code, and there has been no occurrence since the date of such determination letter which has adversely affected such qualification. Except for those that would not, in the aggregate, have a Material Adverse Effect, (x) each Benefit Plan is in compliance with applicable provisions of ERISA, the Code and other Requirements of Law, (y) there are no existing or pending (or to the knowledge of any Credit Party, threatened) claims (other than routine claims for benefits in the normal course), sanctions, actions, lawsuits or other proceedings or investigation involving any Benefit Plan to which any Credit Party incurs or otherwise has or could have an obligation or any Liability and (z) no ERISA Event is reasonably expected to occur. On the Closing Date, no ERISA Event has occurred in connection with which obligations and liabilities (contingent or otherwise) remain outstanding. No ERISA Affiliate would have any Withdrawal Liability as a result of a complete withdrawal from any Multiemployer Plan on the date this representation is made.

(b) There are no liabilities associated with or arising from the UK Borrower or any Foreign Subsidiary participating in, providing, or contributing to, either currently or in the past, or ceasing to provide or contribute to, or in respect of, any scheme or arrangement for the provision of any pension, superannuation, retirement (including on early retirement) or death benefits (including in the form of a lump sum) (the benefits together referred to as “Pension Benefits”) or providing, or being obligated to provide or failing to provide any Pension Benefits, which are not funded, insured or provided for in compliance with applicable laws and on a generally accepted basis either through a separate trust, insurance policy or as an accrual or provision in the accounts of the relevant Foreign Subsidiary.

32

3.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are intended to be and shall be used solely for the purposes set forth in and permitted by Section 4.10, and are intended to be and shall be used in compliance with Section 5.8. No Credit Party and no Subsidiary of any Credit Party is engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. Proceeds of the Loans shall not be used for the purpose of purchasing or carrying Margin Stock.

3.9 Title to Properties. Each of the Credit Parties and each of their respective Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real Property, and good and valid title to all owned personal Property and valid leasehold interests in all leased personal Property, in each instance, necessary to the ordinary conduct of their respective businesses. The Property of the Credit Parties and its Subsidiaries is subject to no Liens, other than Permitted Liens.

3.10 Taxes. Except as set forth on Schedule 3.10, all material federal, state, local and foreign income and franchise and other material tax returns, reports and statements (collectively, the “Tax Returns”) required to be filed by any Tax Affiliate have been filed with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed and all taxes, charges and other impositions reflected therein or otherwise due and payable have been paid in all material respects prior to the date on which any Liability may be added thereto for non-payment thereof except for those contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves are maintained on the books of the appropriate Tax Affiliate in accordance with GAAP. Except as set forth on Schedule 3.10, as of the Closing Date, to the knowledge of the Borrowers, no Tax Return is under audit or examination by any Governmental Authority and no notice of such an audit or examination or any assertion of any claim for Taxes has been given or made by any Governmental Authority. All required amounts have been withheld by each Tax Affiliate from their respective employees for all periods in compliance with the tax, social security, employment and unemployment withholding provisions of applicable Requirements of Law and such withholdings have been timely paid to the appropriate Governmental Authorities. No Tax Affiliate has participated in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b) or has been a member of an affiliated, combined or unitary group other than the group of which a Tax Affiliate is the common parent. As of the Closing Date, if payments of interest were to be made by the UK Borrower to the Lenders with respect to the Loans, none of such payments would be considered US source income for the purposes of section 881 of the Code.

3.11 Financial Condition.

(a) Each of (i) the audited consolidated balance sheet of Pre-Merger ITG and its Subsidiaries dated September 30, 2005 and the related audited consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal year ended on that date and (ii) the unaudited interim consolidated balance sheet of Pre-Merger ITG and its Subsidiaries dated September 30, 2006 and the related unaudited consolidated statements of income, shareholders’ equity and cash flows for the twelve (12) months then ended:

(x) were prepared in accordance with GAAP consistently applied throughout the respective periods covered thereby, except as otherwise expressly noted therein, subject to, in the case of the unaudited interim financial statements, normal year-end adjustments and the lack of footnote disclosures; and

33

(y) present fairly in all material respects the consolidated financial condition of Pre-Merger ITG and its Subsidiaries as of the dates thereof and results of operations for the periods covered thereby.

(b) Each of (i) the audited consolidated balance sheet of Pre-Merger SCI and its Subsidiaries dated December 31, 2005 and the related audited consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal year ended on that date and (ii) the unaudited interim consolidated balance sheet of Pre-Merger SCI and its Subsidiaries dated September 30, 2006 and the related unaudited consolidated statements of income, shareholders’ equity and cash flows for the nine (9) months then ended:

(x) were prepared in accordance with GAAP consistently applied throughout the respective periods covered thereby, except as otherwise expressly noted therein, subject to, in the case of the unaudited interim financial statements, normal year-end adjustments and the lack of footnote disclosures; and

(y) present fairly in all material respects the consolidated financial condition of Pre-Merger SCI and its Subsidiaries as of the dates thereof and results of operations for the periods covered thereby.

(c) Since December 31, 2005, there has been no Material Adverse Effect.

(d) The Credit Parties and their Subsidiaries have no Indebtedness other than Indebtedness permitted pursuant to Section 5.5 and have no Contingent Obligations other than Contingent Obligations permitted pursuant to Section 5.9.

(e) The Projections were prepared in good faith and based on assumptions believed by the Borrowers to be fair and reasonable at the time delivered in light of current market conditions, it being acknowledged and agreed by the Agent and Lenders that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by such projections may differ materially from the projected results.

3.12 Environmental Matters. As of the Closing Date, except as set forth on Schedule 3.12: (a) the operations of each Credit Party and each Subsidiary of such Credit Party are and have been in compliance with all applicable Environmental Laws, including obtaining, maintaining and complying with all Permits required by any applicable Environmental Law, other than non-compliances that, in the aggregate, would not have a

34

reasonable likelihood of resulting in Material Environmental Liabilities to any Credit Party or any Subsidiary of any Credit Party, (b) no Credit Party and no Subsidiary of any Credit Party is party to, and no Credit Party and no Subsidiary of any Credit Party and no real property currently (or to the knowledge of any Credit Party previously) owned, leased, subleased, operated or otherwise occupied by or for any such Person that is subject to or the subject of, any material Contractual Obligation or any pending (or, to the knowledge of any Credit Party, threatened) order, action, investigation, suit, proceeding, audit, claim, demand, dispute or notice of violation or of potential liability or similar notice relating in any manner to any Environmental Law other than those that, in the aggregate, are not reasonably likely to result in Material Environmental Liabilities to any Credit Party or any Subsidiary of any Credit Party, (c) no Lien in favor of any Governmental Authority securing, in whole or in part, Environmental Liabilities has attached to any property of any Credit Party or any Subsidiary of any Credit Party and, to the knowledge of any Credit Party, no facts, circumstances or conditions exist that could reasonably be expected to result in any such Lien attaching to any such property, (d) no Credit Party and no Subsidiary of any Credit Party has caused or suffered to occur a Release of Hazardous Materials at, to or from any real property of any such Person and each such real property is free of contamination by any Hazardous Materials except for such Release or contamination that would not reasonably be expected to result, in the aggregate, in Material Environmental Liabilities to any Credit Party or any Subsidiary of any Credit Party, (e) no Credit Party and no Subsidiary of any Credit Party (i) is or has been engaged in, or has permitted any current or former tenant to engage in, operations or (ii) knows of any facts, circumstances or conditions, including receipt of any information request or notice of potential responsibility under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §§ 9601 et seq.) or similar Environmental Laws, that, in the aggregate, would have a reasonable likelihood of resulting in Material Environmental Liabilities to any Credit Party or any Subsidiary of any Credit Party and (f) as of the Closing Date, each Credit Party has made available to the Agent copies of all existing environmental reports, reviews and audits and all documents pertaining to actual or potential Environmental Liabilities, in each case to the extent such reports, reviews, audits and documents are in its possession, custody or control.

3.13 Regulated Entities. None of any Credit Party, any Person controlling any Credit Party, or any Subsidiary of any Credit Party, is an “investment company” within the meaning of the Investment Company Act of 1940.

3.14 Solvency. Both before and after giving effect to (a) the Loans made and Letters of Credit Issued on or prior to the date this representation and warranty is made or remade, (b) the disbursement of the proceeds of such Loans, (c) the consummation of the Related Transactions and (d) the payment and accrual of all transaction costs in connection with the foregoing, both the Credit Parties taken as a whole and each Borrower individually are Solvent.

3.15 Labor Relations. There are no strikes, work stoppages, slowdowns or lockouts existing, pending (or, to the knowledge of any Credit Party, threatened) against or involving any Credit Party or any Subsidiary of any Credit Party, except for those that

35

would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3.15, as of the Closing Date, (a) there is no collective bargaining or similar agreement with any union, labor organization, works council or similar representative covering any employee of any Credit Party or any Subsidiary of any Credit Party, (b) no petition for certification or election of any such representative is existing or pending with respect to any employee of any Credit Party or any Subsidiary of any Credit Party and (c) no such representative has sought certification or recognition with respect to any employee of any Credit Party or any Subsidiary of any Credit Party.

3.16 Intellectual Property. Each Credit Party and each Subsidiary of each Credit Party owns, or is licensed to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or license would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. To the knowledge of each Credit Party, (a) the conduct and operations of the businesses of each Credit Party and each Subsidiary of each Credit Party does not infringe, misappropriate, dilute, violate or otherwise impair any Intellectual Property owned by any other Person and (b) no other Person has contested any right, title or interest of any Credit Party or any Subsidiary of any Credit Party in, or relating to, any Intellectual Property, other than, in each case, as would not reasonably be expected to materially and adversely affect the Loan Documents and the transactions contemplated therein and would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.17 Subsidiaries. As of the Closing Date, no Credit Party has any Subsidiaries or equity investments in any other corporation or entity other than those disclosed in Schedule 3.2.

3.18 Brokers’ Fees; Transaction Fees. Except for fees payable to the Agent and the Lenders, none of the Credit Parties or any of their respective Subsidiaries has any obligation to any Person in respect of any finder’s, broker’s or investment banker’s fee in connection with this Agreement.

3.19 Insurance. Each of the Credit Parties and each of their respective Subsidiaries and their respective Properties are insured with financially sound and reputable insurance companies which are not Affiliates of the Borrowers, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar Properties in localities where such Person operates (subject to deductibles and self-insurance provisions). A true and complete listing of such insurance, including issuers, coverages and deductibles, has been provided to the Agent.

3.20 Full Disclosure. None of the representations or warranties made by any Credit Party or any of its Subsidiaries in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of any Credit Party or any of its Subsidiaries in connection with the Loan Documents, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered.

36

3.21 Foreign Assets Control Regulations and Anti-Money Laundering.

(a) OFAC. Neither any Credit Party nor any Subsidiary of any Credit Party (i) is a person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such person in any manner violative of Section 2, or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other US Department of Treasury’s Office of Foreign Assets Control regulation or executive order.

(b) Patriot Act. Each of the Credit Parties and each of their respective Subsidiaries are in compliance, in all material respects, with the Patriot Act. No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

3.22 UK Pensions/UK Employees. Neither the UK Borrower nor any other Foreign Subsidiary incorporated in England and Wales has ever participated in a UK defined benefit pension plan or been associated or connected with the employer in relation to a UK defined benefit pension plan. As of the Closing, UK Borrower does not employee more than (10) people.

3.23 UK Financial Assistance. Neither the execution, delivery and the performance of any of the Loan Documents nor the incurrence of any obligations or liabilities thereunder by the UK Borrower constitutes or will constitute unlawful financial assistance for the purposes of sections 151 to 158 (inclusive) of the United Kingdom Companies Act of 1985 (as amended or otherwise re-enacted from time to time).

ARTICLE IV—AFFIRMATIVE COVENANTS

Each Credit Party covenants and agrees that, so long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation (other than contingent indemnification Obligations to the extent no claim giving rise thereto has been asserted) shall remain unpaid or unsatisfied:

4.1 Financial Statements. Such Credit Party shall maintain, and shall cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit the preparation of financial statements in conformity with GAAP (provided that monthly financial statements shall

37

not be required to have footnote disclosures and are subject to normal year-end adjustments). The Borrower Representative, on behalf of the Borrowers shall deliver to the Agent in electronic form:

(a) as soon as available, but not later than ninety (90) days after the end of each fiscal year, a copy of the audited consolidated balance sheets of ITG and each of its Subsidiaries (including the Excluded Subsidiaries) as at the end of such year and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the unqualified opinion (as to going concern and scope of audit) of any “Big Four” or other nationally-recognized independent public accounting firm reasonably acceptable to the Agent which report shall state that such consolidated financial statements present fairly in all material respects the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years; and

(b) as soon as available, but not later than (i) forty-five (45) days, with respect to any month ending on the last day of any fiscal quarter, or (ii) thirty (30) days after the end of each other fiscal month of each year, a copy of the unaudited consolidated sheets of ITG and each of its Subsidiaries (including the Excluded Subsidiaries), and the related consolidated statements of income, shareholders’ equity and cash flows as of the end of such month and for the portion of the fiscal year then ended, all certified on behalf of the Borrowers by an appropriate Responsible Officer of the Borrower Representative as being complete and correct and fairly presenting, in all material respects, in accordance with GAAP, the financial position and the results of operations of ITG and its Subsidiaries, subject to normal year-end adjustments and absence of footnote disclosures; provided, however, that the timely filing with the Securities and Exchange Commission and electronic delivery to Agent from time to time by ITG of (x) its annual reports on Form 10-K shall be deemed to satisfy the deliveries required pursuant to Section 4.1(a) above and (y) its quarterly reports on Form 10-Q shall be deemed to satisfy the deliveries required pursuant to Section 4.1(b)(i) above.

4.2 Certificates; Other Information. The Borrower Representative, on behalf of the Borrowers shall furnish in electronic form, to the Agent:

(a) together with each delivery of financial statements pursuant to subsections 4.1(a) and (b)(i) above, (i) a management report, in reasonable detail, signed by the chief financial officer of the Borrower Representative, describing the operations and financial condition of the Credit Parties and their Subsidiaries for the month and the portion of the fiscal year then ended (or for the fiscal year then ended in the case of annual financial statements), and (ii) a report setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year and the corresponding figures from the most recent projections for the current fiscal year delivered pursuant to subsection 4.2(l) and discussing the reasons for any significant variations;

38

(b) concurrently with the delivery of the financial statements referred to in subsections 4.1(a) and 4.1(b) above, a fully and properly completed Compliance Certificate in the form of Exhibit 4.2(b), certified on behalf of the Borrowers by a Responsible Officer of the Borrower Representative;

(c) (i) promptly after the same are sent, copies of all annual and quarterly reports that ITG generally sends to its shareholders, and (ii) promptly after the same are filed, copies of all financial statements and regular, periodic or special reports which such Person may make to, or file with, the Securities and Exchange Commission or any successor or similar Governmental Authority;

(d) as soon as available and in any event within twenty (20) days after the end of each calendar month, and during the continuance of a Default or an Event of Default, at such other times as the Agent may reasonably require, a Borrowing Base Certificate, certified on behalf of the Borrowers by a Responsible Officer of the Borrower Representative, setting forth the Borrowing Base as at the end of the most-recently ended fiscal month or as at such other date as the Agent may reasonably require;

(e) concurrently with the delivery of the Borrowing Base Certificate, with respect to Borrowers, a summary of Inventory by location and type, in each case accompanied by such supporting detail and documentation as shall be requested by the Agent in its reasonable discretion;

(f) concurrently with the delivery of the Borrowing Base Certificate, with respect to Borrowers, a monthly trial balance showing Accounts outstanding aged from due date as follows: current, 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such supporting detail and documentation as shall be requested by the Agent in its reasonable discretion;

(g) concurrently with the delivery of the financial statements referred to in subsection 4.1(a) and 4.1(b)(i) (or together with the Borrowing Base Certificate or at such more frequent intervals as the Agent may request from time to time during the continuance of a Default or an Event of Default, or with respect to any fiscal month in which Average Adjusted Availability is less than (x) $20,000,000 at any time on or prior to February 15, 2007 and (y) $30,000,000 at any time after February 15, 2007, (i) an officers’ certificate signed by a Responsible Officer summarizing Capital Expenditures to be paid for in the next three months or for the next succeeding one month when reporting occurs on a monthly basis, (ii) certifying that such Capital Expenditure payments will be funded from contributions to capital, working capital or third party financing, and (iii) certifying that after giving effect to those Capital Expenditure payments, at all times during such three month period or one month period, as applicable, Availability shall not be less than $12,500,000 as of any date and Average Adjusted Availability will not be less than $22,500,000 as of any date;

(h) on a monthly basis, within twenty (20) days after the end of each month (or on a weekly basis or at such more frequent intervals as the Agent may request from time to time during the continuance of a Default or an Event of Default, or during

39

any fiscal month in which Average Adjusted Availability is less than (x) $20,000,000 at any time on or prior to February 15, 2007 and (y) $30,000,000 at any time after February 15, 2007) (together with a copy of all or any part of such delivery requested by any Lender in writing after the Closing Date), collateral reports with respect to Borrowers, including all additions and reductions (cash and non-cash) with respect to Accounts of Borrowers, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion each of which shall be prepared by the Borrowers as of the last day of the immediately preceding week or the date two (2) days prior to the date of any request;

(i) [Intentionally Omitted];

(j) at the time of delivery of each of the quarterly financial statements delivered pursuant to Section 4.1, (i) a listing of government contracts of Borrowers subject to the Federal Assignment of Claims Act of 1940; and (ii) a list of any applications for the registration of any Material Intellectual Property (as defined in the Guaranty and Security Agreement) which are filed by any Credit Party with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in the prior Fiscal Quarter;

(k) upon the reasonable request of the Agent, at any time if an Event of Default shall have occurred and be continuing but otherwise not more often than twice a year (with one such appraisal being a “desktop” appraisal and the other being a full appraisal), the Borrowers will obtain and deliver to the Agent a report of an independent collateral auditor satisfactory to the Agent with respect to the Accounts, Inventory, Equipment and real Property of the Credit Parties including, without limitation, Appraisals reports in form and substance and from appraisers reasonably satisfactory to the Agent, stating the then Net Orderly Liquidation Values of all or any portion of the Inventory, Net Forced Liquidation Values of Equipment and fair market value of real Property;

(l) no later than thirty (30) days after the last day of each fiscal year, the annual business plan, with annual forecasts (to include forecasted consolidated balance sheet, income statement and cash flow statements and a forecasted product line summary) for the Borrowers and their consolidated Subsidiaries as at the end of and for each fiscal quarter of the forthcoming fiscal year and as at the end of the subsequent two years.

(m) promptly upon receipt thereof, copies of any reports submitted by the certified public accountants of the Credit Parties in connection with each annual, interim or special audit or review of any type of the financial statements or internal control systems of any Credit Party made by such accountants, including any comment letters submitted by such accountants to management of any Credit Party in connection with their services;

(n) at any time if an Event of Default shall have occurred and be continuing, the Agent may, or may require the Borrowers to, in either case at the

40

Borrowers’ expense, obtain appraisals in form and substance and from appraisers reasonably satisfactory to the Agent stating the then current fair market value of all or any portion of the real or personal Property of any Credit Party or any Subsidiary of any Credit Party;

(o) at any time if an Event of Default shall have occurred and be continuing but otherwise not more often than four (4) times in any calendar year, details and value of all or any part of the UK Priority Claims as shall be requested by the Agent; and

(p) promptly, such additional business, financial, corporate affairs, perfection certificates and other information as the Agent may from time to time reasonably request.

4.3 Notices. The Borrower Representative, on behalf of the Borrowers shall notify promptly the Agent of each of the following (and in no event later than three (3) Business Days after a Responsible Officer becomes aware thereof):

(a) the occurrence or existence of any Default or Event of Default;

(b) the occurrence of any event or condition that has caused or would reasonably be expected to result in a Material Adverse Effect;

(c) the commencement of, or any material development in, any litigation or proceeding affecting any Credit Party or any Subsidiary of any Credit Party (i) in which the amount of damages claimed is the US Dollar Equivalent of $2,000,000 (or its equivalent in another currency or currencies) or more, (ii) in which injunctive or similar relief is sought and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect, or (iii) in which the relief sought is an injunction or other stay of the performance of this Agreement, any Loan Document or any Related Agreement;

(d) (i) the receipt by any Credit Party of any notice of violation of or potential liability or similar notice under Environmental Law, (ii)(A) unpermitted Releases, (B) the existence of any condition that could reasonably be expected to result in violations of or liabilities under, any Environmental Law or (C) the commencement of, or any material change to, any action, investigation, suit, proceeding, audit, claim, demand, dispute alleging a violation of or liability under any Environmental Law, that, for each of clauses (A), (B) and (C) above (and, in the case of clause (C), if adversely determined), in the aggregate for each such clause, could reasonably be expected to result in Material Environmental Liabilities, (iii) the receipt by any Credit Party of notification that any property of any Credit Party is subject to any Lien in favor of any Governmental Authority securing, in whole or in part, Material Environmental Liabilities and (iv) any proposed acquisition or lease of real property, if such acquisition or lease would have a reasonable likelihood of resulting in aggregate Material Environmental Liabilities;

(e) (i) on or prior to any filing by any ERISA Affiliate of any notice of intent to terminate any Title IV Plan, a copy of such notice and (ii) promptly, and in any

41

event within 10 days, after any officer of any ERISA Affiliate knows that a request for a minimum funding waiver under Section 412 of the Code has been filed with respect to any Title IV Plan or Multiemployer Plan, a notice (which may be made by telephone if promptly confirmed in writing) describing such waiver request and any action that any ERISA Affiliate proposes to take with respect thereto, together with a copy of any notice filed with the PBGC or the IRS pertaining thereto;

(f) any material change in accounting policies or financial reporting practices by any Credit Party or any Subsidiary of any Credit Party;

(g) the creation, establishment or acquisition of any Domestic Subsidiary;

(h) (i) the execution of a contract with a Governmental Authority tolling the statute of limitations with respect to the assessment of income or franchise taxes and (ii) the creation of any Contractual Obligation of any Tax Affiliate, or the receipt of any request directed to any Tax Affiliate, to make any adjustment under Section 481(a) of the Code, by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect; and

(i) if the Accounts owing by any Account Debtor and its Affiliates to Borrowers and their Subsidiaries exceed twenty percent (20%) of all Accounts owing by all Account Debtors as of any date.

Each notice pursuant to this Section 4.3 shall be in electronic form accompanied by a statement by a Responsible Officer of the Borrower Representative, on behalf of the Borrowers, setting forth details of the occurrence referred to therein, and stating what action the Borrowers or other Person proposes to take with respect thereto and at what time. Each notice under subsection 4.3(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been breached or violated.

4.4 Preservation of Corporate Existence, Etc. Such Credit Party shall, and shall cause each of its Subsidiaries to:

(a) preserve and maintain in full force and effect its organizational existence and (except for the UK Borrower and any Credit Party incorporated in England or Wales) good standing under the laws of its jurisdiction of incorporation, organization or formation, as applicable, except, with respect to the Borrowers’ Subsidiaries, in connection with transactions permitted by Section 5.3;

(b) preserve and maintain in full force and effect all rights, privileges, qualifications, permits, licenses and franchises necessary in the normal conduct of its business except in connection with transactions permitted by Section 5.2 or Section 5.3 or as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect;

42

(c) use its reasonable efforts, in the Ordinary Course of Business, to preserve its business organization and preserve the goodwill and business of the customers, suppliers and others having material business relations with it; and

(d) preserve or renew all of its registered trademarks, trade names and service marks, the non-preservation of which would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

4.5 Maintenance of Property. Such Credit Party shall maintain, and shall cause each of its Subsidiaries to maintain, and preserve all its Property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and shall make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, or as otherwise permitted under this Agreement.

4.6 Insurance.

(a) Such Credit Party shall, and shall cause each of its Subsidiaries to, (i) maintain or cause to be maintained in full force and effect all policies of insurance of any kind with respect to the property and businesses of such Credit Party and such Subsidiaries (including policies of life, fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers’ compensation, business interruption and employee health and welfare insurance) with financially sound and reputable insurance companies or associations (in each case that are not Affiliates of Borrowers) of a nature and providing such coverage as is sufficient and as is customarily carried by Persons with businesses of the size and character of the business of the Credit Parties in localities where such Persons operate and (ii) cause all such insurance relating to any Collateral of such Credit Party to name the Agent as additional insured or loss payee, as appropriate. All policies of insurance on real and personal Property of the Credit Parties will contain an endorsement, in form and substance reasonably acceptable to the Agent, showing loss payable to the Agent (Form 438 BFU or equivalent) and extra expense and business interruption endorsements. Unless otherwise agreed by the Agent, such Credit Party will use commercially reasonable efforts to ensure that such endorsement, or an independent instrument furnished to the Agent, will provide that the insurance companies will give the Agent at least 30 days’ prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrowers or any other Person shall affect the right of the Agent to recover under such policy or policies of insurance in case of loss or damage. Such Credit Party shall direct all present and future insurers under its “All Risk” policies of insurance to pay all proceeds payable thereunder directly to the Agent. If any insurance proceeds are paid by check, draft or other instrument payable to any Credit Party and the Agent jointly, the Agent may endorse such Credit Party’s name thereon and do such other things as the Agent may deem advisable to reduce the same to cash. The Agent reserves the right at any time, upon review of each Credit Party’s risk profile, to require additional forms and limits of insurance.

43

(b) Unless the Borrowers provide the Agent with evidence of the insurance coverage required by this Agreement from time to time upon the reasonable request of the Agent, the Agent may purchase insurance at the Credit Parties’ expense to protect the Agent’s and Lenders’ interests in the Credit Parties’ and their Subsidiaries’ properties. This insurance may, but need not, protect the Credit Parties’ and their Subsidiaries’ interests. The coverage that the Agent purchases may provide that such coverage will not pay any claim that any Credit Party or any Subsidiary of any Credit Party makes or any claim that is made against such Credit Party or any Subsidiary in connection with such coverage. The Borrowers may later cancel any insurance purchased by the Agent, but only after providing the Agent with evidence that there has been obtained insurance as required by this Agreement. If the Agent purchases any such insurance, the Credit Parties will be responsible for the costs of that insurance, including interest and any other charges the Agent may impose in connection with the placement of such insurance, until the effective date of the cancellation or expiration of the insurance. The costs of any such insurance shall be added to the Obligations. The costs of any such insurance may be more than the cost of insurance the Borrowers may be able to obtain on their own.

4.7 Payment of Obligations. Such Credit Party shall, and shall cause each of its Subsidiaries to, pay, discharge and perform as the same shall become due and payable or required to be performed, all their respective obligations and liabilities, including:

(a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently prosecuted which stay the enforcement of any Lien and for which adequate reserves in accordance with GAAP are being maintained by such Person;

(b) all lawful claims which, if unpaid, would by law become a Lien (other than a Permitted Lien) upon its Property unless the same are being contested in good faith by appropriate proceedings diligently prosecuted which stay the imposition or enforcement of the Lien and for which adequate reserves in accordance with GAAP are being maintained by such Person;

(c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained herein and/or in any instrument or agreement evidencing such Indebtedness, except to the extent the failure to so pay any such Indebtedness would not constitute an Event of Default under Section 7.1(e); and

(d) the performance of all obligations under any Contractual Obligation to which such Credit Party or any of its Subsidiaries is bound, or to which it or any of its properties is subject, including the Related Agreements, except where the failure to perform would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

44

(e) payments to the extent necessary to avoid the imposition of a Lien with respect to, or the involuntary termination of any underfunded Benefit Plan, including without limitation, payments to Burlington’s Benefit Plan on or prior to July 31, 2007.

4.8 Compliance with Laws.

(a) Such Credit Party shall, and shall cause each of its Subsidiaries to, comply with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business, except where the failure to comply would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

(b) Without limiting the generality of the foregoing, such Credit Party shall, and shall cause each of its Subsidiaries to, comply with, and maintain its real Property, whether owned, leased, subleased or otherwise operated or occupied, in compliance with, all applicable Environmental Laws (including by implementing any Remedial Action necessary to achieve such compliance or that is required by orders and directives of any Governmental Authority) except for failures to comply that would not, in the aggregate, have a Material Adverse Effect. Without limiting the foregoing, if an Event of Default is continuing and the Agent has a reasonable basis to believe that (i) there exist violations of Environmental Laws by any Credit Party or any Subsidiary of any Credit Party or (ii) there exist any Material Environmental Liabilities, in each case, that would have, in the aggregate, a Material Adverse Effect, then such Credit Party shall, promptly upon receipt of request from the Agent, allow the Agent and its Related Persons access to such real property for the purpose of conducting, such environmental audits and assessments, including subsurface sampling of soil and groundwater, and cause the preparation of such reports, in each case as the Agent may from time to time reasonably request. Such audits, assessments and reports, to the extent not conducted by the Agent or any of its Related Persons, shall be conducted and prepared by reputable environmental consulting firms reasonably acceptable to the Agent and shall be in form and detail reasonably acceptable to the Agent.

4.9 Inspection of Property and Books and Records. Each Credit Party shall maintain and shall cause each of its Subsidiaries to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP (or in the case of Foreign Subsidiaries, standard acceptable accounting practices as in effect in the country where such Person is organized) consistently applied shall be made of all financial transactions and matters involving the assets and business of such Person. Such Credit Party shall, and shall cause each of its Subsidiaries to, with respect to each owned, leased, or controlled property, during normal business hours and upon reasonable advance notice (unless an Event of Default shall have occurred and be continuing, in which event no notice shall be required and the Agent shall have access at any and all times during the continuance thereof): (a) provide access to such property to the Agent and any of its Related Persons, as frequently as the Agent reasonably determines to be appropriate; (b) permit the Agent and any of its Related Persons to inspect, audit and make extracts and copies (or take originals if reasonably necessary) from all of such Credit Party’s books and records; and (c) permit the Agent to inspect, review, evaluate and make physical verifications and appraisals of the inventory and other Collateral in

45

any manner and through any medium that the Agent considers advisable, in each instance, at the Credit Parties’ expense provided the Credit Parties shall not be responsible for costs and expenses more than two (2) times per year unless an Event of Default has occurred and is continuing. Any Lender may accompany the Agent in connection with any inspection at such Lender’s expense.

4.10 Use of Proceeds. The Borrowers shall use the proceeds of the Loans solely as follows: (a) to refinance Prior Indebtedness on the Closing Date, (b) to pay costs and expenses of the Related Transactions and costs and expenses required to be paid pursuant to Section 2.1, and (c) for working capital and other general corporate purposes not in contravention of any Requirement of Law and not in violation of this Agreement. In addition, the UK Borrower may use proceeds of the Loans to purchase Accounts of Safety Components KG in accordance with the German Factoring Agreement and Denim may use the proceeds of the Loans to purchase Accounts of Parras Cone.

4.11 Cash Management Systems.

(a) Each US Credit Party shall, and shall cause each Domestic Subsidiary of each US Credit Party to, enter into, and cause each depository, securities intermediary or commodities intermediary to enter into, Control Agreements with respect to any deposit, securities, commodity or similar account maintained by such Person (other than any payroll account, so long as such payroll account is a zero balance account, and withholding tax and fiduciary accounts) as of or after the Closing Date.

(b) The UK Borrower and each other Credit Party (other than the US Credit Parties) shall maintain a cash management system in form and substance reasonably satisfactory to the Agent, including, in the case of the UK Borrower as prescribed in Clauses 4.1 and 10.1 of the UK Debenture.

4.12 Landlord Agreements. Each US Credit Party shall, and shall cause each of its Domestic Subsidiaries to, use commercially reasonable efforts to obtain a landlord agreement or bailee or mortgagee waivers, as applicable, from the lessor of each leased property, bailee in possession of any Collateral or mortgagee of any owned property with respect to each location where any Collateral is stored or located, which agreement shall be reasonably satisfactory in form and substance to the Agent. The Agent may, in its discretion, exclude from the Borrowing Base, or impose Reserves with respect to, Inventory or Equipment at each such location where a landlord agreement or bailee or mortgagee waiver is not obtained.

4.13 Further Assurances; Limitation on Guarantees and Liens.

(a) Such Credit Party shall ensure that all written information, exhibits and reports furnished to the Agent or the Lenders do not and will not contain any untrue statement of a material fact when made and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Agent and the Lenders and correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement or recordation thereof.

46

(b) Promptly upon request by the Agent, such Credit Party shall (and, subject to the limitations hereinafter set forth and set forth in the Collateral Documents, shall cause each of its Subsidiaries to) take such additional actions as the Agent may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Loan Document, (ii) to subject to the Liens created by any of the Collateral Documents any of the Properties, rights or interests in which any Lien is granted pursuant to any of the Collateral Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iv) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Agent, Lenders and L/C Issuers the rights granted or now or hereafter intended to be granted to the Agent, Lenders and L/C Issuers under any Loan Document or under any other document executed in connection therewith.

(c) Without limiting the generality of the foregoing, upon the reasonable request of the Required Lenders, such US Credit Party shall cause each of its Domestic Subsidiaries to guaranty the Obligations and to cause each such Domestic Subsidiary to grant to the Agent, for the benefit of the Secured Parties, a security interest in, subject to the limitations hereinafter set forth, all of such Subsidiary’s Property to secure such guaranty. Furthermore, upon the reasonable request of the Required Lenders, such US Credit Party shall, and shall cause each of its Domestic Subsidiaries to pledge all of the Stock and Stock Equivalents of each of its Domestic Subsidiaries and First Tier Foreign Subsidiaries (provided that with respect to any First Tier Foreign Subsidiary, such pledge shall be limited to sixty-five percent (65%) of such Foreign Subsidiary’s outstanding voting Stock and Stock Equivalents and one hundred percent (100%) of such Foreign Subsidiary’s outstanding non-voting Stock and Stock Equivalents) to the Agent for the benefit of the Secured Parties, to secure the Obligations. In connection with each pledge of Stock and Stock Equivalents, the Credit Parties shall deliver, or cause to be delivered, to the Agent, irrevocable proxies and stock powers and/or assignments, as applicable, duly executed in blank. In the event any US Credit Party acquires any real Property with a fair market value in excess of the US Dollar Equivalent of $500,000 that is not otherwise subject to a Mortgage, promptly after such acquisition, such Person shall execute and/or deliver, or cause to be executed and/or delivered, to the Agent, (x) a fully executed Mortgage, in form and substance reasonably satisfactory to the Agent together with an A.L.T.A. lender’s title insurance policy issued by a title insurer reasonably satisfactory to the Agent, in form and substance and in an amount reasonably satisfactory to the Agent insuring that the Mortgage is a valid and enforceable first priority Lien on the respective property, free and clear of all defects, encumbrances and Liens, other than Permitted Liens and other encumbrances agreed to by the Agent, (y) then current A.L.T.A. surveys, certified to the Agent by a licensed surveyor sufficient to allow the issuer of the lender’s title insurance policy to issue such policy without a survey exception and (z) an environmental site assessment prepared by a qualified firm reasonably acceptable to the Agent, in form and substance satisfactory to the Agent.

47

(d) Notwithstanding anything to the contrary contained herein or in the other Loan Documents, neither the UK Borrower nor any Foreign Credit Party shall (i) guarantee, directly or indirectly, any of the US Obligations, (ii) grant a Lien on any of its assets to secure, directly or indirectly, payment of the US Obligations nor (iii) have over sixty-five percent (65%) of its outstanding voting Stock and Stock Equivalents pledged to the Agent for the benefit of the Secured Parties to secure the US Obligations.

4.14 Mandatory Investments. On or prior to the dates indicated in the table below, ITG shall obtain, and shall contribute the same to US Borrowers to be used for purposes permitted by this Agreement, not less than the following amounts in gross cash proceeds from the issuance of Stock and Stock Equivalents to WLR and other Persons:

Date	Equity Contribution
February 1, 2007	$	50,000,000
May 1, 2007	$	50,000,000

4.15 Corporate Separateness. Notwithstanding anything to the contrary in this Agreement, if the Permitted BST Transaction occurs, on and after the date of such Acquisition, each Credit Party shall, and shall cause of each its Subsidiaries to:

(a) maintain its own books and records separate from any Person that is a member of the BST Group;

(b) maintain its bank accounts separate from any Person that is a member of the BST Group;

(c) not commingle its assets with those of any Person that is a member of the BST Group and to hold all of its assets in its own name;

(d) conduct its own business in its own name or in the name of ITG or any Subsidiary of ITG other than any member of the BST Group, consistent with past practice;

(e) maintain separate financial statements, showing its assets and liabilities separate and apart from those of any Person that is a member of the BST Group and shall not have its assets listed on the financial statement of any member of the BST Group; provided, however, that the assets of any Credit Party may be included in consolidated financial statements of any member of the BST Group if (i) appropriate notation shall be made on such consolidated financial statements to indicate the separateness of the relevant Credit Party from the BST Group and to indicate that the relevant Credit Party’s assets or credit of such Credit Party are not available to satisfy the debts and other obligation of the any member of the BST Group and (ii) such assets shall also be listed on such Credit Party’s own separate balance sheet or on the balance sheet of ITG or any Subsidiary of ITG other than any member of the BST Group, consistent with past practice;

48

(f) other than strictly in accordance with the terms of the Tax Sharing Agreement, file its tax returns separate from those of any Person that is a member of the BST Group and not to file a consolidated federal income tax return with any Person that is a member of the BST Group;

(g) pay its own liabilities and expenses only out of its own funds or out of the funds of ITG or any Subsidiary of ITG other than any member of the BST Group, consistent with past practice;

(h) observe all corporate and other organizational formalities;

(i) enter into transactions with Persons that are members of the BST Group (including, without limitation, lease agreements) only on a commercially reasonable basis and on terms no less favorable to a Credit Party than those in an arms-length transaction;

(j) pay the salaries of its own employees from its own funds or out of the funds of ITG or any Subsidiary of ITG other than any member of the BST Group, consistent with past practice;

(k) maintain a sufficient number of employees in light of its contemplated business operations;

(l) not guarantee or become obligated for the debts of any member of the BST Group;

(m) not hold out its credit as being available to satisfy the obligations of any member of the BST Group;

(n) not acquire the obligations or securities of any member of the BST Group;

(o) not make loans to any member of the BST Group or to buy or hold evidence of indebtedness issued by any member of the BST Group;

(p) use stationery, invoices, and cheques bearing a name separate from any member of the BST Group;

(q) not pledge its assets for the benefit of any member of the BST Group; and

(r) not identify itself as a division of any member of the BST Group.

4.16 Centre of Main Interest. The UK Borrower shall use commercially reasonable efforts to maintain its centre of main interest for purposes of Recital 13 of EC Regulation No. 1346/2000 on Insolvency Proceedings within the United Kingdom.

4.17 UK Data Protection. The UK Borrower will comply with the UK Data Protection Act 1998 and/or any analogous law.

49

ARTICLE V—NEGATIVE COVENANTS

Each Credit Party covenants and agrees that, so long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation (other than contingent indemnification Obligations to the extent no claim giving rise thereto has been asserted) shall remain unpaid or unsatisfied:

5.1 Limitation on Liens. Such Credit Party shall not, and shall not suffer or permit any of its Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its Property, whether now owned or hereafter acquired, other than the following (“Permitted Liens”):

(a) any Lien existing on the Property of a Credit Party or a Subsidiary of a Credit Party on the Closing Date and set forth on Schedule 5.1, and in the case of any such Liens securing Indebtedness outstanding on such date which Indebtedness is permitted by subsection 5.5(c), in each case, including replacement Liens on the Property currently subject to such Liens securing Indebtedness permitted by Section 5.5(c);

(b) any Lien created under any Loan Document;

(c) Liens for taxes, fees, assessments or other governmental charges (i) which are not delinquent or remain payable without penalty, or (ii) the non-payment of which is permitted by Section 4.7;

(d) carriers’, warehousemen’s, mechanics’, landlords’, materialmen’s, repairmen’s or other similar Liens arising in the Ordinary Course of Business which are not delinquent for more than ninety (90) days or remain payable without penalty or which are being contested in good faith and by appropriate proceedings diligently prosecuted, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto and for which adequate reserves in accordance with GAAP are being maintained;

(e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the Ordinary Course of Business in connection with workers’ compensation, unemployment insurance and other social security legislation or to secure the performance of tenders, statutory obligations, surety, stay, customs and appeals bonds, bids, leases, governmental contract, trade contracts, indemnity, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or to secure liability to insurance carriers;

(f) judgment or judicial attachment Liens, provided that either the enforcement of any such Lien is effectively stayed or all such Liens that are not stayed secure claims in the aggregate at any time outstanding for the Credit Parties and their Subsidiaries not exceeding the US Dollar Equivalent of the limit set forth in Section 7.1(h);

50

(g) easements, rights-of-way, zoning and other restrictions, minor defects or other irregularities in title, and other similar encumbrances which do not in any case materially detract from the value of the Property subject thereto or interfere in any material respect with the ordinary conduct of the businesses of any Credit Party or any Subsidiary of any Credit Party;

(h) Liens securing Indebtedness (including Capital Lease Obligations) permitted under subsection 5.5(d);

(i) any interest or title of a lessor or sublessor under any lease permitted by this Agreement;

(j) Liens arising from precautionary uniform commercial code financing statements filed under any lease permitted by this Agreement;

(k) licenses, sublicenses, leases or subleases granted to third parties in the Ordinary Course of Business not materially interfering with the business of the Credit Parties or any of their Subsidiaries;

(l) Liens in favor of collecting banks arising under Section 4-210 of the UCC;

(m) Liens (including the right of set-off) in favor of a bank or other depository institution arising as a matter of law encumbering deposits;

(n) Liens arising out of consignment, bailment or similar arrangements for the sale of goods entered into by a Borrower or any Subsidiary of a Borrower in the Ordinary Course of Business;

(o) Liens in favor of customs and revenue authorities arising as a matter of law which secure payment of customs duties in connection with the importation of goods in the Ordinary Course of Business or which secure partial, progress, advance or other payments pursuant to any contract with respect to purchases of software or Equipment to the extent that such payments or duties are paid when due and payable by the Borrowers;

(p) Liens on commodity hedging accounts and amounts held therein to secure performance under cotton futures contracts in connection with transactions or positions in a contract for future delivery of cotton entered into in the Ordinary Course of Business; provided that reserves in accordance with GAAP have been provided on the books of the Credit Party who incurred such Liens;

(q) Environmental Liens not to exceed the US Dollar Equivalent of $1,000,000;

(r) any right of first refusal or first offer, redemption right, or option or similar right in respect of any Stock or Stock Equivalent owned by any Credit Party or any Subsidiary with respect to any Joint Venture or other Investment, in favor of any co-venturer or other holder of Stock of Stock Equivalent of such Investment;

51

(s) Liens on proceeds (including dividends, distributions, interest and like payments on or with respect to, and insurance and condemnation proceeds and rental, lease, licensing and similar proceeds) of Property that is otherwise subject to Liens permitted by this Section 5.1;

(t) subordinated Liens securing payment of the Indebtedness under the Mexican Facility; and

(u) other Liens on assets not securing Indebtedness in an aggregate amount not to exceed $1,500,000 at any time outstanding.

5.2 Disposition of Assets. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any Property (including accounts and notes receivable, with or without recourse) except:

(a) dispositions of inventory, or used, worn-out assets or surplus fixed or capital assets no longer useful in its business, all in the Ordinary Course of Business;

(b) dispositions not otherwise permitted hereunder which are made for fair market value determined in good faith by the Borrowers and the mandatory prepayment in the amount of the Net Proceeds of such disposition is made if and to the extent required by Section 1.8; provided, that (i) at the time of any disposition, no Event of Default shall exist or shall result from such disposition, (ii) not less than 80% of the aggregate sales price from such disposition shall be paid in cash except as otherwise consented to by Agent in its reasonable discretion, (iii) the aggregate fair market value of all assets so sold by the Credit Parties and their Subsidiaries, together, shall not exceed in any fiscal year the US Dollar Equivalent of $10,000,000 and (iv) after giving effect to such disposition Availability shall not be less than $12,500,000 and Average Adjusted Availability shall not be less than $22,500,000;

(c) dispositions of Cash Equivalents;

(d) exchanges of equipment for other equipment or trade credit, consistent with past practice;

(e) licenses, sublicenses, leases or subleases granted to third parties in the Ordinary Course of Business not materially interfering with the business of the Credit Parties or any of their Subsidiaries;

(f) (i) any US Credit Party may sell, lease, transfer or otherwise dispose of any of its Property to any other US Credit Party, (ii) any Foreign Credit Party or Foreign Subsidiary may sell, lease, transfer or otherwise dispose of any of its Property to any Credit Party on an arms’ length basis, (iii) any US Credit Party may sell, lease, transfer or dispose of any of its Property to any Foreign Credit Party or Foreign

52

Subsidiary and (iv) any Credit Party or Foreign Subsidiary may sell, lease, transfer or otherwise dispose of any of its Property to any Excluded Subsidiary (in each case, other than any member of the BST Group) so long as, in the case of clauses (iii) and (iv), before and after giving effect thereto (A) no Default or Event of Default occurs or is continuing, (B) Average Adjusted Availability is greater than (x) $20,000,000 with respect to dispositions on or prior to February 15, 2007 and (y) $30,000,000 with respect to dispositions after February 15, 2007, and (C) no default exists under any credit facility to which such Excluded Subsidiary (other than any member of the BST Group) is a party or to which its assets or property are subject;

(g) any Subsidiary (which is not a Credit Party) of any Borrower may be liquidated, wound up or dissolved (upon voluntary liquidation or otherwise) if such Borrower deems it beneficial to the business of such Borrower and such liquidation, winding up or dissolution shall not result in a Material Adverse Effect or impair the Collateral of the Lenders;

(h) any issuances of Stock or Stock Equivalents by any Subsidiary to Holdings or any Wholly-Owned Subsidiary;

(i) the sale or other transfer of any Stock or Stock Equivalent owned by any Credit Party or any Subsidiary of any Credit Party in any Joint Venture pursuant to the Organization Documents or other documents governing such Joint Venture; and

(j) other dispositions described on Schedule 5.2.

5.3 Consolidations and Mergers. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except upon not less than two (2) Business Days prior written notice to the Agent, (a) any Subsidiary of a Borrower may merge with, or dissolve or liquidate into, a Borrower or a Wholly-Owned Subsidiary of a Borrower, provided that Domestic Subsidiaries shall only be merged with and into US Borrowers or another Domestic Subsidiary; (b) any Foreign Subsidiary may merge with or dissolve or liquidate into the UK Borrower or Foreign Subsidiary; provided, that, if the UK Borrower is a constituent entity in such merger, dissolution or liquidation, the UK Borrower shall be the continuing or surviving entity; (c) any merger or consolidation that constitutes a Permitted Acquisition; (d) Holdings may merge with and into ITG; and (e) any Credit Party may be converted (including by way of merger) from a corporation to a limited liability company or from a limited liability company to a corporation.

5.4 Loans and Investments. No Credit Party shall and no Credit Party shall suffer or permit any of its Subsidiaries to (i) purchase or acquire, or make any commitment to purchase or acquire any Stock or Stock Equivalents, or any obligations or other securities of, or any equity or debt interest in, any Person, including the establishment or creation of a Subsidiary, or (ii) make or commit to make any Acquisitions, including without limitation, by way of merger or consolidation or (iii)

53

make or commit to make or provide any advance, loan, extension of credit, letters of credit to secure the obligations of, or capital contribution to or any other investment in, any Person including any Affiliate of a Borrower or any Subsidiary of a Borrower (the items described in clauses (i), (ii) and (iii) are referred to as “Investments”), except for:

(a) Investments by (i) any US Credit Party in, to or for any other US Credit Party (other than ITG), (ii) Foreign Credit Parties or Foreign Subsidiaries in, to or for to one or more Foreign Credit Parties or Foreign Subsidiaries, (iii) any US Credit Party in, to or for one or more Foreign Credit Parties or Foreign Subsidiaries and (iv) any Credit Party or any Subsidiary of any Credit Party in, to or for any Excluded Subsidiary organized in an Eligible Country (in each case, other than any member of the BST Group) so long as, in the case of clauses (iii) and (iv), before and after giving effect thereto (A) no Default or Event of Default has occurred and is continuing, (B) Availability is greater than $12,500,000 and Average Adjusted Availability is greater than (x) $20,000,000 with respect to Investments completed on or prior to February 15, 2007 and (y) $30,000,000 with respect to Investments after February 15, 2007 and, in the case of clause (iv), no default exists under any credit facility to which such Excluded Subsidiary is a party or to which its assets or property are subject, and if any of the foregoing extensions of credit described in clause (i), (ii), (iii) or (iv) above are evidenced by notes, such notes shall be pledged and delivered to the Agent, for the benefit of the Secured Parties, and have such terms as the Agent may reasonably require;

(b) loans and advances to employees in the Ordinary Course of Business;

(c) Investments received as the non-cash portion of consideration received in connection with transactions permitted pursuant to Section 5.2(b);

(d) Investments acquired in connection with the settlement of delinquent Accounts in the Ordinary Course of Business or in connection with the bankruptcy or reorganization of suppliers or customers; and

(e) Investments existing on the Closing Date and set forth on Schedule 5.4 and any renewal or replacement thereof;

(f) the Romanian Acquisition;

(g) the Permitted BST Acquisition;

(h) Permitted Acquisitions;

(i) Investments (i) in the form of deposits, prepayments and other credits to suppliers made in the Ordinary Course of Business consistent with the past practices of ITG and its Subsidiaries, (ii) in the form of extensions of trade credit in the Ordinary Course of Business and (iii) in the form of prepaid expenses and deposits to other Persons in the Ordinary Course of Business;

(j) Contingent Obligations permitted to Section 5.9;

54

(k) (i) the endorsement of negotiable instruments held for collection in the ordinary course of business or (ii) the making of lease, utility and other similar deposits or prepayments, or deposits or prepayments to suppliers, in each case in the Ordinary Course of Business;

(l) to the extent constituting Investments, Rate Contracts permitted pursuant to Section 5.9;

(m) mergers and consolidations in compliance with Section 5.3;

(n) Investments in the BST Group from the proceeds of any issuance of Stock by ITG not required to be prepaid hereunder; and

(o) Investments pursuant to the Mexican Sale Agreement and German Factoring Agreement.

5.5 Limitation on Indebtedness. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, create, incur, assume, permit to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except:

(a) Indebtedness incurred pursuant to this Agreement;

(b) Indebtedness consisting of Contingent Obligations and permitted pursuant to Section 5.9;

(c) Indebtedness existing on the Closing Date and set forth in Schedule 5.5 including extensions, replacements and refinancings thereof so long as the principal amount of such Indebtedness as of the date of such extension, replacement or refinancing is not increased, other than by the addition of any accrued but unpaid interest, any applicable premium and/or fees relating to such extension, replacement or refinancing;

(d) Indebtedness (including Capital Leases) incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including any Indebtedness assumed in connection with the acquisition of any such Property or secured by a Lien on such Property before the acquisition thereof; provided, that (i) such Indebtedness is incurred before or within 30 days after such acquisition or the completion of such construction or improvement, (ii) any such Indebtedness shall be secured only by the assets acquired, constructed or improved in connection with the incurrence of such Indebtedness and (iii) with respect to Indebtedness incurred to finance the acquisition of any fixed or capital assets, such Indebtedness shall not exceed 100% of the cost of such Property, and, in each case, any refinancing of any of the foregoing Indebtedness; provided, further, that in the case of each of the foregoing, the aggregate outstanding principal amount of all such Indebtedness shall not exceed at any time $20,000,000;

(e) unsecured intercompany Indebtedness permitted pursuant to subsection 5.4(a);

55

(f) Indebtedness incurred in connection with the financing of insurance premiums in the ordinary course of business;

(g) Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business;

(h) (i) Subordinated Indebtedness in an aggregate amount not to exceed the US Dollar Equivalent of $25,000,000 and (ii) WLR Subordinated Indebtedness;

(i) Indebtedness deemed to exist in connection with Rate Contracts permitted under Section 5.9; and

(j) other unsecured Indebtedness not exceeding in the aggregate at any time outstanding the US Dollar Equivalent of $5,000,000.

5.6 Transactions with Affiliates. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, enter into any transaction with any Affiliate of a Borrower or of any such Subsidiary or a WLR Affiliate, except:

(a) as expressly permitted by this Agreement;

(b) (i) any transaction between a US Credit Party and another US Credit Party, (ii) any transaction between a Foreign Credit Party and another Foreign Credit Party and (iii) any transaction between a Foreign Subsidiary that is not a Credit Party and another Foreign Subsidiary that is not a Credit Party;

(c) in the Ordinary Course of Business and pursuant to the reasonable requirements of the business of such Credit Party or such Subsidiary upon fair and reasonable terms no less favorable to such Credit Party or such Subsidiary than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate of a Borrower or such Subsidiary and not a WLR Affiliate;

(d) any transaction permitted pursuant to Sections 5.2, 5.3, 5.4, 5.5, 5.7 or 5.9; and

(e) transactions set forth on Schedule 5.6.

5.7 Management Fees and Compensation. No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to, pay any management, consulting or similar fees to any Affiliate of any Credit Party or to any officer, director or employee of any Credit Party or any Affiliate of any Credit Party except:

(a) payment of reasonable compensation to officers and employees for actual services rendered to the Credit Parties and their Subsidiaries in the Ordinary Course of Business and consistent with past practices;

56

(b) payment of reasonable directors’ fees and reimbursement of actual out-of-pocket expenses incurred in connection with duties performed and other reasonable actions taken in such director’s capacity as a member of any such board of directors or any committee thereof;

(c) payment of a management fee to WLR pursuant to the Management Agreement from and after the effective date thereof not to exceed $4,000,000 per annum payable in equal quarterly installments unless deferred voluntarily or as a result of a Default or an Event of Default; provided, however, that the fees described in this clause (c) shall not be paid during any period while a Default or Event of Default has occurred and is continuing or would arise as a result of such payment; provided, further any fees not paid due to the existence of a Default or Event of Default shall be deferred and may be paid when no Default or Event of Default exists; and

(d) reimbursement of reasonable out-of-pocket costs and expenses required to be paid pursuant to the Management Agreement.

5.8 Use of Proceeds. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, use any portion of the Loan proceeds, directly or indirectly, to purchase or carry Margin Stock or repay or otherwise refinance Indebtedness of any Credit Party or others incurred to purchase or carry Margin Stock, or otherwise in any manner which is in contravention of any Requirement of Law or in violation of this Agreement.

5.9 Contingent Obligations. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Contingent Obligations except in respect of the Obligations and except:

(a) endorsements for collection or deposit in the Ordinary Course of Business;

(b) commodities hedging agreements and unsecured Rate Contracts entered into in the Ordinary Course of Business for bona fide hedging purposes and not for speculation;

(c) Contingent Obligations of the Credit Parties and their Subsidiaries existing as of the Closing Date and listed in Schedule 5.9, including extensions, replacements and renewals thereof which do not increase the amount of such Contingent Obligations as of the date of such extension or renewal;

(d) Contingent Obligations incurred in the Ordinary Course of Business with respect to surety and appeal bonds, performance bonds and other similar obligations;

(e) Contingent Obligations arising under indemnity agreements to title insurers to cause such title insurers to issue to the Agent title insurance policies;

57

(f) Contingent Obligations arising with respect to customary indemnification obligations in favor of (i) sellers in connection with Acquisitions permitted hereunder and (ii) purchasers in connection with dispositions permitted under subsection 5.2(b);

(g) Contingent Obligations arising under Letters of Credit (provided, however, that any Letter of Credit supporting any obligation of an Excluded Subsidiary (other than any member of the BST Group) shall be subject to the limitations set forth in Section 5.4(a));

(h) Contingent Obligations arising under guarantees made in the Ordinary Course of Business of obligations of any Credit Party (other than ITG), which obligations are otherwise permitted hereunder; provided that if such obligation is subordinated to the Obligations, such guarantee shall be subordinated to the same extent;

(i) Contingent Obligations arising under a secured guaranty by the Credit Parties of the Indebtedness under the Mexican Facility subject to the terms of the Intercreditor Agreement;

(j) Contingent Obligations of any Credit Party in respect of Indebtedness otherwise permitted under Section 5.5(a), (h), (i) and (j);

(k) unsecured guaranties by a US Credit Party of a Foreign Subsidiary’s obligations under extended term cotton purchase agreements; provided, that the Accounts generated from sales by such Foreign Subsidiary are owned by the applicable US Credit Party; and

(l) other Contingent Obligations not exceeding the US Dollar Equivalent of $2,500,000 in the aggregate at any time outstanding.

5.10 Compliance with ERISA. No ERISA Affiliate shall cause or suffer to exist (a) any event that could result in the imposition of a Lien in excess of the US Dollar Equivalent of $500,000 on any asset of a Credit Party or a Subsidiary of a Credit Party with respect to any Title IV Plan or Multiemployer Plan or (b) any other ERISA Event, that would, in the aggregate, have a Material Adverse Effect. No Credit Party shall cause or suffer to exist any event that could result in the imposition of a Lien with respect to any Benefit Plan.

5.11 Restricted Payments. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, (i) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any Stock or Stock Equivalent, (ii) purchase, redeem or otherwise acquire for value any Stock or Stock Equivalent now or hereafter outstanding or (iii) make any payment or prepayment of principal of, premium, if any, interest, fees, redemption, exchange, purchase, retirement, defeasance, sinking fund or similar payment with respect to, Subordinated Indebtedness (the items described in clauses (i), (ii) and (iii) above are referred to as “Restricted Payments”); except that any Wholly-Owned Subsidiary of a Borrower may declare and pay dividends to a Borrower or any Wholly-Owned Subsidiary of a Borrower, and except that:

(a) ITG may declare and make dividend payments or other distributions payable solely in its Stock or Stock Equivalents; and

58

(b) in the event a US Credit Party or Domestic Subsidiary of a US Credit Party files a consolidated income tax return with ITG, Borrowers may make distributions to ITG to permit ITG to pay federal and state income taxes then due and owing, franchise taxes and other similar licensing expenses incurred in the Ordinary Course of Business.

(c) in the event a Foreign Credit Party or Subsidiary of a Foreign Credit Party files a consolidated income tax return with any direct or indirect Subsidiary of ITG, such Foreign Credit Party or Subsidiary may make distributions to that direct or indirect Subsidiary of ITG to permit that Subsidiary to pay income taxes then due and owing, franchise taxes and other similar licensing expenses incurred in the Ordinary Course of Business; and

(d) the Credit Parties may pay, as and when due and payable, regularly scheduled payments of interest only at the non-default rate on Subordinated Indebtedness, subject to the terms of the subordination provisions applicable thereto.

5.12 Change in Business. No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it as of the Closing Date, other than any line of business that is related or complimentary to any existing line of business.

5.13 Amendment to Organization Documents. No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to amend any of its Organization Documents in any respect that is materially adverse to the Lenders.

5.14 Accounting Changes. No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year or method for determining fiscal quarters of any Credit Party or of any consolidated Subsidiary of any Credit Party.

5.15 Amendments to Related Agreements and Subordinated Indebtedness.

(a) No Credit Party shall and no Credit Party shall permit any of its Subsidiaries, to (i) amend, supplement, waive or otherwise modify any provision of, any Related Agreement in a manner materially adverse to the Lenders or which would reasonably be expected to have a Material Adverse Effect, or (ii) take or fail to take any action under any Related Agreement that would reasonably be expected to have a Material Adverse Effect.

59

(b) No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries directly or indirectly to, change or amend the terms of any (i) Subordinated Indebtedness Documents except to the extent permitted by the applicable Subordination Agreement.

5.16 No Negative Pledges.

(a) No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to, directly or indirectly, to create or otherwise cause or suffer to exist or become effective any consensual prohibition or limitation on the ability of any such Subsidiary to pay dividends or make any other distribution on any of such Subsidiary’s Stock or Stock Equivalents or to pay fees, including management fees, or make other payments and distributions to a Borrower or any of its Subsidiaries. No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to, directly or indirectly, enter into, assume or become subject to any Contractual Obligation prohibiting the existence of any Lien upon any of its assets in favor of the Agent, whether now owned or hereafter acquired. Notwithstanding the foregoing two sentences, the following encumbrances or restrictions shall be permitted: (i) encumbrances or restrictions existing under or by reason of (A) this Agreement and the other Loan Documents; (B) Indebtedness permitted by Section 5.5(d); (C) customary provisions restricting subletting or assignment of any lease governing a leasehold interest; (D) customary provisions restricting assignment of any agreement entered into by a Subsidiary of a Borrower in the Ordinary Course of Business; (E) any holder of a Permitted Lien restricting the transfer of the property subject thereto; (F) customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 5.2 pending the consummation of such sale; (G) in the case of a Joint Venture, restrictions in such person’s Organization Documents or pursuant to any joint venture agreement or stockholders agreements solely to the extent of the Stock or Stock Equivalents of or property held in the subject Joint Venture and (H) any agreement in effect on the Closing Date as set forth on Schedule 5.16; or (ii) any encumbrances or restrictions imposed by any amendments or refinancings that are otherwise permitted by the Loan Documents of the agreements referred to in clause (i) above; provided that such amendments or refinancings are no more restrictive with respect to such encumbrances and restrictions than those prior to such amendment or refinancing.

(b) No Borrower (other than ITG) shall issue any Stock or Stock Equivalents (i) if such issuance would result in an Event of Default under subsection 7.1(m) and (ii) unless such Stock and Stock Equivalents are pledged to the Agent, for the benefit of the Secured Parties, as security for the Obligations, on substantially the same terms and conditions as the Stock and Stock Equivalents of the Borrowers pledged to the Agent as of the Closing Date.

5.17 OFAC. No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to (i) become a person whose property or interests in property are blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg. 49079(2001), (ii) engage in any

60

dealings or transactions prohibited by Section 2 of such executive order, or be otherwise associated with any such person in any manner violative of Section 2, or (iii) otherwise become a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other OFAC regulation or executive order.

5.18 Press Release and Related Matters. No Credit Party shall, and no Credit Party shall permit any of its Affiliates to, issue any press release or other public disclosure using the name, logo or otherwise referring to UBS or GE Capital except (i)_ for filings required to be made with any Governmental Authority, including, without limitation, the Securities and Exchange Commission, in respect of which no consent or consultation with UBS or GE Capital shall be required, or (ii) to the extent any Credit Party is otherwise required to issue any such release or make any such disclosure under applicable Requirements of Law, only after using commercially reasonable efforts to consult with UBS or GE Capital prior thereto.

5.19 Sale-Leasebacks; Synthetic Leases; Factoring; etc. No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to, engage in a sale leaseback, synthetic lease, factoring, declaring in trust, discounting or similar transaction involving any of its assets, other than the transactions contemplated by the German Factoring Agreement and the Mexican Sale Agreement.

5.20 Hazardous Materials. No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries to, cause or suffer to exist any Release at, to or from any real Property owned, leased, subleased or otherwise operated or occupied by any Credit Party or any Subsidiary of any Credit Party that would violate any Environmental Law, form the basis for any Material Environmental Liabilities or otherwise adversely affect the value or marketability of any real property (whether or not owned by any Credit Party or any Subsidiary of any Credit Party), other than such violations, Environmental Liabilities and effects that would not, in the aggregate, have a Material Adverse Effect.

5.21 Food Security Act.

(a) No Borrower shall purchase any cotton or other goods that would constitute farm products if the seller were a Person engaged in farming operations, unless such Borrower acquires good title to such goods free and clear of all Liens (except Permitted Liens) and, in particular, free from any statutory or other grower’s or producer’s Liens in favor of any secured party who has taken steps under the Food Security Act or any other federal or state statute to preserve its Lien rights upon such goods notwithstanding the passage of title directly or indirectly to such Borrower.

(b) Each Borrower shall in all respects comply with all applicable Food Security Act Notices during their periods of effectiveness under the Food Security Act, including directions to make payments to the sellers by issuing payment instruments directly to the sellers’ secured party or jointly payable to the seller and the sellers’ secured party, as specified in the Food Security Act Notice, so as to terminate or release the security interest in cotton or other farmed products maintained under the Food

61

Security Act. Each Borrower shall notify the Agent in writing within five (5) Business Days after receipt by such Borrower any notice received pursuant to the applicable provisions of the Food Security Act or pursuant to the UCC or any applicable local laws of any Lien filed with respect to cotton or any other farm products that may be purchased by such Borrower or intended for resale to such Borrower (a “Food Security Act Notice”).

(c) If at any time a Borrower purchases cotton or other farm products from a Person engaged in farming operations or an agent for such Person in a jurisdiction which has implemented the provisions of the Food Security Act with respect to the creation of a “central filing system,” such Borrower shall promptly register with the Secretary of State (or equivalent official) of each such jurisdiction, pursuant to the registration requirements of the Food Security Act and notify the Agent in writing of such registration with the central filing system and, if requested by the Agent, provide the Agent with copies of any Food Security Act Notices, master list, supplements thereto or otherwise materials then or thereafter received from the Secretary of State (or other official) of the central filing system by such Borrower.

5.22 UK Employees. Unless consented to by Agent, the UK Borrower shall at no time employee more than ten (10) people.

ARTICLE VI—FINANCIAL COVENANTS

6.1 Fixed Charge Coverage Ratio. Each Credit Party covenants and agrees that if Availability is less than $12,500,000 or Average Adjusted Availability is less than $22,500,000 at any time during any fiscal month, the Fixed Charge Coverage Ratio for the twelve month period ending as of the last day of the immediately preceding fiscal month (or with respect to the any fiscal month ending on or before October 31, 2007, the period commencing on December 1, 2006 and ending on the last day of the preceding fiscal month) shall in no event be less than 1.05 to 1.00. The Fixed Charge Coverage Ratio shall be calculated in the manner set forth in Exhibit 4.2(b).

6.2 Capital Expenditures. The Credit Parties shall not make Unfinanced Capital Expenditures in excess of $20,000,000 in Fiscal Year 2007.

ARTICLE VII—EVENTS OF DEFAULT

7.1 Event of Default. Any of the following shall constitute an “Event of Default”:

(a) Non-Payment. Any Credit Party fails (i) to pay when and as required to be paid herein, any amount of principal of any Loan, including after maturity of the Loans, or to pay any L/C Reimbursement Obligation or (ii) to pay within three (3) Business Days after the same shall become due, interest on any Loan, any fee or any other amount payable hereunder or pursuant to any other Loan Document; or

62

(b) Representation or Warranty. Any representation, warranty or certification by or on behalf of any Credit Party or any of its Subsidiaries made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by any such Person, or their respective Responsible Officers, furnished at any time under this Agreement, or in or under any other Loan Document, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or

(c) Specific Defaults. Any Credit Party fails to perform or observe any term, covenant or agreement contained in any of Sections 4.1, 4.2(b), 4.2(d), 4.2(g), 4.3(a), 4.6, 4.9, 4.14, Article V or Article VI hereof, or the UK Borrower fails to comply with clauses 4.2 or 10.1 of the UK Debenture;

(d) Other Defaults. Any Credit Party or Subsidiary of any Credit Party fails to perform or observe any other term, covenant or agreement contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) the date upon which a Responsible Officer of any Credit Party becomes aware of such default and (ii) the date upon which written notice thereof is given to the Borrower Representative by the Agent or the Required Lenders; or

(e) Cross-Default. Any Credit Party or any Subsidiary of any Credit Party (i) fails to make any payment in respect of the Mexican Facility or any Indebtedness (other than the Obligations) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the US Dollar Equivalent of $3,500,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness, in either case of clause (i) or clause (ii) above, if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity (without regard to any subordination terms with respect thereto); or

(f) Insolvency; Voluntary Proceedings. A Borrower, individually, ceases or fails, or the Credit Parties and their Subsidiaries on a consolidated basis, cease or fail, to be Solvent, or any Credit Party or any Subsidiary of any Credit Party, in either case, with assets in excess of the US Dollars Equivalent of $1,000,000: (i) generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or

63

(g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against any Credit Party or any Subsidiary of any Credit Party, in either case, with assets in excess of the US Dollar Equivalent of $1,000,000, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of any such Person’s Properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded, in any case, within sixty (60) days after such commencement, filing or levy; (ii) any Credit Party or any Subsidiary of any Credit Party, in either case, with assets in excess of the US Dollar Equivalent of $1,000,000 admits the material allegations of a petition against it in any such Insolvency Proceeding, or an order for relief (or similar order under non-US law) is ordered in any Insolvency Proceeding; or (iii) any Credit Party or any Subsidiary of any Credit Party, in either case, with assets in excess of the US Dollar Equivalent $1,000,000 acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its Property or business; or

(h) Monetary Judgments. One or more judgments, non-interlocutory orders, decrees or arbitration awards shall be entered against any one or more of the Credit Parties or any of their respective Subsidiaries involving in the aggregate a liability (to the extent not covered by independent third-party insurance) as to any single or related series of transactions, incidents or conditions, of the US Dollar Equivalent of $3,500,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty (30) days after the entry thereof; or

(i) UK Borrower Insolvency. Any of the following occurs in respect of the UK Borrower or other Credit Party with assets in excess of the US Dollar Equivalent of $1,000,000 incorporated in England and Wales: (i) it is, or is deemed for the purposes of any applicable law to be, unable to pay its debts as they fall due or not Solvent; (ii) it admits its insolvency or its inability to pay its debts as they fall due; (iii) it suspends making payments on any of its debts or announces an intention to do so; (iv) by reason of actual or anticipated financial difficulties, it begins negotiations with any creditor for the rescheduling or restructuring of any its Indebtedness; or (v) a moratorium is declared or instituted in respect of any of its Indebtedness; provided if a moratorium occurs in respect of such Person, the ending of the moratorium will not remedy any Event of Default caused by the moratorium; or

(j) UK Insolvency Proceedings. Any of the following occurs in respect of the UK Borrower or other Credit Party with assets in excess of the US Dollar Equivalent of $1,000,000 incorporated in England and Wales: (i) any step is taken with a view to a moratorium or a composition, assignment or similar arrangement with any of its creditors; (ii) a meeting of its shareholders, directors or other officers is convened for the purpose of considering any resolution for, to petition for or to file documents with a court or any registrar for its winding-up, administration or dissolution or for the seeking of relief under any applicable bankruptcy, insolvency, company or similar law or any such resolution is passed; (iii) any person presents a petition or files documents with a court or any registrar for its winding-up, administration or dissolution or seeking relief under any

64

applicable bankruptcy, insolvency, company or similar law; (iv) an order for its winding-up, administration or dissolution is made or other relief is granted under any applicable bankruptcy, insolvency, company or similar law; (v) any liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or similar officer is appointed in respect of it or any of its assets; (vi) its shareholders, directors or other officers request the appointment of, or give notice of their intention to appoint, a liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or similar officer in respect of it or any of its assets; or (vii) enforcement of any Lien over any of its assets; provided, however, that clause (iii) above does not apply to a petition for winding-up presented by a creditor which is being contested in good faith and with due diligence and is discharged or struck out within 21 days; or

(k) Non-Monetary Judgments. One or more non-monetary judgments, orders or decrees shall be rendered against any one or more of the Credit Parties or any of their respective Subsidiaries which has or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, and there shall be any period of 30 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; or

(l) Collateral. Any material provision of any Loan Document shall for any reason cease to be valid and binding on or enforceable against any Credit Party or any Subsidiary of any Credit Party party thereto or any Credit Party or any Subsidiary of any Credit Party shall so state in writing or bring an action to limit its obligations or liabilities thereunder; or any Collateral Document shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason (other than the failure of the Agent to take any action within its control) cease to be a perfected and first priority security interest subject only to Permitted Liens; or

(m) Ownership. If (i) at any time after the Closing Date, any Person other than a Permitted Investor, owns beneficially, directly or indirectly, more than 51% of the issued and outstanding voting Stock of ITG or, in any event, Stock representing voting control of the Borrowers; or (ii) ITG ceases to own either directly or indirectly one hundred percent (100%) of the issued and outstanding Stock and Stock Equivalents of the Borrowers, in each instance in clauses (i) and (ii), free and clear of all Liens, rights, options, warrants or other similar agreements or understandings, other than Liens in favor of the Agent, for the benefit of the Secured Parties.

7.2 Remedies. Upon the occurrence and during the continuance of any Event of Default, the Agent may, and shall at the request of the Required Lenders:

(a) declare all or any portion of the Commitment of each Lender to make Loans or of the L/C Issuer to issue Letters of Credit to be terminated, whereupon such Commitments shall forthwith be terminated;

65

(b) declare all or any portion of the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable; without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by each Credit Party; and/or

(c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law;

provided, however, that upon the occurrence of any event specified in subsections 7.1(f) or 7.1(g) above (in the case of clause (i) of subsection 7.1(g) upon the expiration of the sixty (60) day period mentioned therein (other than in the case of the UK Borrower or any other Credit Party incorporated in England or Wales), the obligation of each Lender to make Loans and the obligation of the L/C Issuer to issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent, any Lender or the L/C Issuer. Notwithstanding anything to the contrary contained herein, the Agent may (and at the request of Required Lenders, shall) send Activation Notices at any time when an Event of Default is continuing or after Availability is less than $12,500,000 (unless Agent otherwise consents) or Average Adjusted Availability is equal to or less than $22,500,000; provided, that if, at any time more than ninety (90) days after an Activation Notice is sent, Average Adjusted Availability is more than $22,500,000 and Availability on any single day is not less than $12,500,000 during the measuring period with respect to Average Adjusted Availability and no Event of Default is continuing, then Agent shall rescind such Activation Notices.

7.3 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising.

7.4 Cash Collateral for Letters of Credit. If an Event of Default has occurred and is continuing, the Agent may (and at the request of Required Lenders, shall), or if this Agreement (or the Revolving Loan Commitment) is terminated for any reason, the Agent shall, demand (which demand shall be deemed to have been delivered automatically upon any acceleration of the Loans and other obligations hereunder pursuant to Section 7.2 hereof), and the Borrowers shall thereupon deliver to the Agent, to be held for the benefit of the L/C Issuer, the Agent and the Lenders entitled thereto, an amount of cash equal to 105% of the amount of Letter of Credit Obligations as additional collateral security for Obligations in respect of any outstanding Letter of Credit. The Agent may at any time apply any or all of such cash and cash collateral to the payment of any or all of the Credit Parties’ Obligations in respect of any Letters of Credit. Pending such application, the Agent may (but shall not be obligated to) invest the same in an interest bearing account in the Agent’s name, for the benefit of the L/C Issuers, the Agent and the Lenders entitled thereto, under which deposits are available for immediate withdrawal, at such bank or financial institution as the L/C Issuer and the Agent may, in their discretion, select.

66

ARTICLE VIII—THE AGENT

8.1 Appointment and Duties.

(a) Appointment of Agent. Each Lender and each L/C Issuer hereby appoints GE Capital (together with any successor Agent pursuant to Section 8.9) as the Agent hereunder and authorizes the Agent to (i) execute and deliver the Loan Documents and accept delivery thereof on its behalf from any Credit Party, (ii) take such action on its behalf and to exercise all rights, powers and remedies and perform the duties as are expressly delegated to the Agent under such Loan Documents and (iii) exercise such powers as are reasonably incidental thereto.

(b) Duties as Collateral and Disbursing Agent. Without limiting the generality of clause (a) above, the Agent shall have the sole and exclusive right and authority (to the exclusion of the Lenders and L/C Issuers), and is hereby authorized, to (i) act as the disbursing and collecting agent for the Lenders and the L/C Issuers with respect to all payments and collections arising in connection with the Loan Documents (including in any proceeding described in subsection 7.1(g) or any other bankruptcy, insolvency or similar proceeding), and each Person making any payment in connection with any Loan Document to any Secured Party is hereby authorized to make such payment to the Agent, (ii) file and prove claims and file other documents necessary or desirable to allow the claims of the Secured Parties with respect to any Obligation in any proceeding described in subsection 7.1(g) or any other bankruptcy, insolvency or similar proceeding (but not to vote, consent or otherwise act on behalf of such Person), (iii) act as collateral agent for each Secured Party for purposes of the perfection of all Liens created by such agreements and all other purposes stated therein, (iv) manage, supervise and otherwise deal with the Collateral, (v) take such other action as is necessary or desirable to maintain the perfection and priority of the Liens created or purported to be created by the Loan Documents, (vi) except as may be otherwise specified in any Loan Document, exercise all remedies given to the Agent and the other Secured Parties with respect to the Collateral, whether under the Loan Documents, applicable Requirements of Law or otherwise and (vii) execute any amendment, consent or waiver under the Loan Documents on behalf of any Lender that has consented in writing to such amendment, consent or waiver; provided, however, that the Agent hereby appoints, authorizes and directs each Lender and L/C Issuer to act as collateral sub-agent for the Agent, the Lenders and the L/C Issuers for purposes of the perfection of all Liens with respect to the Collateral, including any deposit account maintained by a Credit Party with, and cash and Cash Equivalents held by, such Lender or L/C Issuer, and may further authorize and direct the Lenders and the L/C Issuers to take further actions as collateral sub-agents for purposes of enforcing such Liens or otherwise to transfer the Collateral subject thereto to the Agent, and each Lender and L/C Issuer hereby agrees to take such further actions to the extent, and only to the extent, so authorized and directed.

(c) Limited Duties. Under the Loan Documents, the Agent (i) is acting solely on behalf of the Lenders and the L/C Issuers (except to the limited extent provided in subsection 1.4(b) with respect to the Register), with duties that are entirely

67

administrative in nature, notwithstanding the use of the defined term “Agent”, the terms “agent”, “Agent” and “collateral agent” and similar terms in any Loan Document to refer to the Agent, which terms are used for title purposes only, (ii) is not assuming any obligation under any Loan Document other than as expressly set forth therein or any role as agent, fiduciary or trustee of or for any Lender, L/C Issuer or any other Person and (iii) shall have no implied functions, responsibilities, duties, obligations or other liabilities under any Loan Document, and each Lender and L/C Issuer hereby waives and agrees not to assert any claim against the Agent based on the roles, duties and legal relationships expressly disclaimed in clauses (i) through (iii) above. The title of Documentation Agent is purely administrative in nature. The Co-Documentation Agents named on the cover of this Agreement shall have no duties or liabilities hereunder other than those duties and liabilities applicable to any Lender.

(d) UK Security Documents. Without prejudice to the foregoing, each of the Agent, the Lenders and each L/C Issuer hereby acknowledges, agrees and accepts that the Agent holds Collateral which is the subject of the UK Security Documents as trustee for and on behalf of the Secured Parties in accordance with the terms of the declaration of trust set out in the UK Security Documents and that the terms of its appointment, and such trust, shall be as set out (or referred to) in the relevant UK Security Documents and this Agreement.

(e) INTERCREDITOR AGREEMENT AND POST-CLOSING AGREEMENT. EACH LENDER AND EACH OTHER PERSON PARTY HERETO FROM TIME TO TIME (OTHER THAN THE CREDIT PARTIES) HEREBY (A) ACKNOWLEDGES THAT IT HAS RECEIVED A COPY OF THE INTERCREDITOR AGREEMENT, (B) CONSENTS TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT, (C) AGREES THAT IT WILL BE BOUND BY AND WILL TAKE NO ACTIONS CONTRARY TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT AND (D) AUTHORIZES AND INSTRUCTS THE AGENT ON ITS BEHALF TO ENTER INTO THE INTERCREDITOR AGREEMENT AS FIRST LIEN AGENT (AS DEFINED THEREIN) AND ON BEHALF OF SUCH LENDER. AGENT IS AUTHORIZED TO EXECUTE AND DELIVER THAT CERTAIN POST-CLOSING MATTERS AGREEMENT DATED AS OF THE DATE HEREOF AMONG THE CREDIT PARTIES AND AGENT, AND EACH LENDER BY MAKING OR PURCHASING AN INTEREST IN LOANS AT ANY TIME SHALL BE DEEMED TO HAVE AGREED TO BE BOUND BY SUCH AGREEMENT.

8.2 Binding Effect. Each Lender and each L/C Issuer agrees that (i) any action taken by the Agent or the Required Lenders (or, if expressly required hereby, a greater proportion of the Lenders) in accordance with the provisions of the Loan Documents, (ii) any action taken by the Agent in reliance upon the instructions of the Required Lenders (or, where so required, such greater proportion) and (iii) the exercise by the Agent or the Required Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Secured Parties.

68

8.3 Use of Discretion.

(a) No Action without Instructions. The Agent shall not be required to exercise any discretion or take, or to omit to take, any action, including with respect to enforcement or collection, except any action it is required to take or omit to take (i) under any Loan Document or (ii) pursuant to instructions from the Required Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders).

(b) Right Not to Follow Certain Instructions. Notwithstanding clause (a) above, the Agent shall not be required to take, or to omit to take, any action (i) unless, upon demand, the Agent receives an indemnification satisfactory to it from the Lenders (or, to the extent applicable and acceptable to the Agent, any other Person) against all Liabilities that, by reason of such action or omission, may be imposed on, incurred by or asserted against the Agent or any Related Person thereof or (ii) that is, in the opinion of the Agent or its counsel, contrary to any Loan Document or applicable Requirement of Law.

8.4 Delegation of Rights and Duties. The Agent may, upon any term or condition it specifies, delegate or exercise any of its rights, powers and remedies under, and delegate or perform any of its duties or any other action with respect to, any Loan Document by or through any trustee, co-agent, employee, attorney-in-fact and any other Person (including any Secured Party). Any such Person shall benefit from this Article VIII to the extent provided by the Agent.

8.5 Reliance and Liability.

(a) The Agent may, without incurring any liability hereunder, (i) treat the payee of any Note as its holder until such Note has been assigned in accordance with Section 9.9, (ii) rely on the Register to the extent set forth in Section 1.4, (iii) consult with any of its Related Persons and, whether or not selected by it, any other advisors, accountants and other experts (including advisors to, and accountants and experts engaged by, any Credit Party) and (iv) rely and act upon any document and information (including those transmitted by Electronic Transmission) and any telephone message or conversation, in each case believed by it to be genuine and transmitted, signed or otherwise authenticated by the appropriate parties.

(b) None of the Agent and its Related Persons shall be liable for any action taken or omitted to be taken by any of them under or in connection with any Loan Document, and each Lender, L/C Issuer, ITG, each Borrower and each other Credit Party hereby waive and shall not assert (and each of ITG and the Borrowers shall cause each other Credit Party to waive and agree not to assert) any right, claim or cause of action based thereon, except to the extent of liabilities resulting from the gross negligence or willful misconduct of the Agent or, as the case may be, such Related Person (each as determined in a final, non-appealable judgment by a court of competent jurisdiction) in connection with the duties expressly set forth herein. Without limiting the foregoing, the Agent:

(i) shall not be responsible or otherwise incur liability for any action or omission taken in reliance upon the instructions of the Required Lenders or for the actions or omissions of any of its Related Persons selected with reasonable care (other than employees, officers and directors of the Agent, when acting on behalf of the Agent);

69

(ii) shall not be responsible to any Lender, L/C Issuer or other Person for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency or value of, or the attachment, perfection or priority of any Lien created or purported to be created under or in connection with, any Loan Document;

(iii) makes no warranty or representation, and shall not be responsible, to any Lender, L/C Issuer or other Person for any statement, document, information, representation or warranty made or furnished by or on behalf of any Credit Party or any Related Person of any Credit Party in connection with any Loan Document or any transaction contemplated therein or any other document or information with respect to any Credit Party, whether or not transmitted or (except for documents expressly required under any Loan Document to be transmitted to the Lenders) omitted to be transmitted by the Agent, including as to completeness, accuracy, scope or adequacy thereof, or for the scope, nature or results of any due diligence performed by the Agent in connection with the Loan Documents; and

(iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any provision of any Loan Document, whether any condition set forth in any Loan Document is satisfied or waived, as to the financial condition of any Credit Party or as to the existence or continuation or possible occurrence or continuation of any Default or Event of Default and shall not be deemed to have notice or knowledge of such occurrence or continuation unless it has received a notice from the Borrower Representative, any Lender or L/C Issuer describing such Default or Event of Default clearly labeled “notice of default” (in which case the Agent shall promptly give notice of such receipt to all Lenders);

and, for each of the items set forth in clauses (i) through (iv) above, each Lender, L/C Issuer, ITG and each Borrower hereby waives and agrees not to assert (and each of ITG and each Borrower shall cause each other Credit Party to waive and agree not to assert) any right, claim or cause of action it might have against the Agent based thereon.

8.6 Agent Individually. The Agent and its Affiliates may make loans and other extensions of credit to, acquire Stock and Stock Equivalents of, engage in any kind of business with, any Credit Party or Affiliate thereof as though it were not acting as the Agent and may receive separate fees and other payments therefor. To the extent the Agent or any of its Affiliates makes any Loan or otherwise becomes a Lender hereunder, it shall have and may exercise the same rights and powers hereunder and shall be subject to the same obligations and liabilities as any other Lender and the terms “Lender”,

70

“Revolving Lender”, “Required Lender”, “Required Revolving Lender” and any similar terms shall, except where otherwise expressly provided in any Loan Document, include, without limitation, the Agent or such Affiliate, as the case may be, in its individual capacity as Lender, Revolving Lender or as one of the Required Lenders.

8.7 Lender Credit Decision. Each Lender and each L/C Issuer acknowledges that it shall, independently and without reliance upon the Agent, any Lender or L/C Issuer or any of their Related Persons or upon any document (including any offering and disclosure materials in connection with the syndication of the Loans) solely or in part because such document was transmitted by the Agent or any of its Related Persons, conduct its own independent investigation of the financial condition and affairs of each Credit Party and make and continue to make its own credit decisions in connection with entering into, and taking or not taking any action under, any Loan Document or with respect to any transaction contemplated in any Loan Document, in each case based on such documents and information as it shall deem appropriate. Except for documents expressly required by any Loan Document to be transmitted by the Agent to the Lenders or L/C Issuers, the Agent shall not have any duty or responsibility to provide any Lender or L/C Issuer with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Credit Party or any Affiliate of any Credit Party that may come in to the possession of the Agent or any of its Related Persons.

8.8 Expenses; Indemnities.

(a) Each Lender agrees to reimburse the Agent and each of its Related Persons (to the extent not reimbursed by any Credit Party) promptly upon demand, severably and ratably, of any costs and expenses (including fees, charges and disbursements of financial, legal and other advisors and Other Taxes (as defined in Section 10.1(c)) paid in the name of, or on behalf of, any Credit Party) that may be incurred by the Agent or any of its Related Persons in connection with the preparation, execution, delivery, administration, modification, consent, waiver or enforcement (whether through negotiations, through any work-out, bankruptcy, restructuring or other legal or other proceeding or otherwise) of, or legal advice in respect of its rights or responsibilities under, any Loan Document.

(b) Each Lender further agrees to indemnify the Agent and each of its Related Persons (to the extent not reimbursed by any Credit Party), severably and ratably, from and against Liabilities (including taxes, interests and penalties imposed for not properly withholding or backup withholding on payments made to or for the account of any Lender) that may be imposed on, incurred by or asserted against, the Agent or any of its Related Persons in any matter relating to or arising out of, in connection with or as a result of, any Loan Document, any Related Document or any other act, event or transaction related, contemplated in or attendant to any such document, or, in each case, any action taken or omitted to be taken by the Agent or any of its Related Persons under or with respect to any of the foregoing; provided, however, that no Lender shall be liable to the Agent or any of its Related Persons to the extent such liability has resulted primarily from the gross negligence or willful misconduct of the Agent or, as the case

71

may be, such Related Person, as determined by a court of competent jurisdiction in a final non-appealable judgment or order; and provided further, a Related Person shall be indemnified only to the extent any of the foregoing relates to or arises from the Related Person acting for Agent (in its capacity as Agent).

8.9 Resignation of Agent or L/C Issuer.

(a) The Agent may resign at any time by delivering notice of such resignation to the Lenders and the Borrower Representative, effective on the date set forth in such notice or, if no such date is set forth therein, upon the date such notice shall be effective. If the Agent delivers any such notice, the Required Lenders shall have the right to appoint a successor Agent. If, within 30 days after the retiring Agent having given notice of resignation, no successor Agent has been appointed by the Required Lenders that has accepted such appointment, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent from among the Lenders. Each appointment under this clause (a) shall be subject to the prior consent of the Borrowers, which may not be unreasonably withheld but shall not be required during the continuance of an Event of Default.

(b) Effective immediately upon its resignation, (i) the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, (ii) the Lenders shall assume and perform all of the duties of the Agent until a successor Agent shall have accepted a valid appointment hereunder, (iii) the retiring Agent and its Related Persons shall no longer have the benefit of any provision of any Loan Document other than with respect to any actions taken or omitted to be taken while such retiring Agent was, or because such Agent had been, validly acting as the Agent under the Loan Documents and (iv) subject to its rights under Section 8.3, the retiring Agent shall take such action as may be reasonably necessary to assign to the successor Agent its rights as the Agent under the Loan Documents. Effective immediately upon its acceptance of a valid appointment as the Agent, a successor Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the retiring Agent under the Loan Documents.

(c) So long as at least one L/C Issuer remains, any L/C Issuer may resign at any time by delivering notice of such resignation to the Agent, effective on the date set forth in such notice or, if no such date is set forth therein, on the date such notice shall be effective. Upon such resignation, the L/C Issuer shall remain an L/C Issuer and shall retain its rights and obligations in its capacity as such (other than any obligation to Issue Letters of Credit but including the right to receive fees or to have Lenders participate in any L/C Reimbursement Obligation thereof) with respect to Letters of Credit issued by such L/C Issuer prior to the date of such resignation and shall otherwise be discharged from all other duties and obligations under the Loan Documents.

8.10 Release of Collateral or Guarantors. Each Lender and L/C Issuer hereby consents to the release and hereby directs the Agent to release (or, in the case of clause (b)(ii) below, release or subordinate) the following:

(a) any Subsidiary of a Borrower from its guaranty of any Obligation if all of the Stock and Stock Equivalents of such Subsidiary owned by any Credit Party are sold or transferred in a transaction permitted under the Loan Documents (including pursuant to a waiver or consent), to the extent that, after giving effect to such transaction, such Subsidiary would not be required to guaranty any Obligations pursuant to Section 4.13; and

72

(b) any Lien held by the Agent for the benefit of the Secured Parties against (i) any Collateral that is sold, transferred, conveyed or otherwise disposed of by a Credit Party in a transaction permitted by the Loan Documents (including pursuant to a valid waiver or consent), to the extent all Liens required to be granted in such Collateral pursuant to Section 4.13 after giving effect to such transaction have been granted, (ii) any property subject to a Lien permitted hereunder in reliance upon subsection 5.1(h) or (i) and (iii) all of the Collateral and all Credit Parties, upon (A) termination of the Revolving Loan Commitments, (B) payment and satisfaction in full of all Loans, all L/C Reimbursement Obligations and all other Obligations under the Loan Documents that the Agent has been notified in writing are then due and payable, (C) deposit of cash collateral with respect to all contingent Obligations (or, in the case of any Letter of Credit Obligation, receipt by the Agent of a back-up letter of credit) in amounts and on terms and conditions and with parties satisfactory to the Agent and each Indemnitee that is, or may be, owed such Obligations and (D) to the extent requested by the Agent, receipt by the Agent and the Secured Parties of liability releases from the Credit Parties each in form and substance acceptable to the Agent.

Each Lender and L/C Issuer hereby directs the Agent, and the Agent hereby agrees, upon five days advance notice from the Borrower Representative (or such shorter period as the Agent shall agree), to execute and deliver or file such documents and to perform other actions reasonably necessary to release the guaranties and Liens when and as directed in this Section 8.10.

8.11 Additional Secured Parties. The benefit of the provisions of the Loan Documents directly relating to the Collateral or any Lien granted thereunder shall extend to and be available to any Secured Party that is not a Lender or L/C Issuer party hereto as long as, by accepting such benefits, such Secured Party agrees, as among the Agent and all other Secured Parties, that such Secured Party is bound by (and, if requested by the Agent, shall confirm such agreement in a writing in form and substance acceptable to the Agent) this Article VIII, Section 9.3, Section 9.9, Section 9.10, Section 9.11, Section 9.17, Section 9.24 and Section 10.1 and the decisions and actions of the Agent and the Required Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders or other parties hereto as required herein) to the same extent a Lender is bound; provided, however, that, notwithstanding the foregoing, (a) such Secured Party shall be bound by Section 8.8 only to the extent of Liabilities, costs and expenses with respect to or otherwise relating to the Collateral held for the benefit of such Secured Party, in which case the obligations of such Secured Party thereunder shall not be limited by any concept of pro rata share or similar concept, (b) each of the Agent, the Lenders and the L/C Issuers party hereto shall be entitled to act at its sole discretion, without regard to the interest of such Secured Party, regardless of whether any Obligation

73

to such Secured Party thereafter remains outstanding, is deprived of the benefit of the Collateral, becomes unsecured or is otherwise affected or put in jeopardy thereby, and without any duty or liability to such Secured Party or any such Obligation and (c) except as otherwise set forth herein, such Secured Party shall not have any right to be notified of, consent to, direct, require or be heard with respect to, any action taken or omitted in respect of the Collateral or under any Loan Document.

ARTICLE IX—MISCELLANEOUS

9.1 Amendments and Waivers.

(a) Except as provided in Section 1.1(a)(ii) with respect to a Commitment Increase, amendments to Schedule 1.12 and in Section 1.14 regarding amendments to Schedule 1.14, no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Credit Party therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent with the consent of the Required Lenders), the Borrowers and acknowledged by the Agent, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders directly affected thereby (or by the Agent with the consent of all the Lenders directly affected thereby, or in the case of clauses (vi), (vii) or (viii) below, the Super-Majority Lenders) (in addition to the Required Lenders or the Agent with the consent of the Required Lenders), the Borrowers and acknowledged by the Agent, do any of the following:

(i) increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to subsection 7.2(a));

(ii) postpone or delay any date fixed for, or waive, any scheduled installment of principal or any payment of interest, fees or other amounts due to the Lenders (or any of them) or L/C Issuer hereunder or under any other Loan Document;

(iii) reduce the principal of, or the rate of interest specified herein or the amount of interest payable in cash specified herein on any Loan, or of any fees or other amounts payable hereunder or under any other Loan Document, including L/C Reimbursement Obligations;

(iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which shall be required for the Lenders or any of them to take any action hereunder;

(v) amend this Section 9.1 or the definition of “Required Lenders” or “Super-Majority Lenders” or any provision providing for consent or other action by all Lenders or “Super-Majority Lenders”;

74

(vi) amend the definition of “Availability Block” which reduces the amount specified therein;

(vii) increase the $30,000,000 limitation in Section 1.12(b)(iv), the percentage advance rates set forth in the definition of Borrowing Base, or the $22,300,000 limitation set forth in clause (d) of such definition;

(viii) amend or waive Section 1.10(c) or (d) or Section 4.14; or

(ix) discharge any Credit Party from its respective payment Obligations under the Loan Documents, or release all or substantially all of the Collateral, except as otherwise may be provided in this Agreement or the other Loan Documents;

it being agreed that all Lenders shall be deemed to be directly affected by an amendment or waiver of the type described in the preceding clauses (iv), (v) and (ix).

(b) No amendment, waiver or consent shall, unless in writing and signed by the Agent, the Swingline Lender or the L/C Issuer, as the case may be, in addition to the Required Lenders or all the Lenders directly affected thereby, as the case may be (or by the Agent with the consent of the Required Lenders or all the Lenders directly affected thereby, as the case may be), affect the rights or duties of the Agent, the Swingline Lender or the L/C Issuer, as the case may be, under this Agreement or any other Loan Document.

(c) Notwithstanding anything to the contrary contained in this Section 9.1, the Agent may amend Schedule 1.1(a) to reflect assignments entered into pursuant to Section 9.9 and any Commitment Increase pursuant to Section 1.1(a)(ii).

9.2 Notices.

(a) Addresses. All notices, demands, requests, directions and other communications required or expressly authorized to be made by this Agreement shall, whether or not specified to be in writing but unless otherwise expressly specified in this Agreement to be given by any other means (including by way of facsimile), be given in writing and (i) addressed to the address set forth on the applicable signature page hereto, (ii) posted to Intralinks^® (to the extent such system is available and set up by or at the direction of the Agent prior to posting) in an appropriate location by uploading such notice, demand, request, direction or other communication to www.intralinks.com, faxing it to 866-545-6600 with an appropriate bar-code fax coversheet or using such other means of posting to Intralinks^® as may be available and reasonably acceptable to the Agent prior to such posting, (iii) posted to any other E-System set up by or at the direction of the Agent or (iv) addressed to such other address as shall be notified in writing (A) in the case of the Borrowers, the Agent and the Swingline Lender, to the other parties hereto and (B) in the case of all other parties, to the Borrower Representative and the Agent. Transmission by electronic mail (including E-Fax, even if transmitted to the fax numbers set forth above) shall not be sufficient or effective to transmit any such notice under this clause (a) unless such transmission is an available means to post to any E-System.

75

(b) Effectiveness. All communications described in clause (a) above and all other notices, demands, requests and other communications made in connection with this Agreement shall be effective and be deemed to have been received (i) if delivered by hand, upon personal delivery, (ii) if delivered by overnight courier service, 1 Business Day after delivery to such courier service, (iii) if delivered by mail, when deposited in the mails, (iv) if delivered by facsimile (other than to post to an E-System pursuant to clause (a)(ii) or (a)(iii) above), upon sender’s receipt of confirmation of proper transmission, and (v) if delivered by posting to any E-System, on the later of the date of such posting and the date access to such posting is given to the recipient thereof in accordance with the standard procedures applicable to such E-System; provided, however, that no communications to the Agent pursuant to Article I shall be effective until received by the Agent.

(c) Each Lender shall notify the Agent in writing of any changes in the address to which notices to such Lender should be directed, of addresses of its Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request.

9.3 Electronic Transmissions.

(a) Authorization. Subject to the provisions of Section 9.2(a), each of the Agent, Lenders, each Credit Party and each of their Related Persons, is authorized (but not required) to transmit, post or otherwise make or communicate, in its sole discretion, Electronic Transmissions in connection with any Loan Document and the transactions contemplated therein. Each Credit Party and each Secured Party hereto acknowledges and agrees that the use of Electronic Transmissions is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each indicates it assumes and accepts such risks by hereby authorizing the transmission of Electronic Transmissions.

(b) Signatures. Subject to the provisions of Section 9.2(a), (i)(A) no posting to any E-System shall be denied legal effect merely because it is made electronically, (B) each E-Signature on any such posting shall be deemed sufficient to satisfy any requirement for a “signature” and (C) each such posting shall be deemed sufficient to satisfy any requirement for a “writing”, in each case including pursuant to any Loan Document, any applicable provision of any UCC, the federal Uniform Electronic Transactions Act, the Electronic Signatures in Global and National Commerce Act and any substantive or procedural Requirement of Law governing such subject matter, (ii) each such posting that is not readily capable of bearing either a signature or a reproduction of a signature may be signed, and shall be deemed signed, by attaching to, or logically associating with such posting, an E-Signature, upon which the Agent, each Secured Party and each Credit Party may rely and assume the authenticity thereof, (iii) each such posting containing a signature, a reproduction of a signature or an E-Signature shall, for all intents and purposes, have the same effect and weight as a signed paper

76

original and (iv) each party hereto or beneficiary hereto agrees not to contest the validity or enforceability of any posting on any E-System or E-Signature on any such posting under the provisions of any applicable Requirement of Law requiring certain documents to be in writing or signed; provided, however, that nothing herein shall limit such party’s or beneficiary’s right to contest whether any posting to any E-System or E-Signature has been altered after transmission.

(c) Separate Agreements. All uses of an E-System shall be governed by and subject to, in addition to Section 9.2 and this Section 9.3, separate terms and conditions posted or referenced in such E-System and related Contractual Obligations executed by the Agent and Credit Parties in connection with the use of such E-System.

(d) LIMITATION OF LIABILITY. ALL E-SYSTEMS AND ELECTRONIC TRANSMISSIONS SHALL BE PROVIDED “AS IS” AND “AS AVAILABLE”. NONE OF AGENT, ANY LENDER OR ANY OF THEIR RELATED PERSONS WARRANTS THE ACCURACY, ADEQUACY OR COMPLETENESS OF ANY E-SYSTEMS OR ELECTRONIC TRANSMISSION AND DISCLAIMS ALL LIABILITY FOR ERRORS OR OMISSIONS THEREIN. NO WARRANTY OF ANY KIND IS MADE BY AGENT, ANY LENDER OR ANY OF THEIR RELATED PERSONS IN CONNECTION WITH ANY E-SYSTEMS OR ELECTRONIC COMMUNICATION, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS. Each of each Borrower, each other Credit Party executing this Agreement and each Secured Party agrees that the Agent has no responsibility for maintaining or providing any equipment, software, services or any testing required in connection with any Electronic Transmission or otherwise required for any E-System.

9.4 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No course of dealing between any Credit Party, any Affiliate of any Credit Party, the Agent or any Lender shall be effective to amend, modify or discharge any provision of this Agreement or any of the other Loan Documents.

9.5 Costs and Expenses. Any action taken by any Credit Party under or with respect to any Loan Document, even if required under any Loan Document or at the request of the Agent or the Required Lenders, shall be at the expense of such Credit Party, and neither the Agent nor any other Secured Party shall be required under any Loan Document to reimburse any Credit Party or any Subsidiary of any Credit Party therefor except as expressly provided therein. In addition, the Borrowers agree to pay or reimburse upon demand (a) the Agent for all reasonable out-of-pocket costs and expenses incurred by it or any of its Related Persons, in connection with the investigation, development, preparation, negotiation, syndication, execution, interpretation or administration of, any modification of any term of or termination of, any Loan

77

Document, any commitment or proposal letter therefor, any other document prepared in connection therewith or the consummation and administration of any transaction contemplated therein, in each case including Attorney Costs to the Agent, (b) the Agent for all reasonable costs and expenses incurred by it or any of its Related Persons in connection with internal audit reviews, field examinations and Collateral examinations (which shall be reimbursed, in addition to the out-of-pocket costs and expenses of such examiners, at the per diem rate per individual charged by the Agent for its examiners) in each case performed or conducted as required or permitted by this Agreement, (c) each of the Agent, its Related Persons, and L/C Issuer for all costs and expenses incurred in connection with (i) any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work-out”, (ii) the enforcement or preservation of any right or remedy under any Loan Document, any Obligation, with respect to the Collateral or any other related right or remedy or (iii) the commencement, defense, conduct of, intervention in, or the taking of any other action with respect to, any proceeding (including any bankruptcy or insolvency proceeding) related to any Credit Party, any Subsidiary of any Credit Party, Loan Document, Obligation or Related Transaction (or the response to and preparation for any subpoena or request for document production relating thereto), including Attorney Costs and (d) fees and disbursements of Attorney Costs of one law firm on behalf of all Lenders (other than the Agent) incurred in connection with any of the matters referred to in clause (c) above.

9.6 Indemnity.

(a) Each Credit Party agrees to indemnify, hold harmless and defend the Agent, each Lender, each L/C Issuer and each of their respective Related Persons (each such Person being an “Indemnitee”) from and against all Liabilities (including brokerage commissions, fees and other compensation) that may be imposed on, incurred by or asserted against any such Indemnitee in any matter relating to or arising out of, in connection with or as a result of (i) any Loan Document, any Related Agreement, any Obligation (or the repayment thereof), any Letter of Credit, the use or intended use of the proceeds of any Loan or the use of any Letter of Credit or any securities filing of, or with respect to, any Credit Party, (ii) any Contractual Obligation entered into in connection with any E-Systems or other Electronic Transmissions, (iii) any actual or prospective investigation, litigation or other proceeding, whether or not brought by any such Indemnitee or any of its Related Persons, any holders of securities or creditors (and including attorneys’ fees in any case), whether or not any such Indemnitee, Related Person, holder or creditor is a party thereto, and whether or not based on any securities or commercial law or regulation or any other Requirement of Law or theory thereof, including common law, equity, contract, tort or otherwise or (iv) any other act, event or transaction related, contemplated in or attendant to any of the foregoing (collectively, the “Indemnified Matters”); provided, however, that no Credit Party shall have any liability under this Section 9.6 to any Indemnitee with respect to any Indemnified Matter, and no Indemnitee shall have any liability with respect to any Indemnified Matter other than (to the extent otherwise liable), to the extent such liability has resulted from the gross negligence or willful misconduct of such Indemnitee, as determined by a court of competent jurisdiction in a final non-appealable judgment or order. Furthermore, each of each Borrower and each other Credit Party executing this Agreement waives and agrees

78

not to assert against any Indemnitee, and shall cause each other Credit Party to waive and not assert against any Indemnitee, any right of contribution with respect to any Liabilities that may be imposed on, incurred by or asserted against any Related Person.

(b) Without limiting the foregoing, “Indemnified Matters” includes all Environmental Liabilities, including those arising from, or otherwise involving, any property of any Credit Party or any Related Person of any Credit Party or any actual, alleged or prospective damage to property or natural resources or harm or injury alleged to have resulted from any Release of Hazardous Materials on, upon or into such property or natural resource or any property on or contiguous to any real property of any Credit Party or any Related Person or any Credit Party, whether or not, with respect to any such Environmental Liabilities, any Indemnitee is a mortgagee pursuant to any leasehold mortgage, a mortgagee in possession, the successor-in-interest to any Credit Party or any Related Person of any Credit Party or the owner, lessee or operator of any property of any Related Person through any foreclosure action, in each case except to the extent such Environmental Liabilities (i) are incurred solely following foreclosure by the Agent or following the Agent or any Lender having become the successor-in-interest to any Credit Party or any Related Person of any Credit Party and (ii) are attributable solely to acts of such Indemnitee.

9.7 Marshaling; Payments Set Aside. No Secured Party shall be under any obligation to marshal any property in favor of any Credit Party or any other Person or against or in payment of any Obligation. To the extent that the Secured Party receives a payment from a Borrower, from any other Credit Party, from the proceeds of the Collateral, from the exercise of its rights of setoff, any enforcement action or otherwise, and such payment is subsequently, in whole or in part, invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not occurred.

9.8 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that any assignment by any Lender shall be subject to the provisions of Section 9.9 hereof, and provided further that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Lender.

9.9 Assignments and Participations; Binding Effect.

(a) This Agreement shall become effective when it shall have been executed by ITG, the Borrowers, the other Credit Parties signatory hereto and the Agent and when the Agent shall have been notified by each Lender and the initial L/C Issuer that such Lender or L/C Issuer has executed it. Thereafter, it shall be binding upon and inure to the benefit of, but only to the benefit of, ITG, the Borrowers, the other Credit Parties hereto (in each case except for Article VIII), the Agent, each Lender and L/C Issuer party hereto and, to the extent provided in Section 8.11, each other Secured Party

79

and, in each case, their respective successors and permitted assigns. Except as expressly provided in any Loan Document (including in Section 8.9), none of ITG, any Borrower, any other Credit Party, any L/C Issuer or the Agent shall have the right to assign any rights or obligations hereunder or any interest herein.

(b) Each Lender may sell, transfer, negotiate or assign (a “Sale”) all or a portion of its rights and obligations hereunder (including all or a portion of its Commitments and its rights and obligations with respect to Loans and Letters of Credit) to (i) any existing Lender, (ii) any Affiliate or Approved Fund of any existing Lender or (iii) any other Person acceptable (which acceptance shall not be unreasonably withheld or delayed) to the Agent and, as long as no Event of Default is continuing, the Borrower Representative; provided, however, that for each Loan, the aggregate outstanding principal amount (determined as of the effective date of the applicable Assignment) of the Loans, Commitments and Letter of Credit Obligations subject to any such Sale shall be in a minimum amount of $10,000,000, unless such Sale is made to an existing Lender or an Affiliate or Approved Fund of any existing Lender, is of the assignor’s (together with its Affiliates and Approved Funds) entire interest in such Loans, Commitments and Letter of Credit Obligations, or is made with the prior consent of the Borrower Representative and the Agent.

(c) The parties to each Sale made in reliance on clause (b) above (other than those described in clause (e) or (f) below) shall execute and deliver to the Agent (which shall keep a copy thereof) an Assignment, together with any existing Note subject to such Sale (or any affidavit of loss therefor acceptable to the Agent), any tax forms required to be delivered pursuant to Section 10.1 and payment by the assignee of an assignment fee in the amount of $3,500 (unless waived by the Agent in its sole discretion). Upon receipt of all the foregoing, and conditioned upon such receipt and upon the Agent consenting to such Assignment (if required), from and after the effective date specified in such Assignment, the Agent shall record or cause to be recorded in the Register the information contained in such Assignment.

(d) Effective upon the entry of such record in the Register, (i) such assignee shall become a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to such assignee pursuant to such Assignment, shall have the rights and obligations of a Lender, (ii) any applicable Note shall be transferred to such assignee through such entry and (iii) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment, relinquish its rights (except for those surviving the termination of the Commitments and the payment in full of the Obligations) and be released from its obligations under the Loan Documents, other than those relating to events or circumstances occurring prior to such assignment (and, in the case of an Assignment covering all or the remaining portion of an assigning Lender’s rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto).

(e) In addition to the other rights provided in this Section 9.9, each Lender may grant a security interest in, or otherwise assign as collateral, any of its rights under this Agreement, whether now owned or hereafter acquired (including rights to

80

payments of principal or interest on the Loans), to (A) any federal reserve bank (pursuant to Regulation A of the Federal Reserve Board), without notice to the Agent or (B) any holder of, or trustee for the benefit of the holders of, such Lender’s Indebtedness or equity securities, by notice to the Agent; provided, however, that no such holder or trustee, whether because of such grant or assignment or any foreclosure thereon (unless such foreclosure is made through an assignment in accordance with clause (b) above), shall be entitled to any rights of such Lender hereunder and no such Lender shall be relieved of any of its obligations hereunder.

(f) In addition to the other rights provided in this Section 9.9, each Lender may, (x) with notice to the Agent, grant to an SPV the option to make all or any part of any Loan that such Lender would otherwise be required to make hereunder (and the exercise of such option by such SPV and the making of Loans pursuant thereto shall satisfy the obligation of such Lender to make such Loans hereunder) and such SPV may assign to such Lender the right to receive payment with respect to any Obligation and (y) without notice to or consent from the Agent or the Borrowers, sell participations to one or more Persons in or to all or a portion of its rights and obligations under the Loan Documents (including all its rights and obligations with respect to the Revolving Loans and Letters of Credit); provided, however, that, whether as a result of any term of any Loan Document or of such grant or participation, (i) no such SPV or participant shall have a commitment, or be deemed to have made an offer to commit, to make Loans hereunder, and, except as provided in the applicable option agreement, none shall be liable for any obligation of such Lender hereunder, (ii) such Lender’s rights and obligations, and the rights and obligations of the Credit Parties and the Secured Parties towards such Lender, under any Loan Document shall remain unchanged and each other party hereto shall continue to deal solely with such Lender, which shall remain the holder of the Obligations in the Register, except that (A) each such participant and SPV shall be entitled to the benefit of Article X, but, with respect to Section 10.1, only to the extent such participant or SPV delivers the tax forms such Lender is required to collect pursuant to subsection 10.1(f) and then only to the extent of any amount to which such Lender would be entitled in the absence of any such grant or participation and (B) each such SPV may receive other payments that would otherwise be made to such Lender with respect to Loans funded by such SPV to the extent provided in the applicable option agreement and set forth in a notice provided to the Agent by such SPV and such Lender, provided, however, that in no case (including pursuant to clause (A) or (B) above) shall an SPV or participant have the right to enforce any of the terms of any Loan Document, and (iii) the consent of such SPV or participant shall not be required (either directly, as a restraint on such Lender’s ability to consent hereunder or otherwise) for any amendments, waivers or consents with respect to any Loan Document or to exercise or refrain from exercising any powers or rights such Lender may have under or in respect of the Loan Documents (including the right to enforce or direct enforcement of the Obligations), except for those described in clauses (ii) and (iii) of subsection 9.1(a) with respect to amounts, or dates fixed for payment of amounts, to which such participant or SPV would otherwise be entitled and, in the case of participants, except for those described in clause (vi) of subsection 9.1(a). No party hereto shall institute (and each Borrower and ITG shall cause each other Credit Party not to institute) against any SPV grantee of an option pursuant to this clause (f) any bankruptcy, reorganization, insolvency, liquidation or similar

81

proceeding, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper of such SPV; provided, however, that each Lender having designated an SPV as such agrees to indemnify each Indemnitee against any Liability that may be incurred by, or asserted against, such Indemnitee as a result of failing to institute such proceeding (including a failure to get reimbursed by such SPV for any such Liability). The agreement in the preceding sentence shall survive the termination of the Commitments and the payment in full of the Obligations.

9.10 Confidentiality. Each Lender, L/C Issuer and the Agent shall maintain the confidentiality of information obtained by it pursuant to any Loan Document and designated in writing by any Credit Party as confidential for a period ending on the date two (2) years following the date on which this Agreement terminates in accordance with the terms hereof, except that such information may be disclosed (i) with the Borrower Representative’s consent, (ii) to Related Persons of such Lender, L/C Issuer or the Agent, as the case may be, or to any Person that any L/C Issuer causes to issue Letters of Credit hereunder, that are advised of the confidential nature of such information and are instructed to keep such information confidential, (iii) to the extent such information presently is or hereafter becomes available to such Lender, L/C Issuer or the Agent, as the case may be, on a non-confidential basis from a source other than any Credit Party, (iv) to the extent disclosure is required by applicable Requirements of Law or other legal process or requested or demanded by any Governmental Authority, (v) to the extent necessary or customary for inclusion in league table measurements or in any tombstone or other advertising materials (and the Loan Parties consent to the publication of such tombstone or other advertising materials by the Agent, any Lender, any L/C Issuer or any of their Related Persons), (vi) (A) to the National Association of Insurance Commissioners or any similar organization, any examiner or any nationally recognized rating agency or (B) otherwise to the extent consisting of general portfolio information that does not identify borrowers, (vii) to current or prospective assignees, SPVs (including the investors therein) or participants and to their respective Related Persons, in each case to the extent such assignees, investors, participants or Related Persons agree to be bound by provisions substantially similar to the provisions of this Section 9.10 and (viii) in connection with the exercise of any remedy under any Loan Document. In the event of any conflict between the terms of this Section 9.10 and those of any other Contractual Obligation entered into with any Credit Party (whether or not a Loan Document), the terms of this Section 9.10 shall govern.

(b) Each Credit Party consents to the publication by the Agent or any Lender of advertising material relating to the financing transactions contemplated by this Agreement using a Borrower’s or any other Credit Party’s name, product photographs, logo or trademark. The Agent or such Lender shall provide a draft of any advertising material to the Borrower Representative for review and comment prior to the publication thereof.

9.11 Set-off; Sharing of Payments.

(a) Right of Setoff. Each of the Agent, each Lender, each L/C Issuer and each Affiliate (including each branch office thereof) of any of them is hereby

82

authorized, without notice or demand (each of which is hereby waived by each Credit Party), at any time and from time to time during the continuance of any Event of Default and to the fullest extent permitted by applicable Requirements of Law, to set off and apply any and all deposits (whether general or special, time or demand, provisional or final) at any time held and other Indebtedness, claims or other obligations at any time owing by the Agent, such Lender, such L/C Issuer or any of their respective Affiliates to or for the credit or the account of the US Borrowers or any other US Credit Party against any Obligation of any US Credit Party now or hereafter existing, or of the UK Borrower or any other Foreign Credit Party against any Obligation of any Foreign Credit Party now or hereafter existing, in either case whether or not any demand was made under any Loan Document with respect to such Obligation and even though such Obligation may be unmatured. Each of the Agent, each Lender and each L/C Issuer agrees promptly to notify the Borrower Representative and the Agent after any such setoff and application made by such Lender or its Affiliates; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights under this Section 9.11 are in addition to any other rights and remedies (including other rights of setoff) that the Agent, the Lenders, the L/C Issuer, their Affiliates and the other Secured Parties, may have.

(b) Sharing of Payments, Etc. If any Lender, directly or through an Affiliate or branch office thereof, obtains any payment of any Obligation of any Credit Party (whether voluntary, involuntary or through the exercise of any right of setoff or the receipt of any Collateral or “proceeds” (as defined under the applicable UCC) of Collateral) other than pursuant to Article X and such payment exceeds the amount such Lender would have been entitled to receive if all payments had gone to, and been distributed by, the Agent in accordance with the provisions of the Loan Documents, such Lender shall purchase for cash from other Lenders such participations in their Obligations as necessary for such Lender to share such excess payment with such Lenders to ensure such payment is applied as though it had been received by the Agent and applied in accordance with this Agreement (or, if such application would then be at the discretion of the Borrowers, applied to repay the Obligations in accordance herewith); provided, however, that (a) if such payment is rescinded or otherwise recovered from such Lender or L/C Issuer in whole or in part, such purchase shall be rescinded and the purchase price therefor shall be returned to such Lender or L/C Issuer without interest and (b) such Lender shall, to the fullest extent permitted by applicable Requirements of Law, be able to exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the applicable Credit Party in the amount of such participation.

9.12 Counterparts. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart. Delivery of an executed signature page of this Agreement by facsimile transmission or Electronic Transmission shall be as effective as delivery of a manually executed counterpart hereof.

83

9.13 Severability; Facsimile Signature. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. Any Loan Document, or other agreement, document or instrument, delivered by facsimile transmission shall have the same force and effect as if the original thereof had been delivered.

9.14 Captions. The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

9.15 Independence of Provisions. The parties hereto acknowledge that this Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters, and that such limitations, tests and measurements are cumulative and must each be performed, except as expressly stated to the contrary in this Agreement.

9.16 Interpretation. This Agreement is the result of negotiations among and has been reviewed by counsel to the Agent, each Lender and other parties hereto, and is the product of all parties hereto. Accordingly, this Agreement and the other Loan Documents shall not be construed against the Lenders or the Agent merely because of the Agent’s or Lenders’ involvement in the preparation of such documents and agreements.

9.17 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the Borrowers, the Lenders, the L/C Issuer, the Agent and, subject to the provisions of Section 8.11 hereof, each other Secured Party, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. Neither the Agent nor any Lender shall have any obligation to any Person not a party to this Agreement or the other Loan Documents.

9.18 Governing Law and Jurisdiction.

(a) Governing Law. The laws of the State of New York shall govern all matters arising out of, in connection with or relating to this Agreement, including, without limitation, its validity, interpretation, construction, performance and enforcement.

(b) Submission to Jurisdiction. Any legal action or proceeding with respect to any Loan Document may be brought in the courts of the State of New York located in the City of New York, Borough of Manhattan, or of the United States of America sitting in New York, New York for the Southern District of New York and, by execution and delivery of this Agreement, each Borrower and each other Credit Party executing this Agreement hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereto (and, to the extent set forth in any other Loan Document, each other Credit Party) hereby

84

irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, that any of them may now or hereafter have to the bringing of any such action or proceeding in such jurisdictions.

(c) Service of Process. Each Foreign Credit Party hereby agrees that service of process in any such action or proceeding brought in any New York State court or in such federal court mentioned above may be made upon CT Corporation System at its offices at 111 8^th Avenue, New York, New York 10011 (the “Process Agent) and each Foreign Credit Party hereby irrevocably appoints the Process Agent its authorized agent to accept such service of process, and agrees that the failure of the Process Agent to give any notice of any such service shall not impair or affect the validity of such service or of any judgment rendered in any action or proceeding based thereon. Each Foreign Credit Party hereby irrevocably waives personal service of any and all legal process, summons, notices and other documents and other service of process of any kind and consents to such service in any suit, action or proceeding brought in the United States of America with respect to or otherwise arising out of or in connection with any Loan Document by any means permitted by applicable Requirements of Law, including by the mailing thereof (by registered or certified mail, postage prepaid) to the address of Borrowers specified herein (and shall be effective when such mailing shall be effective, as provided therein). Each Foreign Credit Party 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.

(d) Non-Exclusive Jurisdiction. Nothing contained in this Section 9.18 shall affect the right of the Agent or any Lender to serve process in any other manner permitted by applicable Requirements of Law or commence legal proceedings or otherwise proceed against any Credit Party in any other jurisdiction.

9.19 Waiver of Jury Trial. THE PARTIES HERETO, TO THE EXTENT PERMITTED BY LAW, WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING ARISING OUT OF, IN CONNECTION WITH OR RELATING TO, THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ANY OTHER TRANSACTION CONTEMPLATED HEREBY AND THEREBY. THIS WAIVER APPLIES TO ANY ACTION, SUIT OR PROCEEDING WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE.

9.20 Entire Agreement; Release; Survival.

(a) THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT OF THE PARTIES AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS RELATING TO THE SUBJECT MATTER THEREOF AND ANY PRIOR LETTER OF INTEREST, COMMITMENT LETTER, CONFIDENTIALITY AND SIMILAR AGREEMENTS INVOLVING ANY CREDIT PARTY AND ANY OF LENDER OR ANY L/C ISSUER OR ANY OF THEIR RESPECTIVE AFFILIATES RELATING TO A FINANCING OF SUBSTANTIALLY SIMILAR FORM, PURPOSE OR EFFECT OTHER THAN THE FEE LETTER. IN THE EVENT OF ANY CONFLICT BETWEEN THE TERMS OF THIS AGREEMENT

85

AND ANY OTHER LOAN DOCUMENT, THE TERMS OF THIS AGREEMENT SHALL GOVERN (UNLESS SUCH TERMS OF SUCH OTHER LOAN DOCUMENTS ARE NECESSARY TO COMPLY WITH APPLICABLE REQUIREMENTS OF LAW, IN WHICH CASE SUCH TERMS SHALL GOVERN TO THE EXTENT NECESSARY TO COMPLY THEREWITH).

(b) In no event shall any Indemnitee be liable on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business or anticipated savings). Each of each Borrower and each other Credit Party signatory hereto hereby waives, releases and agrees (and shall cause each other Credit Party to waive, release and agree) not to sue upon any such claim for any special, indirect, consequential or punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.

9.21 Patriot Act. Each Lender that is subject to the Patriot Act hereby notifies the Borrowers that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies each Borrower, which information includes the name and address of each Borrower and other information that will allow such Lender to identify each Borrower in accordance with the Patriot Act.

9.22 Replacement of Lender. Within forty-five days after: (i) receipt by the Borrower Representative of written notice and demand from any Lender (an “Affected Lender”) for payment of additional costs as provided in Sections 10.1, 10.3 and/or 10.6; (ii) any default by a Lender in its obligation to make Loans hereunder after all conditions thereto have been satisfied or waived in accordance with the terms hereof, provided such default shall not have been cured; or (iii) any failure by any Lender to consent to a requested amendment, waiver or modification to any Loan Document in which the Required Lenders have already consented to such amendment, waiver or modification but the consent of each Lender (or each Lender directly affected thereby, as applicable) is required with respect thereto, the Borrowers may, at their option, notify the Agent and such Affected Lender (or such defaulting or non-consenting Lender, as the case may be) of the Borrowers’ intention to obtain, at the Borrowers’ expense, a replacement Lender (“Replacement Lender”) for such Affected Lender (or such defaulting or non-consenting Lender, as the case may be), which Replacement Lender shall be a Lender or otherwise be reasonably satisfactory to the Agent. In the event the Borrowers obtain a Replacement Lender within forty-five (45) days following notice of its intention to do so, the Affected Lender (or defaulting or non-consenting Lender, as the case may be) shall sell and assign its Loans and Commitments to such Replacement Lender, at par, provided that the Borrowers have reimbursed such Affected Lender for its increased costs for which it is entitled to reimbursement under this Agreement through the date of such sale and assignment. In the event that a replaced Lender does not execute an Assignment pursuant to Section 9.9 within five (5) Business Days after receipt by such replaced Lender of notice of replacement pursuant to this Section 9.22 and presentation to such replaced Lender of an Assignment evidencing an assignment pursuant to this Section 9.22, the Borrowers shall be entitled (but not obligated) to execute such an Assignment on behalf of such replaced Lender, and any such Assignment so executed by the Borrowers, the Replacement Lender and the Agent, shall be effective for purposes of this Section 9.22

86

and Section 9.9. Upon any such assignment and payment and compliance with the other provisions of Section 9.9, such replaced Lender shall no longer constitute a “Lender” for purposes hereof; provided, any rights of such replaced Lender to indemnification hereunder shall survive as to such replaced Lender.

9.23 Joint and Several. The US Borrower and US Credit Parties are jointly and severally liable for all of the Obligations. Notwithstanding anything to the contrary contained herein, the UK Borrower and Foreign Credit Parties are jointly and severally liable only for the repayment of Revolving Loans advanced to the UK Borrower and other UK Obligations and shall not have any liability for the repayment of any US Obligations. Without limiting the generality of the foregoing, reference is hereby made to Article II of the Guaranty and Security Agreement, to which the obligations of the US Borrowers and Credit Parties are subject.

9.24 Lender-Creditor Relationship. The relationship between the Agent, each Lender and the L/C Issuer, on the one hand, and the Credit Parties, on the other hand, is solely that of lender and creditor. No Secured Party has any fiduciary relationship or duty to any Credit Party arising out of or in connection with, and there is no agency, tenancy or joint venture relationship between the Secured Parties and the Credit Parties by virtue of, any Loan Document or any transaction contemplated therein.

9.25 Judgment Currency.

(a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or under the Notes in any currency (the “Original Currency”) into another currency (the “Other Currency”) the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the Original Currency with the Other Currency at noon (New York time), on the second Business Day preceding that on which final judgment is given.

(b) The obligation of a Borrower in respect of any sum due in the Original Currency from it to any Secured Party hereunder or under the Notes held by such Secured Party shall, notwithstanding any judgment in any Other Currency, be discharged only to the extent that on the Business Day following receipt by such Secured Party of any sum adjudged to be so due in such Other Currency such Secured Party may in accordance with normal banking procedures purchase the Original Currency with such Other Currency; if the amount of the Original Currency so purchased is less than the sum originally due to such Secured Party in the Original Currency, such Borrowers agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Secured Party against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due to any Secured Party in the Original Currency, such Secured Party agrees to remit to such Borrowers such excess.

9.26 Non-Reliance. The Lenders represent and acknowledge that, in connection with their execution of this Agreement, they are aware of, and are relying on, the separateness of the Borrowers and Guarantors from the BST Group. Furthermore, the Lenders represent and acknowledge that they are relying exclusively on the assets of the

87

Borrowers and Guarantors, and are not relying on the assets and/or credit-worthiness of the BST Group. The Lenders shall take no enforcement actions inconsistent with the foregoing representation and acknowledgment.

ARTICLE X—TAXES, YIELD PROTECTION AND ILLEGALITY

10.1 Taxes.

(a) Except as otherwise provided in this Section 10.1, each payment by any Credit Party under any Loan Document shall be made free and clear of all present or future taxes, levies, imposts, deductions, stamp and other duties, value added taxes, charges or withholdings and all liabilities with respect thereto (and without deduction or withholding for or on account of any of them) in any jurisdiction (collectively, but excluding the taxes set forth in clauses (i) and (ii) below, the “Taxes”) other than for (i) taxes measured by net income (including branch profits taxes) and franchise taxes imposed in lieu of net income taxes, in each case imposed on any Secured Party as a result of a present or former connection between such Person and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than such connection arising solely from any Secured Party having executed, delivered or performed its obligations or received a payment under, or enforced, any Loan Document) or (ii) taxes that are directly attributable to the failure (other than as a result of a change in any Requirement of Law) by the Agent or any Lender to deliver the documentation required to be delivered pursuant to clause (f) below.

(b) If any accounts for or on account of Taxes shall be required by law to be deducted or withheld from or in respect of any amount payable under any Loan Document to any Secured Party or if Taxes are payable by any Secured Party on such amounts (i) such amount shall be increased as necessary to ensure that, after all required deductions, withholdings or payment of Taxes are made (including deductions, withholdings or Taxes applicable to any increases to any amount under this Section 10.1), such Secured Party receives the amount it would have received had no such deductions or withholdings been made or such Taxes been payable, (ii) the relevant Credit Party shall make such deductions or withholdings, (iii) the relevant Credit Party shall timely pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable Requirements of Law and (iv) within 30 days after such payment is made, the relevant Credit Party shall deliver to the Agent an original or certified copy of a receipt evidencing such payment; provided, however, that no such increase shall be made with respect to, and no Credit Party shall be required to indemnify any Secured Party pursuant to clause (d) below for, withholding taxes to the extent that the obligation to withhold amounts existed on the date that such Person became a “Secured Party” under this Agreement in the capacity under which such Person makes a claim under this clause (b), except in each case to the extent such Person is a direct or indirect assignee (other than pursuant to Section 9.22) of any other Secured Party that was entitled, at the time the assignment to such Person became effective, to receive additional amounts under this clause (b).

88

(c) In addition, the Borrowers agree to pay, and authorize the Agent to pay in their name, any stamp, documentary, excise or property tax, charges or similar levies imposed by any applicable Requirement of Law or Governmental Authority and all Liabilities with respect thereto (including by reason of any delay in payment thereof), in each case arising from the execution, delivery or registration of, or otherwise with respect to, any Loan Document or any transaction contemplated therein (collectively, “Other Taxes”). The Swingline Lender may, without any need for notice, demand or consent from the Borrowers or the Borrower Representative, by making funds available to the Agent in the amount equal to any such payment, make a Swing Loan to the US Borrowers in such amount, the proceeds of which shall be used by the Agent in whole to make such payment on behalf of the Borrower. Within 30 days after the date of any payment of any amounts under this Section 10.1 by any Credit Party, the Borrowers shall furnish to the Agent, at its address referred to in Section 9.2, the original or a certified copy of a receipt evidencing payment thereof to the extent that payment was not made to a Secured Party.

(d) The Borrowers shall reimburse and indemnify, within 30 days after receipt of demand therefor (with copy to the Agent), each Secured Party for all Taxes and Other Taxes (including any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 10.1) paid by such Secured Party and any Liabilities arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. A certificate of the Secured Party (or of the Agent on behalf of such Secured Party) claiming any compensation under this clause (d), setting forth the amounts to be paid thereunder and delivered to the Borrower Representative with a copy to the Agent, shall be conclusive, binding and final for all purposes, absent manifest error. In determining such amount, the Agent and such Secured Party may use any just and reasonable averaging and attribution methods.

(e) Any Lender claiming any additional amounts payable pursuant to this Section 10.1 shall use its reasonable efforts (consistent with its internal policies and Requirements of Law) to change the jurisdiction of its lending office if such a change would reduce any such additional amounts (or any similar amount that may thereafter accrue) and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.

(f) (i) Each Non-US Lender Party that, at any of the following times, is entitled to an exemption from United States withholding tax or, after a change in any Requirement of Law, is subject to such withholding tax at a reduced rate under an applicable tax treaty, shall (w) on or prior to the date such Non-US Lender Party becomes a “Non-US Lender Party” hereunder, (x) on or prior to the date on which any such form or certification expires or becomes obsolete, (y) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this clause (i) and (z) from time to time if requested by the Borrower Representative or the Agent (or, in the case of a participant or SPV, the relevant Lender), provide the Agent and the Borrower Representative (or, in the case of a participant or SPV, the relevant Lender) with two completed originals of each of the following, as applicable: (A) Forms W-8ECI (claiming exemption from US withholding tax because

89

the income is effectively connected with a US trade or business), W-8BEN (claiming exemption from, or a reduction of, US withholding tax under an income tax treaty) and/or W-8IMY or any successor forms, (B) in the case of a Non-US Lender Party claiming exemption under Sections 871(h) or 881(c) of the Code, Form W-8BEN (claiming exemption from US withholding tax under the portfolio interest exemption) or any successor form and a certificate in form and substance acceptable to the Agent that such Non-US Lender Party is not (1) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of the Borrowers within the meaning of Section 881(c)(3)(B) of the Code or (3) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code or (C) any other applicable document prescribed by the IRS certifying as to the entitlement of such Non-US Lender Party to such exemption from United States withholding tax or reduced rate with respect to all payments to be made to such Non-US Lender Party under the Loan Documents. Unless the Borrower Representative and the Agent have received forms or other documents satisfactory to them indicating that payments under any Loan Document to or for a Non-US Lender Party are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Credit Parties and the Agent shall withhold amounts required to be withheld by applicable Requirements of Law from such payments at the applicable statutory rate.

(ii) Each US Lender Party shall (A) on or prior to the date such US Lender Party becomes a “US Lender Party” hereunder, (B) on or prior to the date on which any such form or certification expires or becomes obsolete, (C) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this clause (f) and (D) from time to time if requested by the Borrower Representative or the Agent (or, in the case of a participant or SPV, the relevant Lender), provide the Agent and the Borrower Representative (or, in the case of a participant or SPV, the relevant Lender) with two completed originals of Form W-9 (certifying that such US Lender Party is entitled to an exemption from US backup withholding tax) or any successor form.

(iii) Each Lender having sold a participation in any of its Obligations or identified an SPV as such to the Agent shall collect from such participant or SPV the documents described in this clause (f) and provide them to the Agent.

(g) All amounts set out in, or expressed to be payable under, a Loan Document by a Credit Party which (in whole or in part) constitute consideration for a supply for value added tax purposes shall be deemed to be exclusive of any value added tax which is chargeable on such a supply and, accordingly, if value added tax is chargeable on any supply made to a Credit Party under a Loan Document, that Credit Party shall pay to the relevant Person an amount equal to the amount of such value added tax in addition to the underlying amount upon the relevant Person providing a valid value added tax invoice to that Credit Party. Where a Loan Document requires the Credit Party to reimburse any Person for any costs or expenses or similar amounts, the Credit Party shall also at the same time pay and indemnify the relevant Person against all value added tax incurred by the relevant Person in respect of the costs or expenses or similar amounts to the extent that the relevant Person reasonably determines that neither it nor any other member of any group of which it is a member for value added tax purposes is entitled to credit or repayment from the relevant tax authority in respect of the value added tax.

90

10.2 Illegality. If after the date hereof any Lender shall determine that the introduction of any Requirement of Law, or any change in any Requirement of Law or in the interpretation or administration thereof, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its Lending Office to make LIBOR Rate Loans, then, on notice thereof by such Lender to the Borrowers through the Agent, the obligation of that Lender to make LIBOR Rate Loans shall be suspended until such Lender shall have notified the Agent and the Borrower Representative that the circumstances giving rise to such determination no longer exists.

(a) Subject to clause (c) below, if any Lender shall determine that it is unlawful to maintain any LIBOR Rate Loan, the Borrowers shall prepay in full all LIBOR Rate Loans of such Lender then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if such Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Rate Loans, together with any amounts required to be paid in connection therewith pursuant to Section 10.4.

(b) If the obligation of any Lender to make or maintain LIBOR Rate Loans has been terminated, the Borrower Representative may elect, by giving notice to such Lender through the Agent that all Loans which would otherwise be made by any such Lender as LIBOR Rate Loans shall be instead Base Rate Loans.

(c) Before giving any notice to the Agent pursuant to this Section 10.2, the affected Lender shall designate a different Lending Office with respect to its LIBOR Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Lender, be illegal or otherwise disadvantageous to the Lender.

10.3 Increased Costs and Reduction of Return.

(a) If any Lender or L/C Issuer shall determine that, due to either (i) the introduction of, or any change in, or in the interpretation of, any law or regulation or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in the case of either clause (i) or (ii) subsequent to the date hereof, there shall be any increase in the cost to such Lender or L/C Issuer of agreeing to make or making, funding or maintaining any LIBOR Rate Loans or of issuing or maintain any Letter of Credit, then the Borrowers shall be liable for, and shall from time to time, within thirty (30) days of demand therefor by such Lender or L/C Issuer (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender or L/C Issuer, additional amounts as are sufficient to compensate such Lender or L/C Issuer for such increased costs; provided, that the Borrowers shall not be required to compensate any Lender or L/C Issuer pursuant to this Section 10.3 for any increased costs incurred more than 180 days prior to the date that

91

such Lender or L/C Issuer notifies the Borrower Representative, in writing of the increased costs and of such Lender’s or L/C Issuer’s intention to claim compensation thereof; provided, further, that if the circumstance giving rise to such increased costs is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

(b) If any Lender or L/C Issuer shall have determined that:

(i) the introduction of any Capital Adequacy Regulation;

(ii) any change in any Capital Adequacy Regulation;

(iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof; or

(iv) compliance by such Lender or L/C Issuer (or its Lending Office) or any entity controlling the Lender or L/C Issuer, with any Capital Adequacy Regulation;

affects the amount of capital required or expected to be maintained by such Lender or L/C Issuer or any entity controlling such Lender or L/C Issuer and (taking into consideration such Lender’s or such entities’ policies with respect to capital adequacy and such Lender’s or L/C Issuer’s desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment(s), loans, credits or obligations under this Agreement, then, within thirty (30) days of demand of such Lender or L/C Issuer (with a copy to the Agent), the Borrowers shall pay to such Lender or L/C Issuer, from time to time as specified by such Lender or L/C Issuer, additional amounts sufficient to compensate such Lender or L/C Issuer (or the entity controlling the Lender or L/C Issuer) for such increase; provided, that the Borrowers shall not be required to compensate any Lender or L/C Issuer pursuant to this Section 10.3 for any amounts incurred more than 180 days prior to the date that such Lender or L/C Issuer notifies the Borrower Representative, in writing of the amounts and of such Lender’s or L/C Issuer’s intention to claim compensation thereof; provided, further, that if the event giving rise to such increase is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.

10.4 Funding Losses. The Borrowers agree to reimburse each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of:

(a) the failure of the Borrowers to make any payment or mandatory prepayment of principal of any LIBOR Rate Loan (including payments made after any acceleration thereof);

(b) the failure of the Borrowers to borrow, continue or convert a Loan after the Borrower Representative has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation;

92

(c) the failure of the Borrowers to make any prepayment after the Borrowers have given a notice in accordance with Section 1.7;

(d) the prepayment (including pursuant to Section 1.8) of a LIBOR Rate Loan on a day which is not the last day of the Interest Period with respect thereto; or

(e) the conversion pursuant to Section 1.6 of any LIBOR Rate Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period;

including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. Solely for purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 10.4 and under subsection 10.3(a): each LIBOR Rate Loan made by a Lender (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the interest rate for such LIBOR Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Rate Loan is in fact so funded.

10.5 Inability to Determine Rates. If the Agent shall have determined in good faith that for any reason adequate and reasonable means do not exist for ascertaining the LIBOR for any requested Interest Period with respect to a proposed LIBOR Rate Loan or that the LIBOR applicable pursuant to subsection 1.3(a) for any requested Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such Loan, the Agent will forthwith give notice of such determination to the Borrower Representative and each Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate Loans hereunder shall be suspended until the Agent revokes such notice in writing. Upon receipt of such notice, the Borrower Representative may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Borrower Representative does not revoke such notice, the Lenders shall make, convert or continue the Loans, as proposed by the Borrower Representative, in the amount specified in the applicable notice submitted by the Borrower Representative, but such Loans shall be made, converted or continued as Base Rate Loans.

10.6 Reserves on LIBOR Rate Loans. The Borrowers shall pay to each Lender, as long as such Lender shall be required under regulations of the Federal Reserve Board to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional costs on the unpaid principal amount of each LIBOR Rate Loan equal to actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive absent demonstrable error), payable on each date on which interest is payable on such Loan provided the Borrower Representative shall have received at least fifteen (15) days’ prior written notice (with a copy to the Agent) of such additional interest from the Lender. If a Lender fails to give notice fifteen (15) days prior to the relevant Interest Payment Date, such

93

additional interest shall be payable fifteen (15) days from receipt of such notice; provided that no Lender shall make a claim for any such additional insurance more than 180 days after such Lender has knowledge of such additional interest.

10.7 Certificates of Lenders. Any Lender claiming reimbursement or compensation pursuant to this Article X shall deliver to the Borrower Representative (with a copy to the Agent) a certificate setting forth in reasonable detail the amount payable to such Lender hereunder and such certificate shall be conclusive and binding on the Borrowers in the absence of manifest error.

10.8 Survival. The agreements and obligations of the Borrowers in this Article X shall survive the payment of all other Obligations.

ARTICLE XI—DEFINITIONS

11.1 Defined Terms. The following terms are defined in the Sections or subsections referenced opposite such terms:

“Affected Lender”	9.22
“Average Daily Revolving Amount”	1.9(b)
“Borrower” and “Borrowers”	Preamble
“Borrower Representative”	1.15
“Commitment Increase”	1.1(a)
“Commitment Increase Cap”	1.1(a)
“Currency Overadvance”	1.1(a)
“EBITDA”	Exhibit 4.2(b)
“Eligible Accounts”	1.12(b)
“Eligible Assignee”	1.1(a)
“Eligible Equipment”	1.14(b)
“Eligible Inventory”	1.13(b)
“Eligible Real Property”	1.14(b)
“Event of Default”	7.1
“Fee Letter”	1.9(a)
“Fixed Charge Coverage Ratio”	Exhibit 4.2(b)
“Food Security Act Notice”	5.21(b)
“Increased Commitment Proposal”	1.1(a)
“Indemnified Matters”	9.6
“Indemnitee”	9.6
“Insured Accounts”	1.12
“Investments”	5.4
“ITG”	Preamble
“L/C Reimbursement Agreement”	1.1(b)
“L/C Reimbursement Date”	1.1(b)
“L/C Request”	1.1(b)
“L/C Sublimit”	1.1(b)
“Lender”	Preamble

94

“Letter of Credit Fee”	1.9(c)
“Maximum Lawful Rate”	1.3(d)
“Maximum Revolving Loan Balance”	1.1(a)
“Non-Funding Lender”	1.11(b)
“Notice of Conversion/Continuation”	1.6(a)
“Original Currency”	9.25(a)
“Other Currency”	9.25(a)
“Other Lender”	1.11(d)
“Other Taxes”	10.1(c)
“Overadvance”	1.1(a)
“Pension Benefits”	3.7(b)
“Permitted Liens”	5.1
“Register”	1.4(b)
“Restricted Payments”	5.11
“Replacement Lender”	9.22
“Revolving Loan Commitment”	1.1(a)
“Revolving Loan”	1.1(a)
“Sale”	9.9(a)
“Settlement Date”	1.11(b)
“Swing Loan”	1.1(d)(i)
“Swingline Request”	1.1(d)(ii)
“Tax Returns”	3.10
“Taxes”	10.1(a)
“Unfinanced Capital Expenditures”	Exhibit 4.2(b)
“Unused Commitment Fee”	1.9(b)
“UK Borrower”	Preamble

In addition to the terms defined elsewhere in this Agreement, the following terms have the following meanings:

“Account” means, as at any date of determination, all “accounts” (as such term is defined in the UCC) owned by any Borrower, including, without limitation, the unpaid portion of the obligation of a customer of a Borrower in respect of Inventory purchased by and shipped to such customer and/or the rendition of services by a Borrower in the Ordinary Course of Business, as stated on the respective invoice of a Borrower, net of any credits, rebates or offsets owed to such customer.

“Account Debtor” means the customer of a Borrower who is obligated on or under an Account.

“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of fifty percent (50%) of the Stock and Stock Equivalents of any Person or otherwise causing any Person to become a Subsidiary of a Borrower, or (c) a merger or consolidation or any other combination with another Person.

95

“Activation Notice” means a notice delivered by the Agent to a depository, securities intermediary or commodities intermediary to forward immediately all amounts in the applicable account as directed by the Agent.

“Affiliate” means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract or otherwise. Without limitation, any director, executive officer or beneficial owner of ten percent (10%) or more of the Stock (either directly or through ownership of Stock Equivalents) of a Person shall for the purposes of this Agreement, be deemed to control the other Person. Notwithstanding the foregoing, (i) neither the Agent nor any Lender and (ii) no WLR Affiliate, in either case, shall be deemed an “Affiliate” of any Credit Party or of any Subsidiary of any Credit Party.

“Agent” means GE Capital in its capacity as administrative agent for the Lenders hereunder, and any successor administrative agent appointed pursuant to Section 8.9.

“Aggregate Revolving Loan Commitment” means the combined Revolving Loan Commitments of the Lenders, which shall initially be in the amount of $165,000,000, as such amount may be increased or reduced from time to time pursuant to this Agreement.

“Applicable Margin” means:

(a) for the period commencing on the Closing Date through January 31, 2007, 2.00% for LIBOR Loans and 1.00% for Base Rate Loans; and

(b) thereafter, the Applicable Margin shall equal the applicable LIBOR margin or Base Rate margin in effect from time to time as set forth below, determined on the first Business Day of each Fiscal Month based upon the Average Daily Revolving Amount during the immediately preceding fiscal month:

Average Daily Revolving Amount	LIBOR Margin		Base Rate Margin
£ $80,000,000	1.75	%	0.75	%
>$80,000,000 but £ $120,000,000	2.00	%	1.00	%
>$120,000,000	2.25	%	1.25	%

Notwithstanding anything herein to the contrary, Swing Loans may not be LIBOR Rate Loans.

“Appraisal” means, as applicable, (i) the appraisal delivered to the Agent prior to the Closing Date setting forth the Net Orderly Liquidation Value of Inventory, Net Forced Liquidation Value of Equipment and fair market value of real Property, and (ii) any appraisal in form and substance reasonably satisfactory to the Agent delivered to the Agent pursuant to Sections 4.2(k) or (n).

96

“Approved Fund” means, with respect to any Lender, any Person (other than a natural Person) that (a) (i) is or will be engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business or (ii) temporarily warehouses loans for any Lender or any Person described in clause (i) above and (b) is advised or managed by (i) such Lender, (ii) any Affiliate of such Lender or (iii) any Person (other than an individual) or any Affiliate of any Person (other than an individual) that administers or manages such Lender.

“Assignment” means an assignment agreement entered into by a Lender, as assignor, and any prospective assignee thereof and accepted by the Agent, in substantially the form of Exhibit 11.1(a).

“Attorney Costs” means and includes all reasonable fees and disbursements of any law firm or other external counsel.

“Available Currency” means Euros, Canadian Dollars, Pounds Sterling and any other readily available currencies as agreed by the Agent and applicable L/C Issuers.

“Availability” means, as of any date of determination, the amount by which (a) the Maximum Revolving Loan Balance, exceeds (b) the aggregate outstanding principal balance of Revolving Loans.

“Availability Block” means $12,500,000.

“Average Adjusted Availability” means on any date of determination (such date, the “Determination Date”), average Availability for the thirty (30) calendar days preceding the Determination Date, or in the case of an Investment, Permitted Acquisition, Capital Expenditure or asset disposition, pro forma average Availability for the thirty (30) calendar days preceding the closing date of such Investment, Permitted Acquisition, Capital Expenditure or asset disposition, determined as if such Investment, Permitted Acquisition, Capital Expenditure or asset disposition had occurred immediately prior to that thirty (30) calendar day period.

“Bank Product” means any of the following products or services extended to any Credit Party by any Lender or any Lender’s Affiliate: (a) cash management services, including automatic clearinghouse, controlled disbursement, depository, electronic fund transfer, information reporting, lockbox, overdraft, stop payment and/or wire transfer services and (b) commercial credit card and merchant card services.

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended and in effect from time to time and the regulations issued from time to time thereunder.

“Base Rate” means, at any time, a rate per annum equal to the higher of (a) the rate last quoted by The Wall Street Journal as the “base rate on corporate loans posted by

97

at least 75% of the nation’s largest banks” in the United States (the “base rate”)or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Agent) or any similar release by the Federal Reserve Board (as determined by the Agent) and (b) the sum of 0.5% per annum and the Federal Funds Rate. Any change in the Base Rate due to a change in any of the foregoing shall be effective on the effective date of such change in the “base rate”, the “bank prime loan” rate or the Federal Funds Rate.

“Base Rate Loan” means a Loan that bears interest based on the Base Rate.

“Benefit Plan” means any employee benefit plan as defined in Section 3(3) of ERISA (whether governed by the laws of the United States or otherwise) to which any Credit Party incurs or otherwise has any obligation or liability, contingent or otherwise.

“Borrowing” means a borrowing hereunder consisting of Loans made to or for the benefit of the Borrowers on the same day by the Lenders pursuant to Article I.

“Borrowing Base” means, as of any date of determination by the Agent, from to time to time, an amount equal to the sum of:

(a) 85% of the book value of Eligible Accounts (other than Insured Accounts);

(b) the lesser of (i) 75% of the book value of Insured Accounts and (ii) $5,000,000;

(c) the least of (i) 65% of the book value (valued at the lower of cost or market) of Eligible Inventory, (ii) 85% of the book value (valued at the lower of cost or market) of Eligible Inventory multiplied by the then current NOLV Factor and (iii) an amount equal to 50% of the Borrowing Base, excluding amounts reflected in clauses (d) and (e) below;

(d) at all times on or prior to May 31, 2008 the lesser of (i) $22,300,000 and (ii) the Fixed Asset Loan Value; and

(e) at all times after May 31, 2008, the lesser of (i) the Maximum Fixed Asset Loan Value and (ii) the Fixed Asset Loan Value.

“Borrowing Base Certificate” means a certificate of the Borrower Representative, on behalf of the Borrowers, in substantially the form of Exhibit 11.1(b) hereto, duly completed by a Responsible Officer of the Borrower Representative.

“BST” means BST US Holdings, Inc., a Delaware corporation.

“BST Facility” means that certain Term and Revolving Facilities Agreement dated as of December 8, 2006, by and among BST Safety Textiles Acquisition GmbH, Goldman Sachs Credit Partners L.P. and UBS Securities LLC, and the other Persons signatory thereto.

98

“BST Group” means BST and each of its Subsidiaries.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in Chicago, Illinois or New York, New York are authorized or required by law to close and, if the applicable Business Day relates to any LIBOR Rate Loan or Loan to the UK Borrower, a day on which dealings are carried on in the London interbank market.

“Canadian Dollars” and “C$” each means lawful currency of Canada.

“Capital Adequacy Regulation” means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any Lender or of any corporation controlling a Lender.

“Capital Expenditures” means all expenditures during any measuring period for any fixed asset or improvements or replacements, substitutions, or additions thereto that have a useful life of more than one year and are required to be capitalized under GAAP.

“Capital Lease” means any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease.

“Capital Lease Obligations” means all monetary obligations of any Credit Party or any Subsidiary of any Credit Party under any Capital Leases.

“Cash Equivalents” means any of the following:

(i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) and securities that are the direct obligations of any Member State of the European Union, which at the time of acquisition thereof, was not targeted for sanctions by the Office of Foreign Assets Control of the United States Department of the Treasury so long as the full faith of and credit of such nation is pledged in support thereof, in each case having maturities of not more than one year from the date of acquisition;

(ii) US Dollar denominated time deposits, certificates of deposit and bankers’ acceptances of (x) any Lender, (y) any domestic or foreign commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (z) any bank (or the parent company of such bank) whose short-term commercial paper rating from S&P is at least A-1, A-2 or the equivalent thereof or from Moody’s is at least P-1, P-2 or the equivalent thereof or an equivalent rating from a comparable foreign rating agency (any such bank, an “Approved Bank”), in each case with maturities of not more than 180 days from the date of acquisition;

99

(iii) commercial paper issued by any Lender or Approved Bank or by the parent company of any Lender or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s or an equivalent rating from a comparable foreign rating agency, or guaranteed by any industrial company with a long-term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody’s, as the case may be, and in each case maturing within 180 days after the date of acquisition or an equivalent rating from a comparable foreign rating agency;

(iv) fully collateralized repurchase agreements entered into with any Lender or Approved Bank having a term of not more than 30 days and covering securities described in clause (i) above;

(v) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (i) through (iv) above;

(vi) investments in money market funds access to which is provided as part of “sweep” accounts maintained with a Lender or an Approved Bank;

(vii) investments in industrial development revenue bonds that (A) “re-set” interest rates not less frequently than quarterly, (B) are entitled to the benefit of a remarketing arrangement with an established broker dealer, and (C) are supported by a direct pay letter of credit covering principal and accrued interest that is issued by an Approved Bank; and

(viii) investments in pooled funds or investment accounts consisting of investments of the nature described in the foregoing clause (vii).

“Closing Date” means the date on which all conditions precedent set forth in Section 2.1 are satisfied or waived by the Agent and all Lenders.

“Code” means the Internal Revenue Code of 1986, and regulations promulgated thereunder.

“Collateral” means all Property and interests in Property and proceeds thereof now owned or hereafter acquired by any Credit Party who has granted a Lien to the Agent, in or upon which a Lien now or hereafter exists in favor of any Lender or the Agent for the benefit of the Agent, Lenders and other Secured Parties, whether under this Agreement or under any other Collateral Documents.

“Collateral Documents” means, collectively, the Guaranty and Security Agreement, the Mortgages, the UK Security Documents, each Control Agreement and all other security agreements, pledge agreements, patent and trademark security agreements, lease assignments, guarantees and other similar agreements, and all amendments,

100

restatements, modifications or supplements thereof or thereto, by or between any one or more of any Credit Party, any of their respective Subsidiaries or any other Person pledging or granting a lien on Collateral or guaranteeing the payment and performance of the Obligations, and any Lender or the Agent for the benefit of the Agent, the Lenders and other Secured Parties now or hereafter delivered to the Lenders or the Agent pursuant to or in connection with the transactions contemplated hereby, and all financing statements (or comparable documents now or hereafter filed in accordance with the UCC or comparable law) against any such Person as debtor in favor of any Lender or the Agent for the benefit of the Agent, the Lenders and the other Secured Parties, as secured party, as any of the foregoing may be amended, restated and/or modified from time to time.

“Commitment” means, for each Lender, its Revolving Loan Commitment.

“Commitment Percentage” means, as to any Lender, the percentage equivalent of such Lender’s Revolving Loan Commitment divided by the Aggregate Revolving Loan Commitment.

“Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person: (i) with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that the holders of such liability will be protected (in whole or in part) against monetary loss with respect thereto; (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (iii) under any Rate Contracts; (iv) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; or (v) for the obligations of another Person through any agreement to purchase, repurchase or otherwise acquire such obligation or any Property constituting security therefor, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another Person. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed or supported.

“Contractual Obligations” means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its Property is bound.

“Control Agreement” means a tri-party deposit account, securities account or commodities account control agreement by and among the applicable Credit Party, the Agent and the depository, securities intermediary or commodities intermediary, and each in form and substance reasonably satisfactory in all respects to the Agent and in any event providing to the Agent “control” of such deposit account, securities or commodities account within the meaning of Articles 8 and 9 of the UCC.

101

“Conversion Date” means any date on which the Borrowers convert a Base Rate Loan to a LIBOR Rate Loan or a LIBOR Rate Loan to a Base Rate Loan.

“Copyrights” means all rights, title and interests (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to copyrights and all mask work, database and design rights, whether or not registered or published, all registrations and recordations thereof and all applications in connection therewith.

“Credit Parties” means ITG, each Borrower, each German Subsidiary and each other Person (i) which executes this Agreement as a “Credit Party,” (ii) which executes a guaranty of the Obligations (or, in the case of a Foreign Credit Party, which executes a guaranty of the UK Obligations), (iii) which grants a Lien on all or substantially all of its assets to secure payment of the Obligations (or, in the case of a Foreign Credit Party, which grants a Lien on all or substantially all of its assets to secure payment of the UK Obligations) and (iv) all of the Stock of which is pledged to the Agent for the benefit of itself and Lenders (or, in the case of a Foreign Credit Party, all of the Stock of which is pledged to the Agent to secure the UK Obligations for the benefit of the Agent and Lenders).

“Default” means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default.

“Disposition” means (a) the sale, lease, conveyance or other disposition of Property pursuant to Sections 5.2(b) or 5.2(j) or otherwise with the consent of Required Lenders, and (b) the sale or transfer by a Borrower or any Subsidiary of a Borrower of any Stock or Stock Equivalent issued by any Subsidiary of a Borrower and held by such transferor Person.

“Dollars”, “dollars” and “$” each mean lawful money of the United States of America.

“Domestic” means, with respect to any Borrower, Credit Party or Subsidiary of a Borrower or Credit Party, that such Borrower, Credit Party or Subsidiary is incorporated or otherwise organized under the laws of a state of the United States of America.

“Electronic Transmission” means each document, instruction, authorization, file, information and any other communication transmitted, posted or otherwise made or communicated by e-mail or E-Fax, or otherwise to or from an E-System or other equivalent service.

“Eligible Countries” means the United States, Canada, any Member State of the European Union, any state which is a signatory to the North American Free Trade Agreement or Central America Free Trade Agreement, Colombia, Brazil, Jordan, Turkey, Egypt, Bangladesh, India, Israel, People’s Republic of China, South Korea, Vietnam, Nicaragua, Sri Lanka, South Africa and such other countries as may be requested by the Borrower Representative and approved by the Agent, such approval not to be unreasonably withheld (unless the Agent notifies the Borrower Representative that any of the aforementioned countries cannot be an “Eligible Country” due to any Lender’s lending restrictions (as determined by Agent in good faith)).

102

“Environmental Laws” means all present and future Requirements of Law and Permits imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources, and including public notification requirements and environmental transfer of ownership, notification or approval statutes in any jurisdiction, in each case, that are applicable to the Credit Parties or their Subsidiaries.

“Environmental Liabilities” means all Liabilities (including costs of Remedial Actions, natural resource damages and required costs and expenses of investigation and feasibility studies) that may be imposed on, incurred by or asserted against any Credit Party or any Subsidiary of any Credit Party as a result of, or related to, any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law or otherwise, arising under any Environmental Law or in connection with any environmental, health or safety condition or with any Release and resulting from the ownership, lease, sublease or other operation or occupation of property by any Credit Party or any Subsidiary of any Credit Party, whether on, prior or after the date hereof.

“Equipment” means “equipment” as such term is defined in the UCC.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” means, collectively, any Credit Party and any Person under common control or treated as a single employer with, any Credit Party, within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“ERISA Event” means any of the following: (a) a reportable event described in Section 4043(b) of ERISA (or, unless the 30-day notice requirement has been duly waived under the applicable regulations, Section 4043(c) of ERISA) with respect to a Title IV Plan; (b) the withdrawal of any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any ERISA Affiliate from any Multiemployer Plan; (d) with respect to any Multiemployer Plan, the filing of a notice of reorganization, insolvency or termination (or treatment of a plan amendment as termination) under Section 4041A of ERISA; (e) the filing of a notice of intent to terminate a Title IV Plan (or treatment of a plan amendment as termination) under Section 4041 of ERISA; (f) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (g) the failure to make any required contribution to any Title IV Plan or Multiemployer Plan when due; (h) the imposition of a lien under Section 412 of the Code or Section 302 or 4068 of ERISA on any property (or rights to property, whether real or personal) of any ERISA Affiliate; (i) the failure of a Benefit Plan or any trust thereunder intended to qualify for tax exempt status under Section 401 or 501 of the Code or other Requirements of Law to qualify thereunder; and (j) any other event or condition that might reasonably be expected to constitute grounds

103

under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of any liability upon any ERISA Affiliate under Title IV of ERISA other than for PBGC premiums due but not delinquent.

“Euros” or “€” means European Euros.

“Event of Loss” means, with respect to any Property, any of the following: (a) any loss, destruction or damage of such Property; or (b) any condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such Property, or confiscation of such Property or the requisition of the use of such Property.

“Excluded Equity Issuance” means the private issuance of any of (a) Stock or Stock Equivalents by ITG to management or employees of a Credit Party under any employee stock option or stock purchase plan or other employee benefits plan in existence from time to time, (b) Stock or Stock Equivalents by a Wholly-Owned Subsidiary of a Borrower to a Borrower or another Wholly-Owned subsidiary of a Borrower constituting an Investment permitted hereunder, (c) Stock or Stock Equivalents by a Wholly-Owned Subsidiary of ITG to ITG or another Wholly-Owned Subsidiary of ITG constituting an Investment permitted hereunder, (d) Stock or Stock Equivalents by ITG excluding the Preferred Stock Issuance, the Net Proceeds of which are invested in Capital Expenditures, Permitted Acquisitions or Investments in Excluded Subsidiaries within ninety (90) days after receipt thereof, (e) Stock or Stock Equivalents by a Foreign Subsidiary of such Foreign Subsidiary to qualify directors where required pursuant to a Requirement of Law or to satisfy other requirements of applicable law, in each instance, with respect to the ownership of Stock of Foreign Subsidiaries and (f) Stock or Stock Equivalents issued in connection with the Permitted BST Acquisition.

“Excluded Subsidiary” means any Person referred to in the last sentence of the definition of “Subsidiary”.

“Extended Terms Accounts” means Accounts owing by the Account Debtors listed on Part B of Schedule 1.12 and designated therein as Extended Terms Account Debtors.

“E-Fax” means any system used to receive or transmit faxes electronically.

“E-Signature” means the process of attaching to or logically associating with an Electronic Transmission an electronic symbol, encryption, digital signature or process (including the name or an abbreviation of the name of the party transmitting the Electronic Transmission) with the intent to sign, authenticate or accept such Electronic Transmission.

“E-System” means any electronic system, including Intralinks^® and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Agent, any of its Related Persons or any other Person, providing for access to data protected by passcodes or other security system.

104

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent on such day on such transactions as determined by the Agent in a commercially reasonable manner.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System, or any entity succeeding to any of its principal functions.

“First Tier Foreign Subsidiary” means a Foreign Subsidiary more than fifty percent (50%) of the voting Stock (directly or through ownership of Stock Equivalents) of which are held directly by a US Borrower or indirectly by a US Borrower through one or more Domestic Subsidiaries.

“Fixed Asset Loan Value” means the sum of (a) 75% of the Net Forced Liquidation Value of Eligible Equipment plus (b) 50% of the appraised fair market value of Eligible Real Property based upon the most recent Appraisal.

“Food Security Act” means the Food Security Act, 7 U.S.C. §1631.

“Foreign” means, with respect to any Credit Party or a Subsidiary of a Credit Party, that such Credit Party or Subsidiary is not a US Credit Party or Subsidiary.

“Foreign Credit Party” means the UK Borrower or any Foreign Guarantor.

“Foreign Guarantor” means any Guarantor that is not organized under the laws of any State of the United States.

“GAAP” means generally accepted accounting principles in the United States set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), which are applicable to the circumstances as of the date of determination.

“German Factoring Agreement” means, collectively, those certain Factoring Agreements and related documents and opinions to be entered into and delivered to Agent between Safety Components KG, as Originator, and the UK Borrower, as Factor, in form and substance reasonably acceptable to Agent.

“German Subsidiaries” means, collectively, Safety Components KG and Automotive Safety Vertwaltungs.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

105

“Greige Goods” means woven fabric that requires only finishing steps such as dyeing.

“Guarantor” means any Subsidiary of ITG that is a party to the Guaranty and Security Agreement.

“Guaranty and Security Agreement” means that certain Guaranty and Security Agreement, dated as of even date herewith, in form and substance reasonably acceptable to the Agent and US Borrowers, made by the US Credit Parties in favor of the Agent, for the benefit of the Secured Parties, as the same may be amended, restated and/or modified from time to time.

“Hazardous Materials” means any substance, material or waste that is classified, regulated or otherwise characterized under any Environmental Law as hazardous, toxic, a contaminant or a pollutant or by other words of similar meaning or regulatory effect, including petroleum or any fraction thereof, asbestos, polychlorinated biphenyls and radioactive substances.

“Holdco Debt” means unsecured Indebtedness incurred by ITG, any Holding Company of ITG or any Holding Company of BST that is not secured by the assets of, or guaranteed by, any Credit Party.

“Holding Company” means in relation to ITG or BST any limited liability company or corporation in respect of which it is a Subsidiary and that owns no material assets other than the Stock or Stock Equivalents of ITG or BST.

“Indebtedness” of any Person means, without duplication: (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of Property or services (other than trade payables entered into in the Ordinary Course of Business); (c) the face amount of all letters of credit issued for the account of such Person and without duplication, all drafts drawn thereunder and all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments issued by such Person; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of Property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to Property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such Property); (f) all Capital Lease Obligations; (g) the principal balance outstanding under any synthetic lease, off-balance sheet loan or similar off balance sheet financing product; (h) all obligations, whether or not contingent, to purchase, redeem, retire, defease or otherwise acquire for value any of its own Stock or Stock Equivalents (or any Stock or Stock Equivalent of a direct or indirect parent entity thereof) prior to the date that is 180 days after the Revolving

106

Termination Date, valued at, in the case of redeemable preferred Stock, the greater of the voluntary liquidation preference and the involuntary liquidation preference of such Stock plus accrued and unpaid dividends; (i) all indebtedness referred to in clauses (a) through (h) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in Property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; and (j) all Contingent Obligations described in clause (i) of the definition thereof in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (i) above.

“Insolvency Proceeding” means (a) any case, action, application or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, voluntary arrangement, scheme of arrangement, moratorium administration, liquidation, receivership, dissolution, winding-up or relief of debtors and/or the appointment of any Person or officer in connection therewith, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each case in (a) and (b) above, undertaken under US Federal, state or foreign law, including the Bankruptcy Code.

“Intellectual Property” means all rights, title and interests in or relating to intellectual property and industrial property arising under any Requirement of Law and all IP Ancillary Rights relating thereto, including all Copyrights, Patents, Trademarks, Internet domain names, Trade Secrets and IP Licenses in any jurisdiction.

“Intercreditor Agreement” means that certain Subordination and Intercreditor Agreement, dated as of the Closing Date, by and among Agent, as Senior Agent, GE Capital, as Subordinated Agent and the US Borrowers.

“Interest Payment Date” means, (a) with respect to any LIBOR Rate Loan (other than a LIBOR Rate Loan having an Interest Period of six (6) months) the last day of each Interest Period applicable to such Loan, (b) with respect to any LIBOR Rate Loan having an Interest Period of six (6) months, the last day of each three (3) month interval and, without duplication, the last day of such Interest Period, and (c) with respect to Base Rate Loans (including Swing Loans) the first day of each calendar month (starting with February 1, 2007).

“Interest Period” means, with respect to any LIBOR Rate Loan, the period commencing on the Business Day such Loan is disbursed or continued or on the Conversion Date on which a Base Rate Loan is converted to the LIBOR Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower Representative in its Notice of Borrowing or Notice of Conversion/Continuation; provided that:

(a) if any Interest Period pertaining to a LIBOR Rate Loan would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day;

107

(b) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(c) no Interest Period for any Revolving Loan shall extend beyond the Revolving Termination Date.

“Inventory” means all of the “inventory” (as such term is defined in the UCC) of the US Borrowers, including, but not limited to, all merchandise, raw materials, parts, supplies, work-in-process and finished goods intended for sale, together with all the containers, packing, packaging, shipping and similar materials related thereto, and including such inventory as is temporarily out of a US Borrower’s custody or possession, including inventory on the premises of others and items in transit.

“IP Ancillary Rights” means, with respect to any other Intellectual Property, as applicable, all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of, such Intellectual Property and all income, royalties, proceeds and Liabilities at any time due or payable or asserted under or with respect to any of the foregoing or otherwise with respect to such Intellectual Property, including all rights to sue or recover at law or in equity for any past, present or future infringement, misappropriation, dilution, violation or other impairment thereof, and, in each case, all rights to obtain any other IP Ancillary Right.

“IP License” means all Contractual Obligations (and all related IP Ancillary Rights), granting any right, title and interest in or relating to any Intellectual Property.

“IRS” means the Internal Revenue Service of the United States and any successor thereto.

“Issue” means, with respect to any Letter of Credit, to issue, extend the expiration date of, renew (including by failure to object to any automatic renewal on the last day such objection is permitted), increase the face amount of, or reduce or eliminate any scheduled decrease in the face amount of, such Letter of Credit, or to cause any Person to do any of the foregoing. The terms “Issued” and “Issuance” have correlative meanings.

“Joint Ventures” means, collectively, Summit Yarn Holding I, Inc., a Delaware corporation, Summit Yarn Holding II, Inc., a Delaware corporation, Summit Yarn LLC, a North Carolina limited liability company, Cone Denim Jiaxing Limited, a corporation organized under the laws of China, ITG – Phoung Phu Joint Venture Company, a joint venture organized under the laws of Vietnam, SCI – Huamao China Investment Limited, a corporation organized under the laws of Hong Kong, Automotive Safety Components International GT (Proprietary) Limited, a corporation organized under the laws of South Africa, and any other Person that is not a Wholly-Owned Subsidiary and in which a

108

Credit Party or a Subsidiary of a Credit Party owns any Stock or Stock Equivalent and that Borrower Representative notifies Agent as being a “Joint Venture” and Agent consents thereto (such consent not to be unreasonably withheld).

“L/C Issuer” means GE Capital or a Subsidiary thereof or a Lender or other bank or other legally authorized Person selected by or acceptable to the Agent and ITG, in such Person’s capacity as an issuer of Letters of Credit hereunder.

“L/C Reimbursement Obligation” means, for any Letter of Credit, the obligation of the US Borrowers to the L/C Issuer thereof, as and when matured, to pay all amounts drawn under such Letter of Credit.

“Lending Office” means, with respect to any Lender, the office or offices of such Lender specified as its “Lending Office” beneath its name on the applicable signature page hereto, or such other office or offices of such Lender as it may from time to time notify the Borrower Representative and the Agent.

“Letter of Credit” means documentary or standby letters of credit issued for the account of the US Borrowers by L/C Issuers, and bankers’ acceptances issued by a US Borrower, for which the Agent and Lenders have incurred Letter of Credit Obligations.

“Letter of Credit Obligations” means all outstanding obligations incurred by the Agent and Lenders at the request of the US Borrowers or the Borrower Representative, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance of Letters of Credit by L/C Issuers or the purchase of a participation as set forth in Section 1.1(b) with respect to any Letters of Credit. The amount of such Letter of Credit Obligations shall equal the maximum amount that may be payable by the Agent and Lenders thereupon or pursuant thereto.

“Liabilities” means all claims, actions, suits, judgments, damages, losses, liability, obligations, responsibilities, fines, penalties, sanctions, costs, fees, taxes, commissions, charges, disbursements and expenses, in each case of any kind or nature (including interest and penalties accrued thereon or as a result thereof), whether joint or several, whether or not indirect, contingent, consequential, actual, punitive, treble or otherwise.

“LIBOR” means, for each Interest Period, the offered rate per annum for deposits of Dollars for the applicable Interest Period that appears on Telerate Page 3750 as of 11:00 A.M. (London, England time) two (2) Business Days prior to the first day in such Interest Period. If no such offered rate exists, such rate will be the rate of interest per annum, as determined by the Agent (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which deposits of Dollars in immediately available funds are offered at 11:00 A.M. (London, England time) two (2) Business Days prior to the first day in such Interest Period by major financial institutions reasonably satisfactory to the Agent in the London interbank market for such Interest Period for the applicable principal amount on such date of determination.

“LIBOR Rate Loan” means a Loan that bears interest based on LIBOR.

109

“Lien” means any mortgage, deed of trust, pledge, hypothecation, charge, assignment, charge or deposit arrangement, encumbrance, lien (statutory or otherwise) or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the UCC or any comparable law), but not including the interest of a lessor under a lease which is not a Capital Lease.

“Loan” means a Revolving Loan which is a Base Rate Loan or a LIBOR Rate Loan.

“Loan Documents” means this Agreement, the Notes, the Fee Letter, the Collateral Documents, the German Factoring Agreement, the Mexican Sale Agreement, the Intercreditor Agreement, and all documents delivered to the Agent and/or any Lender in connection with any of the foregoing.

“Management Agreement” means that certain Management Agreement to be entered into and delivered to Agent between WLR and ITG, in form and substance reasonably acceptable to Agent.

“Mandatory Cost” means the rate of interest calculated by the Agent to compensate the Lenders for the cost (if any) of compliance with the requirements of the Bank of England, the Financial Services Authority or the European Central Bank.

“Margin Stock” means “margin stock” as such term is defined in Regulation T, U or X of the Federal Reserve Board.

“Material Adverse Effect” means: (a) a material adverse change in, or a material adverse effect upon, the operations, business, Properties or condition (financial or otherwise) of the Credit Parties and the Subsidiaries taken as a whole; (b) a material impairment of the ability of any Credit Party to perform in any material respect its obligations under any Loan Document; or (c) a material adverse effect upon (i) the legality, validity, binding effect or enforceability of any Loan Document, or (ii) the perfection or priority of any Lien relating to a material portion of the Collateral granted to the Lenders or to the Agent for the benefit of the Secured Parties under any of the Collateral Documents.

“Material Environmental Liabilities” means Environmental Liabilities exceeding the US Dollar Equivalent of $1,000,000 in the aggregate.

“Maximum Fixed Asset Loan Value” means $22,300,000 reduced by $800,000 on the last day of each fiscal quarter beginning with the fiscal quarter ended June 30, 2008.

“Member States of the European Union” means (a) for purposes of Section 1.12, those states which were members of the European Union prior to May 1, 2004 and Romania and (b) for all other purposes means those states which are as of the date hereof, and other states which shall from time to time become, member states of the European Union and in any event shall include Romania.

110

“Merger Agreement” means that certain Agreement and Plan of Merger dated as of August 29, 2006 by and among Safety Components International, Inc. (n/k/a International Textile Group, Inc.), SCI Merger Sub, Inc. and International Textile Group, Inc. (n/k/a ITG Holdings, Inc.).

“Mexican Facility” means that certain Term Loan Agreement dated as of the Closing Date by and among Burlington Morelos, S.A. de C.V., UBS AG, Stamford Branch, General Electric Capital Corporation and the other Persons signatory thereto.

“Mexican Sale Agreement” means the Receivables Sale Agreement dated as of the date hereof between Parras Cone de Mexico, S.A. de C.V. and Cone Denim LLC, a Delaware limited liability company;

“Mortgage” means any deed of trust, leasehold deed of trust, mortgage, leasehold mortgage, deed to secure debt, leasehold deed to secure debt or other document creating a Lien on real Property or any interest in real Property.

“Multiemployer Plan” means any multiemployer plan, as defined in Section 4001(a)(3) of ERISA, as to which any ERISA Affiliate incurs or otherwise has any obligation or liability, contingent or otherwise.

“Net Issuance Proceeds” means, in respect of any issuance of debt or equity, cash proceeds (including cash proceeds as and when received in respect of non-cash proceeds received or receivable in connection with such issuance), net of underwriting discounts and reasonable out-of-pocket costs and expenses paid or incurred in connection therewith in favor of any Person.

“Net Forced Liquidation Value” means the cash proceeds of Equipment which could be obtained in a forced liquidation (net of all liquidation expenses, costs of sale, operating expenses and retrieval and related costs), as determined pursuant to the most recent Appraisal delivered to the Agent.

“Net Orderly Liquidation Value” means the cash proceeds of Inventory which could be obtained in an orderly liquidation (net of all liquidation expenses, costs of sale, operating expenses and retrieval and related costs), as determined pursuant to the most recent Appraisal delivered to the Agent.

“Net Proceeds” means proceeds in cash, checks or other cash equivalent financial instruments (including Cash Equivalents) as and when received by the Person making a Disposition and insurance proceeds received on account of an Event of Loss, net of: (a) in the event of a Disposition (i) the direct costs, fees and expenses relating to such Disposition, (ii) sale, use or other transaction taxes or income or gain taxes paid or payable as a result thereof, and (iii) amounts required to be applied to repay principal, interest and prepayment premiums and penalties on Indebtedness secured by a Lien on the asset which is the subject of such Disposition and (b) in the event of an Event of Loss, (i) all money actually applied to repair or reconstruct the damaged Property or Property

111

affected by the condemnation or taking, (ii) all of the costs and expenses reasonably incurred in connection with the collection of such proceeds, award or other payments, and (iii) any amounts retained by or paid to parties having superior rights to such proceeds, awards or other payments.

“Non-US Lender Party” means each of the Agent, each Lender, each L/C Issuer, each SPV and each participant, in each case that is not a United States person under and as defined in Section 7701(a)(30) of the Code.

“NOLV Factor” means, as of the date of the Appraisal most recently received by the Agent, the quotient of the Net Orderly Liquidation Value divided by the net book value (valued at the lower of cost or market) of Inventory, expressed as a percentage. The NOLV Factor will be increased or reduced promptly upon receipt by the Agent of each updated Appraisal.

“Note” means any Revolving Note or Swing Line Note and “Notes” means all such Notes.

“Notice of Borrowing” means a notice given by the Borrower Representative to the Agent pursuant to Section 1.5, in substantially the form of Exhibit 11.1(c) hereto.

“Obligations” means all Loans and other Indebtedness, advances, debts, liabilities, obligations, covenants and duties owing by any Credit Party to any Lender, the Agent, any L/C Issuer or any other Person required to be indemnified, that arises under any Loan Document or with respect to Bank Products, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired.

“Ordinary Course of Business” means, in respect of any transaction involving any Credit Party or any Subsidiary of any Credit Party, the ordinary course of such Person’s business, as conducted by any such Person consistent with past practice and undertaken by such Person in good faith and not for purposes of evading any covenant or restriction in any Loan Document.

“Organization Documents” means, any of the following, as applicable, (a) for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, and any shareholder rights agreement, (b) for any partnership, the partnership agreement and, if applicable, certificate of limited partnership, (c) for any limited liability company, the operating agreement and articles or certificate of formation, (d) for any UK limited liability company, the articles of association and memorandum of association and certificate of incorporation and (e) any other document setting forth the manner of election or duties of the officers, directors, managers or other similar persons, or the designation, amount or relative rights, limitations and preference of the Stock of a Person.

112

“Parras Cone” means Parras Cone de Mexico, S.A. de C.V, a Mexican stock limited liability company.

“Patents” means all rights, title and interests (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to letters patent and applications therefor.

“Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56, as amended.

“PBGC” means the United States Pension Benefit Guaranty Corporation and any successor thereto.

“Permits” means, with respect to any Person, any permit, approval, authorization, license, registration, certificate, concession, grant, franchise, variance or permission from, and any other Contractual Obligations with, any Governmental Authority, in each case whether or not having the force of law and applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Permitted Acquisition” means the Acquisition (other than the Permitted BST Acquisition and the Romanian Acquisition) by a Borrower or any Wholly-Owned Subsidiary of a Borrower of (i) substantially all of the assets of a Target, which assets are located in an Eligible Country or such other countries with Agent’s consent (which shall not be unreasonably withheld) or (ii) 100% of the Stock and Stock Equivalents of a Target to the extent that each of the following conditions shall have been satisfied:

(a) to the extent the Acquisition will be financed in whole or in part with the proceeds of any Loan, the conditions set forth in Section 2.2 shall have been satisfied at the time of the funding of any such Loan;

(b) the Borrowers shall have furnished to the Agent and Lenders at least ten (10) Business Days (or such shorter period of time as the Agent may consent (such consent not to be unreasonably withheld)) prior to the consummation of such Acquisition (1) a description of the terms and conditions of such Acquisition and, at the request of the Agent, such other information and documents that the Agent may request, including, without limitation, executed counterparts of the respective agreements, documents or instruments pursuant to which such Acquisition is to be consummated, any schedules to such agreements, documents or instruments and all other material ancillary agreements, instruments and documents to be executed or delivered in connection therewith, (2) copies of such other agreements, instruments and other documents relating to such Acquisition as the Agent reasonably shall request and (3) in the case of any Acquisition in which the cash consideration paid is in excess of the US Dollar Equivalent of $5,000,000 in the aggregate, pro forma financial statements of ITG and its Subsidiaries after giving effect to the consummation of such Acquisition;

113

(c) the Borrowers and their Subsidiaries (including any new Subsidiary) shall execute and deliver the agreements, instruments and other documents required by Section 4.13;

(d) such Acquisition shall have been approved by the board of directors (or other similar body) and/or the stockholders or other equityholders of the Target;

(e) no Default or Event of Default shall then exist or would exist after giving effect thereto; and

(f) after giving effect to such Acquisition, Average Adjusted Availability shall not be less than $30,000,000.

“Permitted BST Acquisition” means the acquisition by ITG, or a Subsidiary of ITG which is not otherwise a Credit Party, of all of the outstanding capital stock or assets of BST where the sole consideration received is Stock of ITG and to the extent that each of the following conditions shall have been satisfied:

(a) after giving effect thereto no violation of Section 4.15 shall have occurred or would result after giving effect thereto;

(b) receipt by the Agent of a certified copy of an executed tax sharing agreement (the “Tax Sharing Agreement”), the terms of which shall not put the Lenders in a materially worse position than they would otherwise have been in had the “Permitted BST Acquisition” not occurred and/or the Tax Sharing Agreement had not been entered into; and

(c) evidence satisfactory to the Agent (i) that one independent director (such independent director’s votes shall be limited to matters relating to the insolvency, winding-up or liquidation of such member of the BST Group and changes to the corporate document governing such matters) has been appointed to the board of each member of the BST Group and (ii) that the constitutional documents of each member of the BST Group have been amended to provide for such independent director and his/her related voting rights.

“Permitted Investor” means any of WLR, WLR Recovery Fund II, LP, WLR Recovery Fund III, LP and WLR-GS MasterCo-Investments, L.P.

“Person” means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority.

“Pledged Collateral” has the meaning specified in the Guaranty and Security Agreement and shall include any other Collateral required to be delivered to the Agent pursuant to the terms of any Collateral Document.

“Pounds Sterling” and “£” each means lawful currency of the United Kingdom.

114

“Preferred Stock” means the convertible preferred stock referenced in the Preferred Stock Commitment Letter.

“Preferred Stock Commitment Letter” means the Equity Commitment Letter dated as of the date hereof among WLR Recovery Fund II, L.P., WLR Recovery Fund III, L.P. and ITG.

“Preferred Stock Issuance” means the issuance of the Preferred Stock in accordance with the Preferred Stock Commitment Letter.

“Pre-Merger ITG” means International Textile Group, Inc. (n/k/a ITG Holdings, Inc.), a Delaware corporation, in existence prior to the merger contemplated by the Merger Agreement.

“Pre-Merger SCI” means Safety Components International, Inc. (n/k/a International Textile Group, Inc.), a Delaware corporation, in existence prior to the merger contemplated by the Merger Agreement.

“Prior Indebtedness” means the Indebtedness and obligations specified on Schedule 11.1(a) hereto.

“Pro Forma EBITDA” means, with respect to any Target, EBITDA for such Target for the most recent twelve (12) month period for which financial statements are available at the time of determination thereof, adjusted by verifiable expense reductions, including excess owner compensation, if any, which are expected to be realized, in each case calculated by the Borrowers reasonably acceptable to the Agent.

“Projections” means the annual business plan of ITG for fiscal year 2007, which includes a projected balance sheet, income statement and statement of cash flows.

“Property” means any interest in any kind of property, asset or undertaking, whether real, personal or mixed, and whether tangible or intangible.

“Rate Contracts” means swap agreements (as such term is defined in Section 101 of the Bankruptcy Code) and any other agreements or arrangements relating to interest or currency exchange rates.

“Related Agreements” means the Mexican Facility, the German Factoring Agreement and the Mexican Sale Agreement.

“Relative Commitment Factor” means, at any date of determination, a fraction where the numerator is the principal amount of all commitments outstanding under this Agreement and the denominator is the sum of the principal amounts of all commitments outstanding under this Agreement, the Mexican Facility and the BST Facility.

“Related Persons” means, with respect to any Person, each Affiliate of such Person and each director, officer, employee, agent, trustee, representative, attorney, accountant and each insurance, environmental, legal, financial and other advisor

115

(including those retained in connection with the satisfaction or attempted satisfaction of any condition set forth in Article II) and other consultants and agents of or to such Person or any of its Affiliates.

“Related Transactions” means the transactions contemplated by the Related Agreements.

“Releases” means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material into or through the environment.

“Remedial Action” means all actions required to (a) clean up, remove, treat or in any other way address any Hazardous Material in the indoor or outdoor environment, (b) prevent or minimize any Release so that a Hazardous Material does not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment or (c) perform pre remedial studies and investigations and post-remedial monitoring and care with respect to any Hazardous Material.

“Required Lenders” means Lenders having (a) at least sixty six and two-thirds percent (66- ²/3%) of the Aggregate Revolving Loan Commitments of all Lenders, or (b) if the Aggregate Revolving Loan Commitments have been terminated, at least sixty six and two-thirds percent (66- ²/3%) of the aggregate outstanding amount of Revolving Loans and Letter of Credit Obligations.

“Requirement of Law” means, as to any Person, any law (statutory or common), ordinance, treaty, rule, regulation, order, policy, other legal requirement or determination of an arbitrator or of a Governmental Authority in any jurisdiction, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

“Reserves” means, with respect to the Borrowing Base (a) reserves established by the Agent from time to time against Eligible Accounts, Eligible Inventory, Eligible Equipment and Eligible Real Property pursuant to Exhibit 11.1(b), (b) in the case of the UK Borrower, to reflect the prior ranking nature or dilutive effect of the UK Priority Claims and (c) such other reserves against Eligible Accounts, Eligible Inventory or Availability that the Agent may, in its reasonable credit judgment, establish from time to time. Without limiting the generality of the foregoing, Reserves established to ensure the payment of accrued interest expenses or Indebtedness shall be deemed to be a reasonable exercise of the Agent’s credit judgment.

“Responsible Officer” means the chief executive officer or the president of a Borrower or the Borrower Representative, as applicable, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants or delivery of financial information, the chief financial officer, the treasurer or the controller of a Borrower or the Borrower Representative, as applicable, or any other officer having substantially the same authority and responsibility.

116

“Revolving Lender” means each Lender with a Revolving Loan Commitment (or if the Revolving Loan Commitments have terminated, who hold Revolving Loans and, if applicable, participations in Swing Loans.)

“Revolving Note” means a promissory note of the US Borrowers or the UK Borrower payable to the order of a Lender in substantially the form of Exhibit 11.1(d) hereto, evidencing Indebtedness of such Borrowers under the Revolving Loan Commitment of such Lender.

“Revolving Termination Date” means the earlier to occur of: (a) December 29, 2009; and (b) the date on which the Aggregate Revolving Loan Commitment shall terminate in accordance with the provisions of this Agreement.

“Romanian Acquisition” means the purchase by Automotive Safety Components International RO SRL of all or substantially all of the assets of the automotive air bag manufacturing business of Parat SO s.r.l., a Romanian corporation for a cash purchase price not to exceed 5,600,000 Euros.

“Safety Components KG” means Automotive Safety Components International GmbH & Co. KG, limited partnership organized under the laws of Germany.

“Safety Components Vertwaltungs” means Automotive Safety Components International Vertwaltungs GmbH, a limited liability company organized under the laws of Germany.

“Secured Party” means the Agent, each Lender, each L/C Issuer, each other Indemnitee and each other holder of any Obligation of a Credit Party.

“Solvent” means, with respect to any Person as of any date of determination, that, as of such date: (a) the value of the assets of such Person (both at fair value and present fair saleable value) is greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person; (b) such Person is generally able to pay all liabilities of such Person as such liabilities mature, (c) such Person does not have unreasonably small capital; and (d) in the case of any person incorporated in England and Wales only, a Person that is not “unable to pay its debts”. In this context, “unable to pay its debts” means that there are no grounds on which such Person would be deemed unable to pay its debts (as defined in Section 123(1) of the Insolvency Act 1986 of England Wales (as amended by the Enterprise Act 2002 of England and Wales) on the basis that the words “proved to the satisfaction of the court” are deemed omitted from sections 123(1)(e) and 123(2) of that Act) or on which a court would be satisfied that the value of such Person’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities (as such term would be construed for the purposes of Section 123(2) of the Insolvency Act 1986 of England and Wales (as amended by the Enterprise Act 2002 of England and Wales)). The amount of contingent or unliquidated liabilities (such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can be reasonably be expected to become an actual or matured liability.

117

“SPV” means any special purpose funding vehicle identified as such in a writing by any Lender to the Agent.

“Stock” means all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, shares, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting.

“Stock Equivalents” means all securities convertible into or exchangeable for Stock or any other Stock Equivalent and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any Stock or any other Stock Equivalent, whether or not presently convertible, exchangeable or exercisable.

“Subordinated Indebtedness” means unsecured Indebtedness held by Persons that are not Affiliates of the Credit Parties subordinated in right of payment to the Obligations, which may provide for a cap on the principal amount of the Obligations equal to $165,000,000 plus ten percent (10%) of such amount (or $215,000,000 plus 10% of such amount if the Revolving Loan Commitments are increased in accordance herewith) and such Indebtedness is subject to the following terms: (a) no cross-default to the Obligations but may be subject to cross-acceleration; (b) the sole financial covenant, if any, is at least ten percent (10%) less restrictive than the financial covenant set forth herein; (c) basket amount qualifications in negative covenants and events of default are at least ten percent (10%) larger than those contained herein; (d) the maturity date is no earlier than twelve months after the Revolving Termination Date; (e) interest payable in cash does not exceed twelve percent (12%) per annum, payable quarterly or semi-annually; (f) no principal amortization until the maturity thereof; (g) permanent payment blockage in the event of a payment default with respect to the Obligations; (h) one hundred and eighty (180) day payment blockage with respect to a covenant default under this Agreement; (i) not more than one payment blockage period with respect to a covenant default during any period of 360 days; (j) one hundred and twenty (120) day standstill period for enforcement of remedies, subject to termination upon a bankruptcy filing by a Credit Party or enforcement actions by Agent; (k) holders of such Indebtedness may have the right to file and vote their claims in bankruptcy, subject to the right of Agent to file proofs of claim if the holders of such Indebtedness fail to do so in a timely manner; and (l) any limitations on amendments to this Agreement are limited to (i) caps on increases in the principal amount as set forth above, (ii) 200 basis point increases in per annum interest margins (excluding any applicable default rate) (iii) extensions of Revolving Termination Date not to exceed three (3) years and (iv) no amendment that directly prohibits payment of such Indebtedness.

“Subordinated Indebtedness Document” means all agreements and documents relating to any Subordinated Indebtedness.

118

“Subordination Agreement” means a subordination agreement between Agent, the Person providing the Subordinated Indebtedness, the applicable Credit Party or Subsidiary of any Credit Party, on terms reasonably acceptable to Agent.

“Subsidiary” of a Person means any corporation, association, limited liability company, partnership, joint venture or other business entity of which more than fifty percent (50%) of the voting Stock (in the case of Persons other than corporations), is owned or controlled directly or indirectly by such Person, or one or more of the Subsidiaries of such Person, or a combination thereof. Notwithstanding anything to the contrary contained herein, a “Subsidiary” of ITG or a Credit Party shall in no event include BST or any of its Subsidiaries, any Subsidiary of Denim which is a company organized under the laws of Mexico, the Joint Ventures, or Subsidiaries of a Credit Party that are not themselves Credit Parties and that have been designated as Excluded Subsidiaries in a notice from Borrower Representative to Agent.

“Super-Majority Lenders” means Lenders having (a) at least seventy five percent (75%) of the Aggregate Revolving Loan Commitments of all Lenders, or (b) if the Aggregate Revolving Loan Commitments have been terminated, at least seventy five percent (75%) of the aggregate outstanding amount of Revolving Loans and Letter of Credit Obligations.

“Swingline Commitment” means $15,000,000.

“Swingline Lender” means, each in its capacity as Swingline Lender hereunder, GE Capital or, upon the resignation of GE Capital as the Agent hereunder, any Lender (or Affiliate or Approved Fund of any Lender) that agrees, with the approval of the Agent (or, if there is no such successor Agent, the Required Lenders) and the Borrowers, to act as the Swingline Lender hereunder.

“Swingline Note” means a promissory note of the US Borrowers or the UK Borrower payable to the order of a Lender in substantially the form of Exhibit 11.1(e) hereto, evidencing Indebtedness of such Borrowers under the Swingline Commitment of such Lender.

“Target” means any Person or business unit or asset group of any other Person acquired or proposed to be acquired in an Acquisition.

“Tax Affiliate” means, (a) each Credit Party and their Subsidiaries and (b) any Affiliate of a Credit Party with which such Credit Party files or is eligible to file consolidated, combined or unitary tax returns.

“Tax Sharing Agreement” has the meaning specified in the definition of “Permitted BST Acquisition”.

“Title IV Plan” means a pension plan subject to Title IV of ERISA, other than a Multiemployer Plan, to which any ERISA Affiliate incurs or otherwise has any obligation or liability, contingent or otherwise.

119

“Trade Secrets” means all right, title and interest (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to trade secrets.

“Trademark” means all rights, title and interests (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers and, in each case, all goodwill associated therewith, all registrations and recordations thereof and all applications in connection therewith.

“UBS” means UBS Securities LLC.

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York.

“UK Debenture” means the English law debenture entered into by the UK Borrower in favor of the Agent.

“UK Obligations” means principal, interest, fees and expenses and any other Obligations advanced to or incurred by the UK Borrower hereunder.

“UK Priority Claims” means with respect to the UK Borrower only, (a) sums which are due by way of contributions to occupational pension schemes and state scheme premiums; (b) unpaid remuneration of employees in respect of the 4-month period prior to insolvency, subject to a maximum cap (currently £800 per employee) together with any amount owed in respect of accrued holiday; (c) an amount equal to the aggregate of (i) 50% of the first £10,000 in value of Eligible Accounts of the UK Borrower and (ii) 20% of the value of Eligible Accounts of the UK Borrower above £10,000, subject to a cap for this sub-clause (d) of £600,000 and (e) the expenses of any administration or winding-up.

“UK Security Documents” means the UK Debenture and the UK Share Charge.

“UK Share Charge” means the English law share charge entered into by ASCI Holdings UK (DE), Inc., a Delaware corporation, over the shares it holds in UK Borrower in favor of the Agent.

“United States” and “US” each means the United States of America.

“US Borrower” means a Borrower that is incorporated or otherwise organized under the laws of the United States of America.

“US Borrowing Base” means the Borrowing Base less 85% of Eligible Accounts attributable to the UK Borrower.

“US Borrowing Base Limit” means the US Borrowing Base minus the sum of (a) 70% (or such greater percentage determined by Agent in its reasonable credit judgment) multiplied by the Availability Block, (b) outstanding Letter of Credit Obligations issued for US Borrowers, as applicants, (c) outstanding Swing Loans and (d) Reserves applicable to the US Borrowing Base.

120

“US Credit Party” means a US Borrower or a US Guarantor.

“US Dollar Equivalent” means, with respect to any amount denominated in Dollars, such amount of Dollars, and with respect to any amount denominated in a currency other than Dollars, the amount of Dollars, as of any date of determination, into which such other currency (as the context may require) can be converted in accordance with prevailing exchange rates, as determined in accordance herewith.

“US Guarantor” means a Guarantor that is incorporated or otherwise organized under the laws of the United States of America.

“US Lender Party” means each of the Agent, each Lender, each L/C Issuer, each SPV and each participant, in each case that is a United States person under and as defined in Section 7701(a)(30) of the Code.

“US Obligations” means all Obligations which are not UK Obligations.

“Wholly-Owned Subsidiary” means any Subsidiary in which (other than directors’ qualifying shares required by law) one hundred percent (100%) of the Stock and Stock Equivalents, at the time as of which any determination is being made, is owned, beneficially and of record, by any Credit Party, or by one or more of the other Wholly-Owned Subsidiaries, or both.

“Withdrawal Liabilities” means, at any time, any liability incurred (whether or not assessed) by any ERISA Affiliate and not yet satisfied or paid in full at such time with respect to any Multiemployer Plan pursuant to Section 4201 of ERISA.

“WLR” means WL Ross & Co., LLC, a Delaware limited liability company.

“WLR Affiliate” means any Person, other than ITG and any of ITG’s Subsidiaries or any Person in which ITG directly or indirectly owns ten percent (10%) or more of the outstanding equity interests, that would constitute an Affiliate hereunder solely because such Person is controlled by WLR or any fund managed by WLR, or because WLR or any fund managed by WLR directly or indirectly owns ten percent (10%) or more of the outstanding equity interests of such Person.

“WLR Subordinated Indebtedness” means unsecured Indebtedness provided by one or more Permitted Investors, subordinated in right of payment to the Obligations providing no limitation on the amount of the Obligations and such Indebtedness is subject to the following terms: (a) no cross-default to the Obligations but may be subject to cross-acceleration; (b) no financial covenants; (c) negative covenants will be limited to those set forth in this Agreement and will be automatically amended or waived in lock-step with any amendment or waiver of corresponding covenants in this Agreement; (d) the maturity date is no less than twelve months after the Revolving Termination Date; provided, that if the Revolving Termination Date is extended, such maturity date will also

121

be extended for a corresponding period; (e) interest on any such Indebtedness is only paid by the issuance of payment-in-kind notes payable at maturity; (f) no principal amortization until maturity; (g) permanent standstill until the Obligations (including successive refinancings thereof) are paid in full; (h) holders of such Indebtedness retain the right to file and vote their claims in bankruptcy, subject to the right of Agent to file proofs of claims if the holders of such Indebtedness fail to do so in a timely manner; and (i) the holders of such Indebtedness have no rights to consent to amendments or waivers to this Agreement of the other Loan Documents.

11.2 Other Interpretive Provisions.

(a) Defined Terms. Unless otherwise specified herein or therein, all terms defined in this Agreement or in any other Loan Document shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. The meanings of defined terms shall be equally applicable to the singular and plural forms of the defined terms. Terms (including uncapitalized terms) not otherwise defined herein and that are defined in the UCC shall have the meanings therein described.

(b) The Agreement. The words “hereof”, “herein”, “hereunder” and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document; and subsection, section, schedule and exhibit references are to this Agreement or such other Loan Documents unless otherwise specified.

(c) Certain Common Terms. The term “documents” includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. The term “including” is not limiting and means “including without limitation.”

(d) Performance; Time. Whenever any performance obligation hereunder or under any other Loan Document (other than a payment obligation) shall be stated to be due or required to be satisfied on a day other than a Business Day, such performance shall be made or satisfied on the next succeeding Business Day. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including.” If any provision of this Agreement or any other Loan Document refers to any action taken or to be taken by any Person, or which such Person is prohibited from taking, such provision shall be interpreted to encompass any and all means, direct or indirect, of taking, or not taking, such action.

(e) Contracts. Unless otherwise expressly provided herein or in any other Loan Document, references to agreements and other contractual instruments, including this Agreement and the other Loan Documents, shall be deemed to include all subsequent amendments, thereto, restatements and substitutions thereof and other modifications and supplements thereto which are in effect from time to time, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document.

122

(f) Laws. References to any Requirement of Law are to be construed as including all statutory and regulatory provisions related thereto or consolidating, amending, replacing, supplementing or interpreting the statute or regulation.

11.3 Accounting Terms and Principles. All accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in accordance with GAAP. No change in the accounting principles used in the preparation of any financial statement hereafter adopted by ITG shall be given effect for purposes of measuring compliance with any provision of Article V or VI unless the Borrowers, the Agent and the Required Lenders agree to modify such provisions to reflect such changes in GAAP and, unless such provisions are modified, all financial statements, Compliance Certificates and similar documents provided hereunder shall be provided together with a reconciliation between the calculations and amounts set forth therein before and after giving effect to such change in GAAP.

11.4 Payments. The Agent may set up standards and procedures to determine or redetermine the equivalent in Dollars of any amount expressed in any currency other than Dollars and otherwise may, but shall not be obligated to, rely on any determination made by any Credit Party or any L/C Issuer. Any such determination or redetermination by the Agent shall be conclusive and binding for all purposes, absent manifest error. No determination or redetermination by any Secured Party or any Credit Party and no other currency conversion shall change or release any obligation of any Credit Party or of any Secured Party (other than the Agent and its Related Persons) under any Loan Document, each of which agrees to pay separately for any shortfall remaining after any conversion and payment of the amount as converted. The Agent may round up or down, and may set up appropriate mechanisms to round up or down, any amount hereunder to nearest higher or lower amounts and may determine reasonable de minimis payment thresholds.

[Balance of page intentionally left blank; signature page follows.]

123

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

BORROWERS:
INTERNATIONAL TEXTILE GROUP, INC.
FEIN:	33-0596831
ITG HOLDINGS, INC.
FEIN:	20-0269226
BURLINGTON INDUSTRIES LLC
FEIN:	20-0285091
CONE JACQUARDS LLC
FEIN:	20-0817123
CONE DENIM LLC
FEIN:	20-0816375
CARLISLE FINISHING LLC
FEIN:	20-0816990
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above
Address for notices:
c/o International Textile Group, Inc.
804 Green Valley Road, Suite 300
Greensboro, North Carolina 27408
Attn:	General Counsel
Facsimile:		336-379-6972
Address for Wire Transfers:
Wachovia Bank National Association
Winston-Salem
North Carolina

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL, INC.
FEIN:	33-0611750
SAFETY COMPONENTS FABRIC TECHNOLOGIES, INC.
FEIN:		58-2328795
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL LIMITED
FEIN:	n/a
By:	/s/ Stephen B. Duerk
Name:		Stephen B. Duerk
Title:		President of each of the entities listed above

IN WITNESS WHEREOF, the following parties hereto have caused this Agreement in their capacity as Credit Parties and not as Borrowers to be duly executed and delivered by their duly authorized officers as of the day and year first above written.

APPAREL FABRICS PROPERTIES, INC.

BURLINGTON APPAREL SERVICES COMPANY

BURLINGTON INDUSTRIES V, LLC

BWW CT, INC.

CLIFFSIDE DENIM LLC

CONE ADMINISTRATIVE AND SALES LLC

CONE INTERNATIONAL HOLDINGS II, INC.

INTERNATIONAL TEXTILE GROUP ACQUISITION GROUP LLC

BI PROPERTIES I, INC.

BURLINGTON INTERNATIONAL SERVICES COMPANY

BURLINGTON INDUSTRIES IV, LLC

BURLINGTON WORLDWIDE INC.

BILLC ACQUISITION LLC

CONE DENIM WHITE OAK LLC

CONE INTERNATIONAL HOLDINGS, INC.

CONE ACQUISITION LLC

WLR CONE MILLS IP, INC.

By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

VALENTEC WELLS, LLC

ASCI HOLDINGS GERMANY (DE), INC.

ASCI HOLDINGS ASIA PACIFIC (DE), LLC

ASCI HOLDINGS CZECH (DE), INC.

ASCI HOLDINGS U.K. (DE), INC.

ASCI HOLDINGS MEXICO (DE), INC.

By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL GMBH & CO. KG
By:	/s/ Stephen B. Duerk
Name:
Title:
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL VERWALTUNGS GMBH
By:	/s/ Stephen B. Duerk
Name:
Title:

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

GENERAL ELECTRIC CAPITAL CORPORATION, as the Agent, L/C Issuer, Swingline Lender and as a Lender
By:	/s/ Donald J. Cavanagh
Title:	Its Duly Authorized Signatory
Address for Notices:
General Electric Capital Corporation 201 Merritt 7 P.O. Box 5201 Norwalk, Connecticut 06851 Attn: International Textiles Group, Account Officer
Facsimile: (203) 956-4238
With a copy to:
General Electric Capital Corporation 401 Merritt 7 P.O. Box 5401 Norwalk, Connecticut 06851 Attn: General Counsel-Corporate Lending
Facsimile: (203) 956-4001
Address for payments:
Payment To: Deutsche Bank Trust Company Americas
Account Name: GECC CFS CIF Collection A/C
ABA Number: 021-001-033
Account Number: 50-279-513
Reference: CFN # 8683/ITG-SCI

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

UBS LOAN FINANCE LLC
By:	/s/ Richard L. Tavrow
	Richard L. Tavrow
Title:	Director
By:	/s/ Irja R. Otsa
	Irja R. Otsa
	Associate Director
Address for notices:
677 Washington Boulevard Stamford, CT 06901 Attn: Shaneequa Thomas Phone: (203) 719-3385 Fax: (203) 719-3888
Lending office:
UBS Loan Finance LLC 677 Washington Boulevard Stamford, CT 06901

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

WACHOVIA BANK, NATIONAL ASSOCIATION
By:	/s/ Todd Plosker
	Todd Plosker
Title:	Director
	Signed in Atlanta, GA
Address for notices:
110 E. Broward Blvd., Suite 2050
Ft. Lauderdale, FL 33301
Attn: Josephine Norris
Phone: (954) 467-2262
Fax: (954) 467-5520
Lending office:
Wachovia Bank, National Association 1133 6th Avenue New York, NY 10036

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

THE CIT GROUP/COMMERCIAL SERVICES, INC.
By:	/s/ M. Kim Carpenter
	M. Kim Carpenter
Title:	Vice President
Address for notices:
301 South Tryon Street Two Wachovia Center, 25th Floor Charlotte, NC 28202 Attn: Kim Carpenter Phone: (704) 339-2957 Fax: (704) 339-2910
Lending office:
The CIT Group/Commercial Services, Inc. 134 Wooding Avenue Danville, VA 24541

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

BANK OF AMERICA, NA
By:	/s/
Title:	Senior Vice President
Address for notices:
300 Galleria Parkway Atlanta, GA 30339 Attn: John Yankauskas Phone: (770) 857-2925 Fax: (770) 857-2947
Lending office:
Bank of America, NA 6100 Fairview Road Charlotte, NC 28210

EX-10.17

Exhibit 10.17

AMENDMENT NO. 1 TO CREDIT AGREEMENT

This AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of January 19, 2007 by and among INTERNATIONAL TEXTILE GROUP, INC., a Delaware corporation, the other Borrowers and Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, for itself and as Agent, and the other Lenders signatory hereto. Unless otherwise specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them in to the Credit Agreement (as hereinafter defined).

R E C I T A L S:

WHEREAS, Borrowers, the other Credit Parties, the Agent and the Lenders entered into that certain Credit Agreement dated as of December 29, 2006 (as amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”); and

WHEREAS, the parties to the Credit Agreement have agreed to amend the Credit Agreement as set forth herein;

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

1 Amendment to Section 3.8. Section 3.8 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“The proceeds of the Loans are intended to be and shall be used solely for the purposes set forth in and permitted by Section 4.10, and are intended to be and shall be used in compliance with Section 5.8. No Credit Party and no Subsidiary of any Credit Party is engaged in the business of purchasing or selling Margin Stock (other than the Culp Shares) or extending credit for the purpose of purchasing or carrying Margin Stock (other than the Culp Shares). Proceeds of the Loans shall not be used for the purpose of purchasing or carrying Margin Stock.”

2 Amendment to Section 5.2(i). Section 5.2(i) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“(i) the sale or other transfer of any non-cash consideration received as proceeds of any disposition permitted hereunder or Stock or Stock Equivalent owned by any Credit Party or any Subsidiary of any Credit Party in any Joint Venture pursuant to the Organization Documents or other documents governing such Joint Venture; and”

3 Amendment to Section 5.4(c). Section 5.4(c) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“(c) Investments received as the non-cash portion of consideration received in connection with transactions permitted pursuant to Sections 5.2(b) or 5.2(j);”

4 Amendment to Section 5.8. Section 5.8 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“No Credit Party shall, and no Credit Party shall suffer or permit any of its Subsidiaries to, use any portion of the Loan proceeds, directly or indirectly, to purchase or carry Margin Stock or repay or otherwise refinance Indebtedness of any Credit Party or others incurred to purchase or carry Margin Stock (other than the Culp Shares), or otherwise in any manner which is in contravention of any Requirement of Law or in violation of this Agreement.”

5 Amendment to Section 5.9(f). Section 5.9(f) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“(f) Contingent Obligations arising with respect to customary indemnification obligations in favor of (i) sellers in connection with Acquisitions permitted hereunder and (ii) purchasers in connection with dispositions permitted under Sections 5.2(b) or 5.2(j);”

6 Amendment to Section 11.1. Section 11.1 of the Credit Agreement is hereby amended as follows:

(i) the definition of “Borrowing Base” is hereby amended and restated to read in its entirety as follows:

““Borrowing Base” means, as of any date of determination by the Agent, from to time to time, an amount equal to the sum of:

(a) 85% of the book value of Eligible Accounts (other than Insured Accounts);

(b) the lesser of (i) 75% of the book value of Insured Accounts and (ii) $5,000,000;

(c) the least of (i) 65% of the book value (valued at the lower of cost or market) of Eligible Inventory, (ii) 85% of the book value (valued at the lower of cost or market) of Eligible Inventory multiplied by the then current NOLV Factor and (iii) an amount equal to 50% of the Borrowing Base, excluding amounts reflected in clauses (d) and (e) below;

(d) at all times on or prior to May 31, 2008 the lesser of (i) $22,300,000 and (ii) the Fixed Asset Loan Value;

(e) at all times after May 31, 2008, the lesser of (i) the Maximum Fixed Asset Loan Value and (ii) the Fixed Asset Loan Value; and

(f) fifty percent (50%) of the number of Culp Shares from time to time owned by ITG and held in an account which is subject to a Control Agreement multiplied by the lesser of (i) the current market value per share (marked-to-market on the last Business Day of each week) and (ii) $6.46 per share.”

2

(ii) the following defined terms are hereby added to Section 11.1 in its applicable alphabetical order:

““Culp Purchase Agreement” means that certain Asset Purchase Agreement, dated as of January 11, 2007, between ITG and Culp, as in effect on such date.”

““Culp” means Culp, Inc., a North Carolina corporation (NYSE: CFI).”

““Culp Shares” means shares of Culp Stock received as consideration by ITG pursuant to the Culp Purchase Agreement.”

7 Conditions to Effectiveness. This Amendment shall be effective on the date on which this Amendment shall have been duly executed and delivered by each Borrower, each other Credit Party party hereto, Agent and the Required Lenders.

8 Amendment to Schedule 5.2. Schedule 5.2 to the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“Potential disposition by ITG of a portion of its mattress fabrics product line.”

9 Representations and Warranties. In order to induce Agent and the Lenders to enter into this Amendment, each Borrower and each other Credit Party represents and warrants to Agent and each Lender (which representations and warranties shall survive the execution and delivery of this Amendment), that:

(a) the execution, delivery and performance by each Credit Party of this Amendment has been duly authorized by all necessary corporate and partnership action and this Amendment is a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms; and

(b) upon the effectiveness of this Amendment, all of the representations and warranties contained in the Credit Agreement and in the other Loan Documents (other than those which speak expressly only as of an earlier date) are true and correct in all material respects on and as of the date of the effectiveness of this Amendment after giving effect to this Amendment and the transactions contemplated hereby.

10 Miscellaneous.

10.1 Effect; Ratification.

(a) Except as specifically set forth above, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document, nor constitute amendment of any provision of the Credit Agreement or any other Loan Document, except as specifically set

3

forth herein. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

(c) Each Credit Party acknowledges and agrees that the amendments set forth herein are effective solely for the purposes set forth herein and that the execution and delivery by Agent of this Amendment shall not be deemed (i) except as expressly provided in this Amendment, to be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement or of any other Loan Document, (ii) to create a course of dealing or otherwise obligate Agent or Lenders to forbear, waive, consent or execute similar amendments under the same or similar circumstances in the future, or (iii) to amend, prejudice, relinquish or impair any right of Agent or Lenders to receive any indemnity or similar payment from any Person or entity as a result of any matter arising from or relating to this Amendment.

10.2 Counterparts and Signatures by Fax. This Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together one and the same instrument. Any party delivering an executed counterpart of this Amendment by fax shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of this Amendment.

10.3 Severability. In case any provision in or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

10.4 Loan Document. This Amendment shall constitute a Loan Document.

10.5 GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL, IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

[Signature Pages Follows]

4

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWERS:
INTERNATIONAL TEXTILE GROUP, INC. ITG HOLDINGS, INC. BURLINGTON INDUSTRIES LLC CONE JACQUARDS LLC CONE DENIM LLC CARLISLE FINISHING LLC
By:	/s/ Karyl P. McClusky
Name: Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL, INC. SAFETY COMPONENTS FABRIC     TECHNOLOGIES, INC. AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL LIMITED
By:	/s/ Stephen B. Duerk
Name: Stephen B. Duerk
Title: President of each of the entities listed above

[Signature Page to Amendment No. 1 to Credit Agreement]

OTHER CREDIT PARTIES:
APPAREL FABRICS PROPERTIES, INC. BURLINGTON APPAREL SERVICES COMPANY BURLINGTON INDUSTRIES V, LLC BWW CT, INC. CLIFFSIDE DENIM LLC CONE ADMINISTRATIVE AND SALES LLC CONE INTERNATIONAL HOLDINGS II, INC. INTERNATIONAL TEXTILE GROUP     ACQUISITION GROUP LLC BI PROPERTIES I, INC. BURLINGTON INTERNATIONAL SERVICES     COMPANY BURLINGTON INDUSTRIES IV, LLC BURLINGTON WORLDWIDE INC. BILLC ACQUISITION LLC CONE DENIM WHITE OAK LLC CONE INTERNATIONAL HOLDINGS, INC. CONE ACQUISITION LLC WLR CONE MILLS IP, INC.
By:	/s/ Karyl P. McClusky
Name: Karyl P. McClusky
Title: Vice President and Treasurer of each of the entities listed above

VALENTEC WELLS, LLC ASCI HOLDINGS GERMANY (DE), INC. ASCI HOLDINGS ASIA PACIFIC (DE), LLC ASCI HOLDINGS CZECH (DE), INC. ASCI HOLDINGS U.K. (DE), INC. ASCI HOLDINGS MEXICO (DE), INC.
By:	/s/ Stephen B. Duerk
Name: Stephen B. Duerk
Title: President of each of the entities listed above

[Signature Page to Amendment No. 1 to Credit Agreement]

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL GMBH & CO. KG
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL VERWALTUNGS GMBH
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President

[Signature Page to Amendment No. 1 to Credit Agreement]

AGENT AND LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION, as the Agent and a Lender
By:	/s/
Title:	Its Duly Authorized Signatory

[Signature Page to Amendment No. 1 to Credit Agreement]

UBS LOAN FINANCE LLC, as a Lender
By:	/s/ Richard L. Tavrow
Name: Richard L. Tavrow
Title: Director
By:	/s/ Irja R. Otsa
Name: Irja R. Otsa
Title: Director

[Signature Page to Amendment No. 1 to Credit Agreement]

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Josephine Norris
Name:	Josephine Norris
Title:	Director

[Signature Page to Amendment No. 1 to Credit Agreement]

THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender
By:	/s/ M. Kim Carpenter
Name:	M. Kim Carpenter
Title:	Vice President

[Signature Page to Amendment No. 1 to Credit Agreement]

BANK OF AMERICA, NA, as a Lender
By:	/s/ John Yankauskas
Name:	John Yankauskas
Title:	Sr. Vice President

[Signature Page to Amendment No. 1 to Credit Agreement]

WELLS FARGO FOOTHILL LLC, as a Lender
By:	/s/ Yelen Kravchuk
Name:	Yelen Kravchuk
Title:	AVP

[Signature Page to Amendment No. 1 to Credit Agreement]

EX-10.18

Exhibit 10.18

AMENDMENT NO. 2 TO CREDIT AGREEMENT

This AMENDMENT NO. 2 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of January 31, 2007 by and among INTERNATIONAL TEXTILE GROUP, INC., a Delaware corporation, the other Borrowers and Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, for itself and as Agent, and the other Lenders signatory hereto. Unless otherwise specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them in to the Credit Agreement (as hereinafter defined).

R E C I T A L S:

WHEREAS, Borrowers, the other Credit Parties, the Agent and the Lenders entered into that certain Credit Agreement dated as of December 29, 2006 (as amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”); and

WHEREAS, the parties to the Credit Agreement have agreed to amend the Credit Agreement as set forth herein;

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

1 Amendment to Section 4.14. Section 4.14 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“Mandatory Investments. On or prior to the dates indicated in the table below, ITG shall obtain, and shall contribute the same to US Borrowers to be used for purposes permitted by this Agreement, not less than the following amounts in gross cash proceeds from the issuance of Stock and Stock Equivalents to WLR and other Persons:

Date	Equity Contribution
February 15, 2007	$	50,000,000
May 1, 2007	$	50,000,000	”

2 Representations and Warranties. In order to induce Agent and the Lenders to enter into this Amendment, each Borrower and each other Credit Party represents and warrants to Agent and each Lender (which representations and warranties shall survive the execution and delivery of this Amendment), that:

(a) the execution, delivery and performance by each Credit Party of this Amendment has been duly authorized by all necessary corporate and partnership action and this Amendment is a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms; and

(b) upon the effectiveness of this Amendment, all of the representations and warranties contained in the Credit Agreement and in the other Loan Documents (other than those which speak expressly only as of an earlier date) are true and correct in all material respects on and as of the date of the effectiveness of this Amendment after giving effect to this Amendment and the transactions contemplated hereby.

3 Miscellaneous.

3.1 Effect; Ratification.

(a) Except as specifically set forth above, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document, nor constitute amendment of any provision of the Credit Agreement or any other Loan Document, except as specifically set forth herein. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

(c) Each Credit Party acknowledges and agrees that the amendments set forth herein are effective solely for the purposes set forth herein and that the execution and delivery by Agent of this Amendment shall not be deemed (i) except as expressly provided in this Amendment, to be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement or of any other Loan Document, (ii) to create a course of dealing or otherwise obligate Agent or Lenders to forbear, waive, consent or execute similar amendments under the same or similar circumstances in the future, or (iii) to amend, prejudice, relinquish or impair any right of Agent or Lenders to receive any indemnity or similar payment from any Person or entity as a result of any matter arising from or relating to this Amendment.

3.2 Counterparts and Signatures by Fax. This Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together one and the same instrument. Any party delivering an executed counterpart of this Amendment by fax shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of this Amendment.

3.3 Severability. In case any provision in or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

3.4 Loan Document. This Amendment shall constitute a Loan Document.

2

3.5 GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL, IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

[Signature Pages Follows]

3

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWERS:
INTERNATIONAL TEXTILE GROUP, INC.
ITG HOLDINGS, INC.
BURLINGTON INDUSTRIES LLC
CONE JACQUARDS LLC
CONE DENIM LLC
CARLISLE FINISHING LLC
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL, INC.
SAFETY COMPONENTS FABRIC     TECHNOLOGIES, INC.
AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL LIMITED
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

[Signature Page to Amendment No. 2 to Credit Agreement]

OTHER CREDIT PARTIES:
APPAREL FABRICS PROPERTIES, INC.
BURLINGTON APPAREL SERVICES COMPANY
BURLINGTON INDUSTRIES V, LLC
BWW CT, INC.
CLIFFSIDE DENIM LLC
CONE ADMINISTRATIVE AND SALES LLC
CONE INTERNATIONAL HOLDINGS II, INC.
INTERNATIONAL TEXTILE GROUP     ACQUISITION GROUP LLC
BI PROPERTIES I, INC.
BURLINGTON INTERNATIONAL SERVICES     COMPANY
BURLINGTON INDUSTRIES IV, LLC
BURLINGTON WORLDWIDE INC.
BILLC ACQUISITION LLC
CONE DENIM WHITE OAK LLC
CONE INTERNATIONAL HOLDINGS, INC.
CONE ACQUISITION LLC
WLR CONE MILLS IP, INC.
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

VALENTEC WELLS, LLC
ASCI HOLDINGS GERMANY (DE), INC.
ASCI HOLDINGS ASIA PACIFIC (DE), LLC
ASCI HOLDINGS CZECH (DE), INC.
ASCI HOLDINGS U.K. (DE), INC.
ASCI HOLDINGS MEXICO (DE), INC.
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

[Signature Page to Amendment No. 2 to Credit Agreement]

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL GMBH & CO. KG
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL VERWALTUNGS GMBH
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:

[Signature Page to Amendment No. 2 to Credit Agreement]

AGENT AND LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION, as the Agent and a Lender
By:	/s/
Title:	Its Duly Authorized Signatory

[Signature Page to Amendment No. 2 to Credit Agreement]

UBS LOAN FINANCE LLC, as a Lender
By:	/s/ Richard L. Tavrow
Name:	Richard L. Tavrow
Title:	Director
By:	/s/ Irja R. Otsa
Name:	Irja R. Otsa
Title:	Director

[Signature Page to Amendment No. 2 to Credit Agreement]

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Josephine Norris
Name:	Josephine Norris
Title:	Director

[Signature Page to Amendment No. 2 to Credit Agreement]

THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender
By:	/s/ M. Kim Carpenter
Name:	M. Kim Carpenter
Title:	Vice President

[Signature Page to Amendment No. 2 to Credit Agreement]

BANK OF AMERICA, NA, as a Lender
By:	/s/ John Yankauskas
Name:	John Yankauskas
Title:	Sr. Vice President

[Signature Page to Amendment No. 2 to Credit Agreement]

WELLS FARGO FOOTHILL LLC, as a Lender
By:	/s/ Yelena Kravchuk
Name:	Yelena Kravchuk
Title:	AVP

[Signature Page to Amendment No. 2 to Credit Agreement]

EX-10.19

Exhibit 10.19

AMENDMENT NO. 3 TO CREDIT AGREEMENT

This AMENDMENT NO. 3 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of February 15, 2007 by and among INTERNATIONAL TEXTILE GROUP, INC., a Delaware corporation, the other Borrowers and Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, for itself and as Agent, and the other Lenders signatory hereto. Unless otherwise specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them in to the Credit Agreement (as hereinafter defined).

R E C I T A L S:

WHEREAS, Borrowers, the other Credit Parties, the Agent and the Lenders entered into that certain Credit Agreement dated as of December 29, 2006 (as amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”); and

WHEREAS, the parties to the Credit Agreement have agreed to amend the Credit Agreement as set forth herein;

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

1 Amendment to Section 4.14. Section 4.14 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“Mandatory Investments. On or prior to the dates indicated in the table below, ITG shall obtain, and shall contribute the same to US Borrowers to be used for purposes permitted by this Agreement, not less than the following amounts in gross cash proceeds from the issuance of Stock and Stock Equivalents to WLR and other Persons:

Date	Equity Contribution
February 28, 2007	$	50,000,000
May 1, 2007	$	50,000,000	”

2 Representations and Warranties. In order to induce Agent and the Lenders to enter into this Amendment, each Borrower and each other Credit Party represents and warrants to Agent and each Lender (which representations and warranties shall survive the execution and delivery of this Amendment), that:

(a) the execution, delivery and performance by each Credit Party of this Amendment has been duly authorized by all necessary corporate and partnership action and this Amendment is a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms; and

(b) upon the effectiveness of this Amendment, all of the representations and warranties contained in the Credit Agreement and in the other Loan Documents (other than those which speak expressly only as of an earlier date) are true and correct in all material respects on and as of the date of the effectiveness of this Amendment after giving effect to this Amendment and the transactions contemplated hereby.

3 Miscellaneous.

3.1 Effect; Ratification.

(a) Except as specifically set forth above, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document, nor constitute amendment of any provision of the Credit Agreement or any other Loan Document, except as specifically set forth herein. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

(c) Each Credit Party acknowledges and agrees that the amendments set forth herein are effective solely for the purposes set forth herein and that the execution and delivery by Agent of this Amendment shall not be deemed (i) except as expressly provided in this Amendment, to be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement or of any other Loan Document, (ii) to create a course of dealing or otherwise obligate Agent or Lenders to forbear, waive, consent or execute similar amendments under the same or similar circumstances in the future, or (iii) to amend, prejudice, relinquish or impair any right of Agent or Lenders to receive any indemnity or similar payment from any Person or entity as a result of any matter arising from or relating to this Amendment.

3.2 Counterparts and Signatures by Fax. This Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together one and the same instrument. Any party delivering an executed counterpart of this Amendment by fax shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of this Amendment.

3.3 Severability. In case any provision in or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

3.4 Loan Document. This Amendment shall constitute a Loan Document.

2

3.5 GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL, IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

[Signature Pages Follows]

3

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWERS:
INTERNATIONAL TEXTILE GROUP, INC.
ITG HOLDINGS, INC.
BURLINGTON INDUSTRIES LLC
CONE JACQUARDS LLC
CONE DENIM LLC
CARLISLE FINISHING LLC
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL, INC.
SAFETY COMPONENTS FABRIC
TECHNOLOGIES, INC.
AUTOMOTIVE SAFETY COMPONENTS
INTERNATIONAL LIMITED
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

[Signature Page to Amendment No. 3 to Credit Agreement]

OTHER CREDIT PARTIES:
APPAREL FABRICS PROPERTIES, INC.
BURLINGTON APPAREL SERVICES COMPANY
BURLINGTON INDUSTRIES V, LLC
BWW CT, INC.
CLIFFSIDE DENIM LLC
CONE ADMINISTRATIVE AND SALES LLC
CONE INTERNATIONAL HOLDINGS II, INC.
INTERNATIONAL TEXTILE GROUP     ACQUISITION GROUP LLC
BI PROPERTIES I, INC.
BURLINGTON INTERNATIONAL SERVICES     COMPANY
BURLINGTON INDUSTRIES IV, LLC
BURLINGTON WORLDWIDE INC.
BILLC ACQUISITION LLC
CONE DENIM WHITE OAK LLC CONE INTERNATIONAL HOLDINGS, INC.
CONE ACQUISITION LLC
WLR CONE MILLS IP, INC.
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

VALENTEC WELLS, LLC
ASCI HOLDINGS GERMANY (DE), INC.
ASCI HOLDINGS ASIA PACIFIC (DE), LLC
ASCI HOLDINGS CZECH (DE), INC.
ASCI HOLDINGS U.K. (DE), INC.
ASCI HOLDINGS MEXICO (DE), INC.
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

[Signature Page to Amendment No. 3 to Credit Agreement]

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL GMBH & CO. KG
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	Managing Director

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL VERWALTUNGS GMBH
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	Managing Director

[Signature Page to Amendment No. 3 to Credit Agreement]

AGENT AND LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION, as the Agent and a Lender
By:	/s/
Title:	Its Duly Authorized Signatory

[Signature Page to Amendment No. 3 to Credit Agreement]

UBS LOAN FINANCE LLC, as a Lender
By:	/s/ Richard L. Tavrow
Name:	Richard L. Tavrow
Title:	Director
By:	/s/ Irja R. Otsa
Name:	Irja R. Otsa
Title:	Director

[Signature Page to Amendment No. 3 to Credit Agreement]

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Josephine Norris
Name:	Josephine Norris
Title:	Director

[Signature Page to Amendment No. 3 to Credit Agreement]

THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender
By:	/s/ M. Kim Carpenter
Name:	M. Kim Carpenter
Title:	Vice President

[Signature Page to Amendment No. 3 to Credit Agreement]

BANK OF AMERICA, NA, as a Lender
By:	/s/ John Yankauskas
Name:	John Yankauskas
Title:	Sr. Vice President

[Signature Page to Amendment No. 3 to Credit Agreement]

WELLS FARGO FOOTHILL LLC, as a Lender
By:	/s/ Yelena Kravchuk
Name:	Yelena Kravchuk
Title:	AVP

[Signature Page to Amendment No. 3 to Credit Agreement]

EX-10.20

Exhibit 10.20

LIMITED WAIVER AND AMENDMENT NO. 4 TO CREDIT AGREEMENT

This LIMITED WAIVER AND AMENDMENT NO. 4 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of February 28, 2007 by and among INTERNATIONAL TEXTILE GROUP, INC., a Delaware corporation, the other Borrowers and Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, for itself and as Agent, and the other Lenders signatory hereto. Unless otherwise specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them in to the Credit Agreement (as hereinafter defined).

R E C I T A L S:

WHEREAS, Borrowers, the other Credit Parties, the Agent and the Lenders entered into that certain Credit Agreement dated as of December 29, 2006 (as amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”); and

WHEREAS, the parties to the Credit Agreement have agreed to a limited waiver and amendment to the Credit Agreement as set forth herein;

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

1 Limited Waiver. The Agent and Lenders hereby waive any breach of Sections 4.2(g), 4.2(h), 5.2(f) and 5.4(a) of the Credit Agreement, and any Default or Event of Default which may have occurred as a result thereof prior to the effectiveness of this Amendment, solely to the extent that Borrower failed to have Average Adjusted Availability of at least (a) $20,000,000 on or prior to February 15, 2007 and (b) at least $30,000,000 after February 15, 2007.

2 Amendments.

(a) Section 4.14 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“Mandatory Investments. On or prior to the dates indicated in the table below, ITG shall obtain, and shall contribute the same to US Borrowers to be used for purposes permitted by this Agreement, not less than the following amounts in gross cash proceeds from the issuance of Stock and Stock Equivalents to WLR and other Persons:

Date	Equity Contribution
March 2, 2007	$	50,000,000
May 1, 2007	$	50,000,000	”

(b) Sections 4.2(g), 4.2(h), 5.2(f) and 5.4(a) are hereby amended by replacing each occurrence therein of the date “February 15, 2007” with “March 2, 2007”.

3 Representations and Warranties. In order to induce Agent and the Lenders to enter into this Amendment, each Borrower and each other Credit Party represents and warrants to Agent and each Lender (which representations and warranties shall survive the execution and delivery of this Amendment), that:

(a) the execution, delivery and performance by each Credit Party of this Amendment has been duly authorized by all necessary corporate and partnership action and this Amendment is a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms; and

(b) upon the effectiveness of this Amendment, all of the representations and warranties contained in the Credit Agreement and in the other Loan Documents (other than those which speak expressly only as of an earlier date) are true and correct in all material respects on and as of the date of the effectiveness of this Amendment after giving effect to this Amendment and the transactions contemplated hereby.

4 Miscellaneous.

4.1 Effect; Ratification.

(a) Except as specifically set forth above, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document, nor constitute amendment of any provision of the Credit Agreement or any other Loan Document, except as specifically set forth herein. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

(c) Each Credit Party acknowledges and agrees that the amendments and waivers set forth herein are effective solely for the purposes set forth herein and that the execution and delivery by Agent of this Amendment shall not be deemed (i) except as expressly provided in this Amendment, to be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement or of any other Loan Document, (ii) to create a course of dealing or otherwise obligate Agent or Lenders to forbear, waive, consent or execute similar amendments under the same or similar circumstances in the future, or (iii) to amend, prejudice, relinquish or impair any right of Agent or Lenders to receive any indemnity or similar payment from any Person or entity as a result of any matter arising from or relating to this Amendment.

4.2 Counterparts and Signatures by Fax. This Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together one and the same instrument. Any party delivering an executed counterpart of this Amendment by fax shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of this Amendment.

2

4.3 Severability. In case any provision in or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

4.4 Loan Document. This Amendment shall constitute a Loan Document.

4.5 GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL, IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

[Signature Pages Follows]

3

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWERS:
INTERNATIONAL TEXTILE GROUP, INC. ITG HOLDINGS, INC. BURLINGTON INDUSTRIES LLC CONE JACQUARDS LLC CONE DENIM LLC CARLISLE FINISHING LLC
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL, INC. SAFETY COMPONENTS FABRIC     TECHNOLOGIES, INC. AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL LIMITED
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

[Signature Page to Amendment No. 4 to Credit Agreement]

OTHER CREDIT PARTIES:
APPAREL FABRICS PROPERTIES, INC. BURLINGTON APPAREL SERVICES COMPANY BURLINGTON INDUSTRIES V, LLC BWW CT, INC. CLIFFSIDE DENIM LLC CONE ADMINISTRATIVE AND SALES LLC CONE INTERNATIONAL HOLDINGS II, INC. INTERNATIONAL TEXTILE GROUP     ACQUISITION GROUP LLC BI PROPERTIES I, INC. BURLINGTON INTERNATIONAL SERVICES     COMPANY BURLINGTON INDUSTRIES IV, LLC BURLINGTON WORLDWIDE INC. BILLC ACQUISITION LLC CONE DENIM WHITE OAK LLC CONE INTERNATIONAL HOLDINGS, INC. CONE ACQUISITION LLC WLR CONE MILLS IP, INC.
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above
VALENTEC WELLS, LLC ASCI HOLDINGS GERMANY (DE), INC. ASCI HOLDINGS ASIA PACIFIC (DE), LLC ASCI HOLDINGS CZECH (DE), INC. ASCI HOLDINGS U.K. (DE), INC. ASCI HOLDINGS MEXICO (DE), INC.
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title: President of each of the entities listed above

[Signature Page to Amendment No. 4 to Credit Agreement]

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL GMBH & CO. KG
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL VERWALTUNGS GMBH
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President

[Signature Page to Amendment No. 4 to Credit Agreement]

AGENT AND LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION, as the Agent and a Lender
By:	/s/
Title:	Its Duly Authorized Signatory

[Signature Page to Amendment No. 4 to Credit Agreement]

UBS LOAN FINANCE LLC, as a Lender
By:	/s/ Richard L. Tavrow
Name:	Richard L. Tavrow
Title:	Director
By:	/s/ Irja R. Otsa
Name:	Irja R. Otsa
Title:	Director

[Signature Page to Amendment No. 4 to Credit Agreement]

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Josephine Norris
Name:	Josephine Norris
Title:	Director

[Signature Page to Amendment No. 4 to Credit Agreement]

THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender
By:	/s/ M. Kim Carpenter
Name:	M. Kim Carpenter
Title:	Vice President

[Signature Page to Amendment No. 4 to Credit Agreement]

BANK OF AMERICA, NA, as a Lender
By:	/s/ John Yankauskas
Name:	John Yankauskas
Title:	Sr. Vice President

[Signature Page to Amendment No. 4 to Credit Agreement]

WELLS FARGO FOOTHILL LLC, as a Lender
By:	/s/ Yelena Kravchuk
Name:	Yelena Kravchuk
Title:	AVP

[Signature Page to Amendment No. 4 to Credit Agreement]

EX-10.21

Exhibit 10.21

AMENDMENT NO. 5 TO CREDIT AGREEMENT

This AMENDMENT NO. 5 TO CREDIT AGREEMENT (this “Amendment”) is entered into as of March 30, 2007 by and among INTERNATIONAL TEXTILE GROUP, INC., a Delaware corporation, the other Borrowers and Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, for itself and as Agent, and the other Lenders signatory hereto. Unless otherwise specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them in to the Credit Agreement (as hereinafter defined).

R E C I T A L S:

WHEREAS, Borrowers, the other Credit Parties, the Agent and the Lenders entered into that certain Credit Agreement dated as of December 29, 2006 (as amended, supplemented, restated or otherwise modified from time to time, the “Credit Agreement”); and

WHEREAS, the parties to the Credit Agreement have agreed to a limited waiver and amendment to the Credit Agreement as set forth herein;

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

1 Amendments to Section 11.1.

(a) Section 11.1 of the Credit Agreement is hereby amended by amending and restating the definition of “Permitted BST Acquisition” to read in its entirety as follows:

““Permitted BST Acquisition” means the acquisition by ITG, or a Subsidiary of ITG which is not otherwise a Credit Party, of all of the outstanding capital stock or assets of BST where the sole consideration received is Stock of ITG and to the extent that each of the following conditions shall have been satisfied:

(a) after giving effect thereto no violation of Section 4.15 shall have occurred or would result after giving effect thereto;

(b) receipt by the Agent of a certified copy of an executed tax sharing agreement (the “Tax Sharing Agreement”), the terms of which shall not put the Lenders in a materially worse position than they would otherwise have been in had the “Permitted BST Acquisition” not occurred and/or the Tax Sharing Agreement had not been entered into; and

(c) evidence satisfactory to the Agent (i) that one Independent Director (such Independent Director’s votes shall be limited to matters relating to the insolvency, winding-up or liquidation of a US Member of the BST Group and changes to the corporate document governing such matters) has been appointed to the board of each US Member of the BST Group and (ii) that the constitutional documents of each US Member of the BST Group has been amended to provide for such Independent Director and his/her related voting rights.”

(b) Section 11.1 of the Credit Agreement is hereby amended by adding the following defined terms in their appropriate alphabetical order:

““US Member of the BST Group” means a member of the BST Group that is incorporated or otherwise organized under the laws of any jurisdiction of the United States of America.”

““Independent Director” means a director of a US Member of the BST Group who is not at the time of initial appointment, or at any time while serving as a director of the relevant member of the BST Group, and has not been at any time during the preceding five (5) years: (a) a stockholder, director (with the exception of serving as the Independent Director of the relevant member of the BST Group), officer, employee, partner, attorney or counsel of any other member of the BST Group or any member of ITG or any Subsidiary of ITG or any affiliate of any of them; (b) a creditor, customer, supplier or other person who derives any of its purchases or revenues from its activities with the relevant member of the BST Group or any member of ITG or any Subsidiary of ITG or any affiliate of any of them; (c) a person or other entity controlling or under common control with any such stockholder, partner, creditor, customer, supplier or other person; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, creditor, customer, supplier or other person. (As used herein, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a person or entity, whether through ownership of voting securities, by contract or otherwise).

A natural person who satisfies the foregoing definition other than subparagraph (b) shall not be disqualified from serving as an Independent Director of a US Member of the BST Group if such individual is an independent director provided by a nationally-recognized company that provides professional independent directors and that also provides other corporate services in the ordinary course of its business.

A natural person who otherwise satisfies the foregoing definition except for being the independent director of a “special purpose entity” affiliated with a member of the BST Group or ITG or any Subsidiary of ITG Group shall not be disqualified from serving as an Independent Director of a US Member of the BST Group if such individual (i) is an independent director provided by a nationally-recognized company that provides professional independent directors and (ii) is not at the time of initial appointment or while serving the independent director of an entity (other than the relevant member of the BST Group) that owns a direct or indirect equity interest in the BST.”

2 Representations and Warranties. In order to induce Agent and the Lenders to enter into this Amendment, each Borrower and each other Credit Party represents and warrants to Agent and each Lender (which representations and warranties shall survive the execution and delivery of this Amendment), that:

(a) the execution, delivery and performance by each Credit Party of this Amendment has been duly authorized by all necessary corporate and partnership action and this Amendment is a legal, valid and binding obligation of such Credit Party enforceable against such Credit Party in accordance with its terms; and

2

(b) upon the effectiveness of this Amendment, all of the representations and warranties contained in the Credit Agreement and in the other Loan Documents (other than those which speak expressly only as of an earlier date) are true and correct in all material respects on and as of the date of the effectiveness of this Amendment after giving effect to this Amendment and the transactions contemplated hereby.

3 Miscellaneous.

3.1 Effect; Ratification.

(a) Except as specifically set forth above, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(b) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document, nor constitute amendment of any provision of the Credit Agreement or any other Loan Document, except as specifically set forth herein. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended hereby.

(c) Each Credit Party acknowledges and agrees that the amendments and waivers set forth herein are effective solely for the purposes set forth herein and that the execution and delivery by Agent of this Amendment shall not be deemed (i) except as expressly provided in this Amendment, to be a consent to any amendment, waiver or modification of any term or condition of the Credit Agreement or of any other Loan Document, (ii) to create a course of dealing or otherwise obligate Agent or Lenders to forbear, waive, consent or execute similar amendments under the same or similar circumstances in the future, or (iii) to amend, prejudice, relinquish or impair any right of Agent or Lenders to receive any indemnity or similar payment from any Person or entity as a result of any matter arising from or relating to this Amendment.

3.2 Counterparts and Signatures by Fax. This Amendment may be executed in any number of counterparts, each such counterpart constituting an original but all together one and the same instrument. Any party delivering an executed counterpart of this Amendment by fax shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of this Amendment.

3.3 Severability. In case any provision in or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

3

3.4 Loan Document. This Amendment shall constitute a Loan Document.

3.5 GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL, IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

[Signature Pages Follows]

4

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWERS:
INTERNATIONAL TEXTILE GROUP, INC. ITG HOLDINGS, INC. BURLINGTON INDUSTRIES LLC CONE JACQUARDS LLC CONE DENIM LLC CARLISLE FINISHING LLC
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above

AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL, INC.
SAFETY COMPONENTS FABRIC     TECHNOLOGIES, INC.
AUTOMOTIVE SAFETY COMPONENTS     INTERNATIONAL LIMITED
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

[Signature Page to Amendment No. 5 to Credit Agreement]

OTHER CREDIT PARTIES:
APPAREL FABRICS PROPERTIES, INC. BURLINGTON APPAREL SERVICES COMPANY BURLINGTON INDUSTRIES V, LLC BWW CT, INC. CLIFFSIDE DENIM LLC CONE ADMINISTRATIVE AND SALES LLC CONE INTERNATIONAL HOLDINGS II, INC. INTERNATIONAL TEXTILE GROUP     ACQUISITION GROUP LLC BI PROPERTIES I, INC. BURLINGTON INTERNATIONAL SERVICES     COMPANY BURLINGTON INDUSTRIES IV, LLC BURLINGTON WORLDWIDE INC. BILLC ACQUISITION LLC CONE DENIM WHITE OAK LLC CONE INTERNATIONAL HOLDINGS, INC. CONE ACQUISITION LLC WLR CONE MILLS IP, INC.
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President and Treasurer of each of the entities listed above
VALENTEC WELLS, LLC ASCI HOLDINGS GERMANY (DE), INC. ASCI HOLDINGS ASIA PACIFIC (DE), LLC ASCI HOLDINGS CZECH (DE), INC. ASCI HOLDINGS U.K. (DE), INC. ASCI HOLDINGS MEXICO (DE), INC.
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	President of each of the entities listed above

[Signature Page to Amendment No. 5 to Credit Agreement]

AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL GMBH & CO. KG
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	Managing Director
AUTOMOTIVE SAFETY COMPONENTS INTERNATIONAL VERWALTUNGS GMBH
By:	/s/ Stephen B. Duerk
Name:	Stephen B. Duerk
Title:	Managing Director

[Signature Page to Amendment No. 5 to Credit Agreement]

AGENT AND LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION, as the Agent and a Lender
By:	/s/
Title:	Its Duly Authorized Signatory

[Signature Page to Amendment No. 5 to Credit Agreement]

UBS LOAN FINANCE LLC, as a Lender
By:	/s/ Mary E. Evans
Name:	Mary E. Evans
Title:	Associate Director
By:	/s/ David B. Julie
Name:	David B. Julie
Title:	Associate Director

[Signature Page to Amendment No. 5 to Credit Agreement]

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Josephine Norris
Name:	Josephine Norris
Title:	Director

[Signature Page to Amendment No. 5 to Credit Agreement]

THE CIT GROUP/COMMERCIAL SERVICES, INC., as a Lender
By:	/s/ M. Kim Carpenter
Name:	M. Kim Carpenter
Title:	Vice President

[Signature Page to Amendment No. 5 to Credit Agreement]

BANK OF AMERICA, NA, as a Lender
By:	/s/ John Yankauskas
Name:	John Yankauskas
Title:	Sr. Vice President

[Signature Page to Amendment No. 5 to Credit Agreement]

WELLS FARGO FOOTHILL LLC, as a Lender
By:	/s/ Michael P. Baronowski
Name:	Michael P. Baronowski
Title:	Vice President

[Signature Page to Amendment No. 5 to Credit Agreement]

EX-10.22

Exhibit 10.22

EXECUTION VERSION

TERM LOAN AGREEMENT

Dated as of December 29, 2006

by and among

BURLINGTON MORELOS, S.A. DE C.V.,

as the Borrower,

GENERAL ELECTRIC CAPITAL CORPORATION

for itself, as a Lender, and as the Agent for all Lenders,

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

as Lenders,

and

UBS SECURITIES LLC,

as Lead Arranger and Bookrunner

GE CAPITAL MARKETS, INC.

as Co-Lead Arranger and Co-Bookrunner

TABLE OF CONTENTS

1.	Definitions		1
2.	The Facility		19
	2.1	The Term Loans	19
	2.2	Promissory Notes	19
	2.3	Borrowing Mechanics for Term Loans	19
	2.4	Use of Proceeds	19
	2.5	Repayments	19
	2.6	Prepayments	20
	2.7	Interest	21
	2.8	Default Interest	22
	2.9	Payments	22
	2.10	Application of Payments	22
	2.11	Break Funding Losses	23
	2.12	Changes; Legal Restrictions	23
	2.13	Illegality	24
	2.14	Taxes	24
	2.15	Currency Inconvertibility	24
	2.16	Maximum Rate	25
	2.17	Fees	25
	2.18	Pro Rata Shares; Settlement	25
	2.19	Replacement of Lenders	26
3.	Security		27
	3.1	Security in Collateral; Delivery of Guaranty Trust	27
	3.2	Value of Collateral; Valuation of the Collateral	28
4.	Conditions Precedent		28
	4.1	Conditions Precedent	28
5.	Representations and Warranties		30
	5.1	Organization	30
	5.2	Financial Statements	30
	5.3	Enforceable Obligations; Authorization	30
	5.4	Litigation	31
	5.5	Rank	31
	5.6	No Adverse Changes	31
	5.7	Liens	31
	5.8	No Default	31
	5.9	No Immunity	31
	5.10	No Taxes	32
	5.11	Disclosure	32
	5.12	Compliance with Laws	32
	5.13	Environmental Laws	32
	5.14	Insurance	32
	5.15	Solvency	32
	5.16	Activities of Administración Parras Cone, S.A. de C.V. and Manufacturas Parras Cone, S.A. de C.V.	32
6.	Affirmative Covenants		33

i

	6.1	Compliance with Laws	33
	6.2	Financial Statements and Information	33
	6.3	Notice of Certain Matters	34
	6.4	Use of Proceeds	34
	6.5	Inspection of Property; Books and Records	34
	6.6	Insurance	35
	6.7	Certificates; Other Information	37
	6.8	Payment of Obligations	37
	6.9	Conduct of Business and Maintenance of Existence	37
	6.10	Licenses	37
	6.11	Ranking	37
	6.12	Guarantors	38
	6.13	Hazardous Substances	38
	6.14	Notices Regarding Hazardous Substances	38
	6.15	Further Assurances	38
	6.16	Collateral	38
	6.17	Maintenance of Property	39
7.	Negative Covenants		39
	7.1	Mergers	39
	7.2	Sale of Assets	39
	7.3	Sale and Lease-Back Transactions	39
	7.4	Other Indebtedness; Cancellation of Indebtedness; Affiliate Transactions	39
	7.5	Liens	40
	7.6	Restriction on Dividend Payments and Intercompany Transfers	40
	7.7	Restriction on Amendments to Organizational Documents	40
	7.8	Changes in Business	40
	7.9	Permitted Activities of Administración Parras Cone, S.A. de C.V. and Manufacturas Parras Cone, S.A. de C.V.	41
8.	Specific Financial Covenants		41
	8.1	Minimum Collateral Coverage Ratio	41
	8.2	Fixed Charge Coverage Ratio	42
	8.3	Maximum Capital Expenditures	42
9.	Events of Default and Remedies		42
	9.1	Events of Default	42
	9.2	Remedies Cumulative	45
10.	The Agent		45
	10.1	Appointment and Duties	45
	10.2	Binding Effect	46
	10.3	Use of Discretion	46
	10.4	Delegation of Rights and Duties	47
	10.5	Reliance and Liability	47
	10.6	Agent Individually	48
	10.7	Lender Credit Decision	48
	10.8	Expenses; Indemnities	49
	10.9	Resignation of Agent	49
	10.10	Release of Collateral or Guarantors	50

ii

11.	Miscellaneous		50
	11.1	No Waiver, Amendment, Optional Notice	50
	11.2	Notices; Electronic Transmission	51
	11.3	Governing Law; Jurisdiction; Waiver	53
	11.4	Survival, Parties Bound; Reinstatement	54
	11.5	Counterparts	55
	11.6	Language	55
	11.7	Captions	55
	11.8	Expenses	55
	11.9	Entire Agreement	55
	11.10	Severability	56
	11.11	Assignment; Participations	56
	11.12	Indemnification	57
	11.13	Indemnity Regarding Use of Real Property	58
	11.14	Indemnity Regarding Hazardous Substances	58
	11.15	Judgment Currency	58
	11.16	No Strict Construction	59
	11.17	Confidentiality	59
	11.18	Set-off; Sharing of Payments	59
	11.19	No Third Parties Benefited	60
	11.20	Lender-Creditor Relationship	60

Schedule
Schedule 1.21	Commitments
Schedule 1.105	Permitted Encumbrances
Schedule 5.12	Compliance
Schedule 7.4(a)	Indebtedness

Exhibits
Exhibit A	Compliance Certificate
Exhibit B	Reserved
Exhibit C	Security Agreement
Exhibit D	Guaranty Trust Agreement
Exhibit E	Promissory Note
Exhibit F-1	Opinion of Mexican Counsel
Exhibit F-2	Opinion of U.S. Counsel
Exhibit F-3	Opinion of UK Counsel
Exhibit G	Affiliate Guaranty and Security Agreement
Exhibit H	Notice of Borrowing and Disbursement
Exhibit I	UK Debenture
Exhibit J	UK Share Charge
Exhibit K	Notice of Continuation

iii

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”) is made and entered into as of December 29, 2006, by and among BURLINGTON MORELOS, S.A. DE C.V., a Mexican stock limited liability corporation (sociedad anónima de capital variable) (“Borrower”), GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, “GE Capital”), as Agent for the several financial institutions from time to time party to this Agreement (collectively, the “Lenders” and individually each a “Lender”) and for itself as a Lender, and such Lenders.

RECITALS

WHEREAS, Borrower has requested and Lenders have agreed to provide a term credit facility in the principal amount of up to US$15,000,000 for the purpose of repaying the Existing Indebtedness (as hereinafter defined); and

WHEREAS, the obligations hereunder are secured by a pledge of certain property and assets of Borrower;

NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, warranties and undertakings contained herein, the parties hereto hereby agree as follows:

1. Definitions

In the Loan Documents, except to the extent the context otherwise requires: (i) any reference to an Article, a Section, a Schedule or an Exhibit is a reference to an article or section thereof, or a schedule or an exhibit thereto, respectively, and any reference to a subsection or a clause is, unless otherwise stated, a reference to a subsection or a clause of the Section or subsection in which the reference appears; (ii) the words “hereof,” “herein,” “hereto,” “hereunder” and the like mean and refer to this Agreement or any other Loan Document as a whole and not merely to the specific Article, Section, subsection, paragraph or clause in which the respective word appears; (iii) the meaning of defined terms shall be equally applicable to both the singular and plural forms of the terms defined; (iv) the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; (v) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of the Loan Documents; (vi) references to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing the statute or regulation referred to; (vii) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”

As used in this Agreement and any other Loan Document, each capitalized term and title herein shall be defined as set forth in this Agreement unless otherwise specifically provided herein and shall not mean, and shall not be construed to refer or relate to (a) any term, or Person

1

with any title or in any capacity, (b) any obligation of any Person, or (c) any property or assets constituting collateral, in each case, under the Revolving Loan Agreement or any document executed in connection therewith.

Except as otherwise provided herein, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement or any other Loan Document shall be made, in accordance with GAAP.

1.1 “Account” means all "accounts," as such term is defined in the Code, now owned or hereafter acquired by Borrower or any Subsidiary Guarantor, including (a) all accounts receivable, other receivables, book debts and other forms of obligations, (including any such obligations that may be characterized as an account or contract right under the Code), (b) all of Borrower’s and any Subsidiary Guarantor’s rights in, to and under all purchase orders or receipts for goods or services, (c) all of Borrower’s and any Subsidiary Guarantor’s rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods) and (d) all collateral security of any kind, given by any Debtor or any other Person with respect to any of the foregoing.

1.2 “Affected Lender” has the meaning specified in Section 2.19.

1.3 “Affiliate” means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, ten percent (10%) or more of the shares of capital stock having ordinary voting power in the election of directors of such Person, (b) each Person that controls, is controlled by or is under common control with such Person, and (c) each of such Person’s Responsible Officers, directors, joint venturers and partners. For the purposes of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; provided, however, that the Agent and the Lenders shall not be considered “Affiliates” of Borrower.

1.4 “Affiliate Guaranty and Security Agreement” means the Guaranty and Security Agreement of even date herewith substantially in the form of Exhibit G attached hereto, executed by each of the U.S. Affiliates and UK Guarantor in favor of the Agent.

1.5 “Agreement” has the meaning specified in the introductory paragraph hereto.

1.6 “Asset Sale” means the sale, transfer or other disposition (by way of merger or otherwise) by Borrower or any of its Subsidiaries, or GE Capital Bank, S.A., Institución de Banca Múltiple, GE Capital Grupo Financiero, División Fiduciaria, in its capacity as the trustee under the Guaranty Trust, to any Person (other than Borrower or any of its Subsidiaries) of any assets of Borrower or such Subsidiary (other than dispositions permitted by Section 7.2).

1.7 “Assignee” has the meaning specified in Section 11.11(b).

2

1.8 “Borrower” has the meaning specified in the introductory paragraph hereto, which is the holder of the shares representing ninety-nine point ninety-nine percent (99.99%) of the outstanding capital stock of all classes of Parras Cone.

1.9 “BST” means BST US Holdings, Inc., a Delaware corporation.

1.10 “BST Facility” means that certain Term and Revolving Facilities Agreement dated as of December 8, 2006, by and among BST Safety Textiles Acquisition GmbH, Goldman Sachs Credit Partners L.P. and UBS Securities LLC, and the other Persons signatory thereto.

1.11 “Business Day” means a LIBOR Business Day other than any day on which commercial banks are authorized or required to close in New York, New York or Mexico City, Federal District, Mexico.

1.12 “Capital Expenditures” means, with respect to any Person, all expenditures (by the expenditure of cash or the incurrence of Indebtedness) by such Person for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP.

1.13 “Capital Lease” means a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

1.14 “Capital Lease Obligation” means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which, in accordance with GAAP, appears as a liability on a balance sheet of such Person.

1.15 “Casualty Event” means, with respect to any property (including the Collateral) of Borrower or any Subsidiary of Borrower, any loss of title with respect to real property or any theft, loss or destruction of or damage to, or any condemnation or other taking (including by any Governmental Authority) of, such property for which Borrower, any Subsidiary of Borrower or the Trustee receives insurance proceeds or proceeds of a condemnation award or other compensation. “Casualty Event” shall include, but not be limited to, any expropriation or taking of any real property (including the Collateral) of Borrower or any Subsidiary of Borrower or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of the temporary requisition of the use or occupancy of any real property of Borrower or such Subsidiary or any part thereof, by any Governmental Authority, civil or military.

1.16 “Change of Control” means any event, transaction or occurrence as a result of which (a) Cone Denim LLC ceases to own and control, directly or indirectly, all of the economic and voting rights associated with ownership of one hundred percent (100%) of the outstanding Equity Interests of Borrower on a fully diluted basis, (b) Borrower and Cone, collectively, cease to own and control all of the economic and voting rights associated with all of the outstanding Equity Interests of any of the Subsidiary Guarantors, or (c) a “Change in Control” under and as defined in the Revolving Loan Agreement (as in effect on the date hereof) shall have occurred.

1.17 “Charges” means all federal, state, county, city, municipal, local, foreign or other governmental taxes, levies, assessments, charges, liens, claims or encumbrances upon or relating

3

to (a) the Obligations, (b) the employees, payroll, income or gross receipts of Borrower or its Subsidiaries, (c) Borrower’s or any of its Subsidiaries’ ownership or use of any properties or other assets, or (d) any other aspect of Borrower’s or any of its Subsidiaries’ business.

1.18 “Closing Date” means December 29, 2006.

1.19 “Code” means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of New York; provided, that to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, the Agent’s lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

1.20 “Collateral” means, (a) initially (i) the Parras Cone Machinery and Equipment, (ii) the Parras Cone Land and Buildings, (iii) insurance policies relating to assets of Parras Cone, (iv) the Parras Cone Receivables, and (v) contractual rights of Parras Cone relating to the Parras Cone Land and Buildings and the Parras Cone Machinery and Equipment; (b) subsequent to the Closing Date, any and all after acquired property or assets comprising any of the collateral categories listed in subclause (a) above owned by Borrower or Borrower’s Subsidiaries and (c) the Shares (less one share of the Subsidiary Guarantors owned by Cone which shall be pledged in favor of the Agent under the Pledge Agreement). In no event shall any property or assets constituting Collateral under this Agreement be considered as or included in “Collateral” under and as defined in the Revolving Loan Agreement (provided that any Parras Cone Receivables that have been sold or otherwise transferred to a U.S. Affiliate shall be deemed to be “Collateral” under and as defined in the Revolving Loan Agreement and not Collateral under this Agreement).

1.21 “Commitment” means the commitment of a Lender to make or otherwise fund a Term Loan and “Commitments” means such commitments of all Lenders in the aggregate. The amount of each Lender’s Commitment is set forth on Schedule 1.21 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Commitments as of the Closing Date is US$15,000,000.

1.22 “Compliance Certificate” means the Compliance Certificate substantially in the form of Exhibit A attached hereto, to be delivered by Borrower in accordance with Section 6.7(a).

4

1.23 “Cone” means Cone International Holdings II, Inc., a Delaware corporation and holder of one share representing point zero one percent (.01%) of the outstanding capital stock of all classes of the Subsidiary Guarantors.

1.24 “Consolidated EBITDA” means for any period for which the amount thereof is to be determined, EBITDA of any Person and its Subsidiaries, on a consolidated basis and determined in accordance with GAAP.

1.25 “Consolidated Funded Senior Debt” means, as of any date of determination, the amount of outstanding Term Loans.

1.26 “Consolidated Interest Expense” means, for any Person and its Subsidiaries and for any period, without duplication, the aggregate of all gross interest paid or accrued of such Person and its Subsidiaries as determined on a consolidated basis in accordance with GAAP (including, without limitation, the interest portion of Capital Lease Obligations of such Person and its Subsidiaries, but specifically excluding capitalized interest and the interest portion of operating leases of such Person and its Subsidiaries which are treated as Capital Leases for tax purposes), other than deferred financing costs not paid in cash (in each case, excluding any intercompany interest expense and after eliminating all offsetting debits and credits between such Person and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of such Person and its Subsidiaries in accordance with GAAP).

1.27 “Contest” means, with respect to any matter or claim involving any Person, that such Person is contesting such matter or claim in good faith and by appropriate proceedings; provided that the following conditions are satisfied: (a) such Person has posted a bond or other security acceptable to the Agent or has established adequate reserves with respect to the contested items in accordance with GAAP; (b) during the period of such contest, the enforcement of any contested item is effectively stayed; (c) neither such Person nor any of its Responsible Officers, directors or employees nor any Secured Party or its respective officers, directors or employees is, or could reasonably be expected to become, subject to any criminal liability or sanction in connection with such contested items; and (d) such contest and any resultant failure to pay or discharge the claimed or assessed amount does not, and would not reasonably be expected to, result in a Material Adverse Effect (after taking into account any bond, security or other reserve being maintained by such Person in respect thereof).

1.28 “Credit Party” means Borrower and each Guarantor.

1.29 “Debt Issuance” means the incurrence by Borrower or any of its Subsidiaries of any Indebtedness after the Closing Date.

1.30 “Debtor” means any Person who may become obligated to Borrower under, with respect to, or on account of, an Account.

1.31 “Default” has the meaning specified in the definition “Event of Default”.

1.32 “Dollars” or “US$” means lawful currency of the United States.

1.33 “EBITDA” means, for any period for which the amount thereof is to be determined, net income (or loss) of any Person, but excluding: (a) the income (or loss) of any entity which is not a Wholly-Owned Subsidiary of such Person, except to the extent of the amount of dividends or other distributions actually paid to such Person or any of its Wholly-Owned Subsidiaries in cash by such entity during such period and the payment of dividends or similar distributions by that

5

entity is not at the time prohibited by operation of the terms of its charter or of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that entity; (b) the income (or loss) of any entity accrued prior to the date it becomes a Subsidiary of such Person or is merged into or consolidated with such Person or any of its Subsidiaries or that entity’s assets are acquired by such Person or any of its Subsidiaries; (c) the proceeds of any life insurance policy; (d) non-cash gains or losses from the sale, exchange, transfer or other disposition of Property or assets not in the ordinary course of business of such Person and its Subsidiaries, and related tax effects in accordance with GAAP; and (e) any other extraordinary or non-recurring gains or losses of such Person or its Subsidiaries, and related tax effects in accordance with GAAP, plus (1) all amounts deducted in calculating net income (or loss) for depreciation or amortization for such period, (2) interest expense (less interest income) deducted in calculating net income (or loss) for such period, (3) all accrued taxes on or measured by income to the extent deducted in calculating net income (or loss) for such period, (4) all non-cash last-in first-out expenses for such period and (5) all non-cash losses or expenses (or minus non-cash income or gain) included or deducted in calculating net income (or loss) for such period, including to the extent not otherwise added back, without duplication, (A) non-cash restructuring charges and (B) non-cash purchase accounting adjustments.

1.34 “E-Fax” means any system used to receive or transmit faxes electronically.

1.35 “Electronic Transmission” means each document, instruction, authorization, file, information and any other communication transmitted, posted or otherwise made or communicated by e-mail or E-Fax, or otherwise to or from an E-System or other equivalent service.

1.36 “Environmental Laws” means all current and future laws, regulations, ordinances or other requirements of any Governmental Authority relating to or imposing liability or standards of conduct concerning the protection of health or the environment or Hazardous Substances, which are applicable to Borrower, any of the Subsidiary Guarantors or the Collateral.

1.37 “Equity Interest” means, with respect to any Person, any and all shares, partes sociales, beneficiary interests in voting and control trusts, interests, participations or other equivalents, including membership interests (however designated, whether voting or non-voting), of capital of such Person; if such person is a partnership (or Mexican equivalent thereof), partnership interests (whether general or limited) and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership, whether outstanding on the date hereof or issued after the Closing Date.

1.38 “Equity Issuance” means, without duplication, any issuance or sale by Borrower or any of its Subsidiaries (other than to Borrower or any of its Subsidiaries) after the Closing Date of (a) any Equity Interests (including any Equity Interests issued upon exercise of any warrant or option (or the Mexican equivalent of a warrant or option)) or any warrants or options (or the Mexican equivalent of warrants or options) to purchase Equity Interests or (b) any other security or instrument representing an Equity Interest (or the right to obtain any Equity Interest) in the issuing or selling Person.

6

1.39 “E-Signature” means the process of attaching to or logically associating with an Electronic Transmission an electronic symbol, encryption, digital signature or process (including the name or an abbreviation of the name of the party transmitting the Electronic Transmission) with the intent to sign, authenticate or accept such Electronic Transmission.

1.40 “E-System” means any electronic system, including Intralinks^® and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by Agent, any of its Related Persons or any other Person, providing for access to data protected by passcodes or other security system.

1.41 “Event of Default” means any of the events specified in Article 9 as an Event of Default, provided that any requirement specified in connection with each such Event of Default including the giving of notice, lapse of time, and the happening of any other necessary condition or event has been satisfied; and “Default” means any such event, regardless of whether such requirements have been satisfied.

1.42 “Evidence of Corporate Authority” means, with respect to Borrower or any Subsidiary Guarantor, (i) a notarized copy of the duly formalized and duly authorized power of attorney whereby the board of directors or the shareholders, pursuant to a duly convened meeting, authorize the Responsible Officers to execute loan documents in general, including any Loan Document, on behalf of Borrower or such Subsidiary Guarantor, or (ii) in the absence of the evidence described in the above clause (i), the Agent may, in its sole and absolute discretion, accept notarized copies of the corporation’s Organizational Documents and powers of attorney, in forms satisfactory to the Agent, and (iii) a certificate, in a form reasonably satisfactory to the Agent, of the chief financial officer or secretary of the board of directors of Borrower or such Subsidiary Guarantor which certifies as to the incumbency, authority and signatures of the Responsible Officers of Borrower or such Subsidiary Guarantor who execute any Loan Document.

1.43 “Excess Amount” has the meaning specified in Section 8.3.

1.44 “Excess Withholding Taxes” means, with respect to any Lender, any withholding taxes, or any portion thereof, which would not have been imposed but for (a) failure by such Lender (i) to provide to Borrower a letter specifying that such Lender is the effective beneficiary of the interest payments hereunder and under its Promissory Note, as set forth in the “Miscellaneous Tax Resolution for 2006” (Resolución Miscelanea Fiscal para 2006) or any equivalent general rules in effect thereafter while this Agreement shall remain in full force and effect, (ii) to use reasonable commercial efforts to complete and file with the appropriate governmental authority, or to provide to Borrower such forms, certificates, information, applications or declarations required by any such law, rule or regulation enacted or issued by Mexico or any political subdivision thereof or authority therein, or a double taxation treaty to which Mexico is a party that are a precondition for a reduction of or exemption from such Taxes to which such Lender is entitled (provided that, such Lender shall not be under any obligation to provide any information to Borrower which it deems, in its reasonable judgment, to be confidential or legally or commercially prejudicial to such Lender), or (iii) to use its reasonable commercial efforts to maintain its status as a Registered Entity, or (b) the assignment of the Term Loans or any portion thereof to an entity which is not a Mexican bank or a Registered Entity at the time of such assignment or which subsequently fails to comply with the provisions of clauses (a)(i) through (a)(iii) above as applicable to such Lender.

7

1.45 “Excluded Equity Issuance” has the meaning specified in the Revolving Loan Agreement.

1.46 “Existing Indebtedness” means the obligations under the Amended and Restated Term Loan Agreement made and entered into as of June 30, 2006 by and between Parras Cone de México, S.A. de C.V. and General Electric Capital Corporation.

1.47 “External Indebtedness” means, at any date, without duplication, all obligations of a Person for borrowed money that are payable in a currency other than the currency of Mexico to a Person resident or having its head office or chief place of business outside the territory of Mexico.

1.48 “Federal Reserve Board” means the Board of Governors of the Federal Reserve System, or any entity succeeding to any of its principal functions.

1.49 “Fiscal Month” means any of the monthly accounting periods of Borrower.

1.50 “Fiscal Quarter” means any of the quarterly accounting periods of Borrower, ending on March 31, June 30, September 30 and December 31 of each year.

1.51 “Fiscal Year” means any of the annual accounting periods of Borrower ending on December 31 of each year.

1.52 “Fixed Charge Coverage Ratio” means, the ratio of (a) Consolidated EBITDA of Parras Cone less Capital Expenditures (excluding Capital Expenditures funded with Indebtedness), to (b) Fixed Charges, in each case calculated as of the end of each Fiscal Quarter for the twelve (12) Fiscal Month period then ended.

1.53 “Fixed Charges” means, with respect to any fiscal period of Parras Cone on a consolidated basis, without duplication, Consolidated Interest Expense of Parras Cone (less all interest income received by Parras Cone and its Subsidiaries during such period), scheduled principal payments of Indebtedness (including any scheduled principal payments of the Term Loans that have been prepaid in accordance with Section 2.5), and federal, state, local and foreign cash income taxes, excluding deferred taxes and taxes which are subject to Contest.

1.54 “FMV” means fair market value.

1.55 “FMV – Parras Cone Land and Buildings” means the fee simple stabilized market value, net of expenses, of the Parras Cone Land and Buildings expressed in Dollars; provided that the remarketing period is assumed to be 6 to 12 months.

1.56 “GAAP” means generally accepted accounting principles in the United States as in effect during the term of this Agreement applied (in the case of any Person) on a basis consistent with the most recent audited financial statements of such Person delivered to the Agent hereunder.

8

1.57 “Governmental Authority” means any federal governmental authority (including such an authority of Mexico or the United States), any state or other political subdivision of any of the foregoing, and any agency, department, commission, board, bureau, central bank, court or other tribunal having jurisdiction over the Agent, any Lender, Borrower or Borrower’s Subsidiaries, or the respective property of each as the context may require.

1.58 “Guaranteed Indebtedness” means as to any Person, any obligation of such Person guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease, dividend, or other obligation (“primary obligation”) of any other Person (the “primary obligor”) in any manner. The amount of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is incurred and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness, or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof.

1.59 “Guarantor” means each of the U.S. Affiliates, each Subsidiary Guarantor and UK Guarantor.

1.60 “Guaranty Trust” means the irrevocable guaranty trust agreement number F-675 (contrato de fideicomiso irrevocable de garantía) dated December 29, 2006 governed by Mexican law substantially in the form of Exhibit D attached hereto, and executed by and among Borrower and Parras Cone, as settlors (fideicomitentes) and beneficiaries, and the Trustee, appointing Agent, as first beneficiary (fideicomisario en primer lugar).

1.61 “Hazardous Substance” means any substance, material or waste that is or becomes designated or regulated as “toxic,” “hazardous,” “pollutant,” or “contaminant” or a similar designation or regulation under any applicable Environmental Law or judicial or administrative interpretation of such.

1.62 “Holdco Debt” means unsecured Indebtedness (as defined in the Revolving Credit Agreement) incurred by ITG, any Holding Company of ITG or any Holding Company of BST that is not secured by the assets of, or guaranteed by, any Credit Party (as defined in the Revolving Loan Agreement).

1.63 “Holding Company” means, in relation to ITG or BST, any limited liability company or corporation in respect of which it is a Subsidiary and that owns no material assets other than the Stock (as defined in the Revolving Credit Agreement) or Stock Equivalents (as defined in the Revolving Credit Agreement) of ITG or BST.

1.64 “IMSS” means Instituto Mexicano del Seguro Social.

1.65 “Indebtedness” of any Person means without duplication (a) all indebtedness (including External Indebtedness) of such Person for borrowed money or for the deferred purchase price of goods or services, but excluding (i) non-interest bearing obligations to trade creditors incurred in the ordinary course of business that are not overdue by more than ninety (90) days beyond the applicable terms unless being contested in good faith and (ii) with respect to Borrower or any of the Subsidiary Guarantors, any cotton vendor financing incurred by Borrower or any of the

9

Subsidiary Guarantors in the ordinary course of business, (b) all reimbursement and other obligations with respect to letters of credit, bankers’ acceptances and surety bonds, (c) all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations, (f) all obligations of such Person under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured, (g) all obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (h) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (i) the Obligations; provided, however, that with respect to clauses (f) and (g), the amount of Indebtedness shall be deemed to be, on the date of determination thereof, the net obligations arising thereunder calculated on a marked to market value basis on such date.

1.66 “Indemnified Liabilities” has the meaning specified in Section 11.12.

1.67 “Indemnified Person” has the meaning specified in Section 11.12.

1.68 “INFONAVIT” means Instituto del Fondo Nacional de la Vivienda para los Trabajadores.

1.69 “Installment” has the meaning specified in Section 2.5.

1.70 “Intangible Assets” means, with respect to any Person, that portion of the book value of the assets of such Person which would be treated as intangibles under GAAP.

1.71 “Intercreditor Agreement” means that certain Subordination and Intercreditor Agreement dated as of the date hereof among the Agent, the U.S. Affiliates, the UK Guarantor and the agent under the Revolving Loan Agreement, as it may be amended, restated, supplemented or otherwise modified from time to time.

1.72 “Interest Payment Date” means (a) the last Business Day of each calendar month and (b) the last day of the applicable LIBOR Period (if any).

1.73 “Investments in Subsidiaries” means Investments in one or more Subsidiaries or any Person that concurrently with such Investment becomes a Subsidiary. For the purposes of this definition, the term “Investment” means any investment, made in cash or by delivery of property, by Borrower or any of its Subsidiaries in any Person, whether by acquisition of stock, indebtedness or other obligation or security, or by loan, guaranty, advance, capital contribution or otherwise.

10

1.74 “ITG” means International Textile Group, Inc., a Delaware corporation (f/k/a Safety Components International, Inc.).

1.75 “Legal Requirement” means any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority.

1.76 “Lender” has the meaning specified in the introductory paragraph hereto.

1.77 “Liabilities” means all claims, actions, suits, judgments, damages, losses, liability, obligations, responsibilities, fines, penalties, sanctions, costs, fees, taxes, commissions, charges, disbursements and expenses, in each case of any kind or nature (including interest accrued thereon or as a result thereto and fees, charges and disbursements of financial, legal and other advisors and consultants), whether joint or several, whether or not indirect, contingent, consequential, actual, punitive, treble or otherwise.

1.78 “LIBOR Business Day” means a Business Day on which banks in London, England generally are open for interbank or foreign exchange transactions.

1.79 “LIBOR Period” means each period commencing on a LIBOR Business Day selected by Borrower pursuant to this Agreement and ending one, two or three months thereafter; provided that the foregoing provision relating to LIBOR Periods is subject to the following:

(a) the initial LIBOR Period for the Term Loans shall commence on the Closing Date;

(b) if any LIBOR Period would otherwise end on a day that is not a Business Day, such LIBOR Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month in which event such LIBOR Period shall end on the immediately preceding Business Day;

(c) any LIBOR Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; and

(d) any LIBOR Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Period) shall end on the last Business Day of a calendar month.

1.80 “LIBOR Rate” means for each LIBOR Period, a rate of interest determined by the Agent equal to:

(a) the offered rates for deposits in Dollars for a period equal to each LIBOR Period that appears on the Bloomberg Screen (displaying an average of quotations for British Bankers Association LIBOR Rates for the relevant time period) on the second full LIBOR Business Day next preceding the first day of such LIBOR Period, divided by

11

(b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of Reserve Requirements in effect on the day which is two (2) LIBOR Business Days prior to the beginning of such LIBOR Period.

If the Bloomberg Screen shall cease to be available, clause (a) above shall be deemed to read “the offered rates for deposits in Dollars for a period equal to each LIBOR Period as provided by ‘Telerate’ and displayed on the U.S. Treasury and Money Market Screen as published by the Mexican ‘Infosel’ System.”

1.81 “Lien” means any mortgage or deed of trust, fideicomiso or fideicomiso de garantía, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement perfecting a security interest under the laws of any jurisdiction).

1.82 “Loan Documents” means this Agreement, the Security Agreement, the Pledge Agreement, the Promissory Notes, the Guaranty Trust, the Subsidiary Guaranty, the Affiliate Guaranty and Security Agreement, the Intercreditor Agreement, the Evidence of Corporate Authority for Borrower and each Subsidiary Guarantor, the UK Security Documents and all instruments, certificates, guaranties and agreements at any time delivered to the Agent pursuant to any of the foregoing, and all written amendments, modifications, renewals, extensions and rearrangements of, and substitutions for, any of the foregoing.

1.83 “Loan Rate” means the per annum rate equal to the sum of 4.75% plus the LIBOR Rate.

1.84 Reserved.

1.85 “Material Adverse Effect” means any material adverse effect (a) upon the business, assets, liabilities, operations or condition (financial or otherwise) of (i) Borrower and its Subsidiaries taken as a whole or (ii) the U.S. Affiliates taken as a whole, (b) upon the ability of Borrower, the U.S. Affiliates or any other Guarantor to perform in any material respect its obligations under this Agreement or any other Loan Document, or (c) upon the Collateral or the Agent’s Liens or the priority of such Liens.

1.86 “Maturity Date” means December 29, 2009.

1.87 “Maximum Amount” means the lesser of (i) US$15,000,000 and (ii) the sum of (x) 75% of the NFLV – Parras Cone Machinery and Equipment and (y) 50% of the FMV – Parras Cone Land and Buildings.

1.88 “Maximum Rate” has the meaning specified in Section 2.16.

1.89 “Mexico” means the United Mexican States.

12

1.90 “Minimum Collateral Coverage Ratio” means the ratio of (a) (i) NFLV – Parras Cone Machinery and Equipment plus (ii) FMV – Parras Cone Land and Buildings to (b) Consolidated Funded Senior Debt.

1.91 “Net Cash Proceeds” means (a) with respect to any Asset Sale, the cash proceeds received by Borrower or any Subsidiary, or GE Capital Bank, S.A., Institución de Banca Múltiple, GE Capital Grupo Financiero, División Fiduciaria, in its capacity as the trustee under the Guaranty Trust (including cash proceeds subsequently received (as and when received by such Person) in respect of noncash consideration initially received) net of (i) selling expenses (including reasonable broker’s fees or commissions, legal fees, value added tax, transfer and similar taxes and Borrower’s good faith estimate of income taxes paid or payable in connection with such sale); (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations associated with such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds); (iii) Borrower’s good faith estimate of payments required to be made with respect to unassumed liabilities relating to the assets sold within ninety (90) days of such Asset Sale (provided that, to the extent such cash proceeds are not used to make payments in respect of such unassumed liabilities within ninety (90) days of such Asset Sale, such cash proceeds shall constitute Net Cash Proceeds); and (iv) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by a Lien on the asset sold in such Asset Sale and which is repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset); (b) with respect to any Debt Issuance, the cash proceeds thereof, net of customary fees, commissions, costs and other expenses incurred in connection therewith; and (c) with respect to any Equity Issuance, the cash proceeds thereof, net of customary fees, commissions, costs and other expenses incurred in connection therewith.

1.92 “Net Issuance Proceeds” has the meaning specified in the Revolving Loan Agreement.

1.93 “New York Courts” has the meaning specified in Section 11.3(b).

1.94 “NFLV” means net forced liquidation value.

1.95 “NFLV – Parras Cone Machinery and Equipment” means a professional opinion of the estimated most probable price, net expenses, expressed in Dollars which the Parras Cone Machinery and Equipment could typically realize at a properly advertised and professionally managed public auction held within 60 days of equipment possession; provided that all such assets are to be sold in “as is condition, where is location”, with the purchaser being responsible for the dismantling and removal of such assets at their own risk and expense and such value also assumes a default situation where normal maintenance has been deferred.

1.96 “Obligations” means all loans, advances, debts, liabilities and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by the Credit Parties to the Agent and the Lenders under or in connection with the Loan Documents, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under

13

this Agreement or any of the other Loan Documents. This term includes all principal, interest (including all interest that accrues after the commencement of any case or proceeding (whether under the laws of the United States or Mexico) by or against any Credit Party in bankruptcy, whether or not allowed in such case or proceeding), fees, Charges, expenses, reasonable attorneys’ fees and any other sum chargeable to any Credit Party under this Agreement or any of the Loan Documents.

1.97 “Organizational Documents” means the appropriate organizational documents of Borrower and any of its Subsidiaries, as applicable (including its estatutos sociales) as in effect from time to time during the term of this Agreement.

1.98 “Parent” means International Textile Group, Inc., a Delaware corporation.

1.99 “Parras Cone” means Parras Cone de México, S.A. de C.V., a Mexican stock limited liability corporation (sociedad anónima de capital variable).

1.100 “Parras Cone Land and Buildings” means any and all real estate (including any buildings and other improvements constructed thereon) owned by Parras Cone, described in the Guaranty Trust which form part of the Collateral pursuant to the Guaranty Trust.

1.101 “Parras Cone Machinery and Equipment” means any and all the machinery and equipment owned by Parras Cone described in the Guaranty Trust which form part of the Collateral pursuant to the Guaranty Trust.

1.102 “Parras Cone Receivables” means any and all the Accounts payable in favor of Parras Cone by any Debtors located in the United States generated in the ordinary course of business under a sale agreement governed by the law of the United States or any state thereof, excluding any such Accounts sold, assigned or otherwise transferred by Parras Cone to a U.S. Affiliate.

1.103 “Participant” has the meaning specified in Section 11.11(d).

1.104 “Past Due Rate” means the per annum rate equal to the sum of (a) the Loan Rate plus (b) 2%.

1.105 “Permitted Encumbrances” means the following encumbrances: (a) presently existing or hereinafter created Liens in favor of the Agent securing the Obligations; (b) Liens for taxes or assessments or other governmental Charges not yet due and payable; (c) pledges or deposits securing obligations under workmen’s compensation, unemployment insurance, social security or public liability laws or similar legislation; (d) pledges or deposits securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which Borrower or any of its Subsidiaries is a party as lessee made in the ordinary course of business; (e) deposits securing statutory obligations of Borrower or any of its Subsidiaries; (f) any attachment or judgment lien not constituting an Event of Default under Section 9.1(i); (g) zoning restrictions, easements, licenses, or other restrictions on the use of any real estate or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real estate; (h) Liens created after the date hereof by conditional sale or other title retention agreements (including Capital Leases) or in connection with purchase money Indebtedness with respect to equipment and fixtures acquired by Borrower or any of its

14

Subsidiaries in the ordinary course of business (provided that such Liens attach only to the assets subject to such purchase money debt and such Indebtedness is incurred within twenty (20) days following such purchase and does not exceed 100% of the purchase price of the subject assets); and (i) those certain liens or encumbrances on the property of Borrower or its Subsidiaries existing as of the date hereof and as set forth on Schedule 1.105 hereto.

1.106 “Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity (foreign or domestic) or Governmental Authority.

1.107 “Pledge Agreement” means the pledge agreement to be executed by Cone in favor of the Agent in form and substance satisfactory to the Agent, pursuant to which Cone shall pledge one share representative of the corporate capital of the Subsidiary Guarantors.

1.108 “Pledged Assets” has the meaning specified in Section 3.1(a).

1.109 “Promissory Note” means a promissory note of Borrower in the form of Exhibit E attached hereto delivered hereunder and payable to the order of the holder thereof.

1.110 “Property” means any interest in any kind of property, asset or undertaking, whether real, personal or mixed, and whether tangible or intangible.

1.111 “Pro Rata Share” means, with respect to any Lender, the percentage obtained by dividing (a) the outstanding principal amount of the Term Loans of such Lender by (b) the aggregate outstanding principal amount of the Term Loans of all Lenders; provided, at any time prior to the making of the Term Loans, “Pro Rata Share” shall be determined by dividing the Commitment of such Lender by the aggregate Commitments of all Lenders.

1.112 “Register” has the meaning specified in Section 11.11(e).

1.113 “Registered Entity” means (a) an entity registered as a financial institution in the foreign banks registry (registro de bancos, entidades de financiamiento, fondos de pensiones y jubilaciones y fondos de inversión del extranjero) with the Ministry of Finance and Public Credit of Mexico for purposes of Article 195 of the Mexican Income Tax Law and (b) UBS.

1.114 “Related Persons” means, with respect to any Person, each Affiliate of such Person and each director, officer, employee, agent, trustee, representative, attorney, accountant and each insurance, environmental, legal, financial and other advisor and other consultants and agents of or to such Person or any of its Affiliates.

1.115 “Relative Commitment Factor” means, at any date of determination, a fraction where the numerator is the principal amount of all commitments outstanding under this Agreement and the denominator is the sum of the principal amounts of all commitments outstanding under this Agreement, the Revolving Loan Agreement and the BST Facility.

1.116 “Replacement Lender” has the meaning specified in Section 2.19.

15

1.117 “Required Lenders” means Lenders having more than sixty-six and two-thirds percent (66 ²/3%) of the aggregate outstanding amount of Term Loans.

1.118 “Requirement of Law” means, as to any Person, any law (statutory or common), ordinance, treaty, rule, regulation, order, policy, other legal requirement or determination of an arbitrator or of a Governmental Authority in any jurisdiction, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

1.119 “Reserve Requirements” means reserve requirements (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D of the Federal Reserve Board) which are required to be maintained by a member bank of the Federal Reserve System.

1.120 “Responsible Officer” means, with respect to any Person, the president, any vice president, treasurer or chief financial officer of such Person or the corporate secretary, a senior manager, general manager or attorney-in-fact of such Person with comparable authorization.

1.121 “Revolving Loan Agreement” means the Credit Agreement dated as of December 29, 2006, by and among the Parent, ITG Holdings Inc., Burlington Industries LLC, Carlisle Finishing LLC, Cone Denim LLC, Cone Jacquards LLC, Automotive Safety Components International, Inc., Safety Components Fabric Technologies, Inc. and Automotive Safety Components International Limited, as borrowers, the other Persons party thereto that are designated as “Credit Parties”, the lenders from time to time party thereto and General Electric Capital Corporation, as agent for itself and the lenders from time to time party thereto, as such agreement may be amended, restated, modified or otherwise supplemented from time to time.

1.122 “Sale” has the meaning specified in Section 11.11(b).

1.123 “Secured Party” means the Agent, each Lender and each other Indemnified Person.

1.124 “Security Agreement” means the security agreement governed by New York law substantially in the form of Exhibit C attached hereto, and executed by Borrower, Parras Cone and the Agent.

1.125 “Services Agreement” means the services agreement dated as of January 1, 2006 by and between Parras Cone and Manufacturas Parras Cone, S.A. de C.V.

1.126 “Settlement Date” has the meaning specified in Section 2.18(b).

1.127 “Shares” means the Equity Interests in the Subsidiary Guarantors representing all of the economic and voting rights associated with ownership of one hundred percent (100%) of the outstanding capital stock of all classes of the Subsidiary Guarantors on a fully diluted basis.

1.128 “Solvent” means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including

16

contingent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can be reasonably be expected to become an actual or matured liability.

1.129 “Stock Equivalents” means all securities convertible into or exchangeable for stock or any other Stock Equivalent and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any stock or any other Stock Equivalent, whether or not presently convertible, exchangeable or exercisable.

1.130 “Subsidiary” means, with respect to any Person, (a) any corporation (or Mexican equivalent thereof) of which an aggregate of more than fifty percent (50%) of the outstanding shares of stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, shares of stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than fifty percent (50%) of such shares of stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company (or in either case, the Mexican equivalent thereof) in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) or of which any such Person is a general partner or manager (or in either case, the Mexican equivalent thereof) or may exercise the powers of a general partner or manager (or in either case, the Mexican equivalent thereof). Notwithstanding the foregoing, Parras Cone shall be deemed to be a Subsidiary of Borrower for all purposes hereunder and under the other Loan Documents.

1.131 “Subsidiary Guarantors” means Parras Cone, Administración Parras Cone, S.A. de C.V. and Manufacturas Parras Cone, S.A. de C.V. and each other Subsidiary of Borrower that becomes party to the Subsidiary Guaranty.

1.132 “Subsidiary Guaranty” means the Guaranty of even date herewith executed by the Subsidiary Guarantors in favor of the Agent in form and substance satisfactory to the Agent.

1.133 “Taxes” means any and all present or future taxes, levies, imposts, deductions, charges, or withholdings and liabilities with respect thereto, payable in any jurisdiction, excluding in the case of any Lender, franchise or similar taxes or taxes imposed on or measured by its net income, in each case imposed on such Lender by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender is organized or maintains its lending office with respect to the Term Loans.

17

1.134 “Term Loan” has the meaning specified in Section 2.1.

1.135 “Trustee” means GE Capital Bank, S.A., Institución de Banca Múltiple, GE Capital Grupo Financiero, División Fiduciaria, acting in its capacity as trustee (fiduciario) of the Guaranty Trust.

1.136 “UBS” means UBS AG, Stamford Branch.

1.137 “UK Debenture” means the English law debenture substantially in the form of Exhibit I attached hereto, and executed by UK Guarantor in favor of Agent.

1.138 “UK Guarantor” means Automotive Safety Components International Limited, a limited liability company incorporated in England and Wales with registered number 02640241.

1.139 “UK Security Documents” means, collectively, the UK Debenture and the UK Share Charge.

1.140 “UK Share Charge” means the English law share charge substantially in the form of Exhibit J attached hereto, entered into by ASCI Holdings UK (DE), Inc., a Delaware corporation, over the shares it holds in UK Guarantor in favor of the Agent.

1.141 U.S. Affiliate” means each of Parent, ITG Holdings, Inc., Burlington Industries LLC, Carlisle Finishing LLC, Cone Denim LLC, Cone Jacquards LLC, Automotive Safety Components International, Inc., Safety Components Fabric Technologies, Inc., International Textile Group Acquisition Group LLC, WLR Cone Mills IP, Inc., Cone Acquisition LLC, Cone International Holdings, Inc., Burlington International Services Company, Apparel Fabrics Properties, Inc., BI Properties I, Inc., Burlington Apparel Services Company, BILLC Acquisition LLC, Burlington Worldwide, Inc., ASCI Holdings Mexico (DE), Inc., ASCI Holdings Czech (DE), Inc., ASCI Holdings Germany (DE), Inc., ASCI Holdings UK (DE), Inc., ASCI Holdings Asia Pacific (DE), LLC, Cone Administrative and Sales LLC, Cone Denim White Oak LLC, Cliffside Denim LLC, Burlington Industries IV LLC, Burlington Industries V LLC, Cone International Holdings II, Inc., BWW CT, Inc. and Valentec Wells, LLC.

1.142 “Wholly-Owned Subsidiary” means any Subsidiary in which (other than directors’ qualifying shares required by law) one hundred percent (100%) of the stock and Stock Equivalents, at the time as of which any determination is being made, is owned, beneficially and of record, by any Credit Party, or by one or more of the other Wholly-Owned Subsidiaries, or both.

2. The Facility

2.1 The Term Loans. Each of the Lenders severally agrees, upon the satisfaction of the conditions precedent set forth in Article 4, to make a term loan (collectively, the “Term Loans”) to Borrower on the Closing Date in an amount equal to such Lender’s Commitment; provided, however, that, the aggregate principal amount of all outstanding Term Loans shall not exceed the Maximum Amount. Borrower may make only one borrowing under the Commitments which

18

shall be on the Closing Date. Once repaid, the Term Loans may not be reborrowed. Each Lender’s Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender’s Commitment on such date.

2.2 Promissory Notes. The Term Loans made by each Lender shall be evidenced by this Agreement and, if requested by such Lender, by a Promissory Note payable to the order of such Lender in an amount equal to such Lender’s Commitment.

2.3 Borrowing Mechanics for Term Loans.

(a) Borrower shall deliver to Agent a fully executed notice of borrowing and disbursement in the form attached hereto as Exhibit H no later than three days prior to the Closing Date. Promptly upon receipt by Agent of such notice, Agent shall notify each Lender of the proposed borrowing.

(b) Each Lender shall make its Term Loan available to Agent not later than 12:00 p.m. (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at the office designated by Agent. Upon satisfaction or waiver of the conditions precedent specified herein, Agent shall make the proceeds of the Term Loans available to Borrower on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Term Loans received by Agent from Lenders to be credited to Borrower’s account No. 2000032605280 with Wachovia Bank N.A. for further credit to Parras Cone’s account No. 1235458963 with Bank of America, N.A. (ABA# 121000358).

2.4 Use of Proceeds. The proceeds of the Term Loans shall be distributed to Parras Cone to permit Parras Cone to repay the Existing Indebtedness, together with fees and expenses in connection therewith.

2.5 Repayments. The principal amounts of the Term Loans shall be repaid in consecutive quarterly installments (each, an “Installment”) in the aggregate amounts set forth below on the dates set forth below, commencing March 31, 2007:

Amortization Date	Term Loan Installments
March 31, 2007	$	250,000
June 30, 2007	$	250,000
September 30, 2007	$	250,000
December 31, 2007	$	250,000
March 31, 2008	$	250,000
June 30, 2008	$	250,000

19

Amortization Date	Term Loan Installments
September 30, 2008	$	250,000
December 31, 2008	$	250,000
March 31, 2009	$	250,000
June 30, 2009	$	250,000
September 30, 2009	$	250,000
Maturity Date	$	12,250,000

Notwithstanding the foregoing, (x) such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Term Loans in accordance with Section 2.6; and (y) the Term Loans, together with all other amounts owed hereunder with respect thereto, shall, in any event, be paid in full no later than the Maturity Date.

2.6 Prepayments.

(a) Optional Prepayments. Borrower shall have the right at any time and from time to time to prepay the Term Loans, in whole or in part, upon at least five (5) Business Days’ prior written notice; provided, however, that any such prepayment shall be (i) in amounts not less than US$250,000 and in multiples of US$250,000 in excess thereof, (ii) accompanied by payment of interest on the amount of such prepayment accrued to the date of such prepayment, (iii) applied as set forth in Section 2.10, and (iv) subject to payment of break funding losses (if any) as set forth in Section 2.11. Each notice of prepayment shall specify the prepayment date and the principal amount of the Term Loans (or portion thereof) to be prepaid, shall be irrevocable and shall commit Borrower to prepay the Term Loans by the amount stated therein on the date stated therein.

(b) Mandatory Prepayments.

(i) Not later than five (5) Business Days following the receipt of any Net Cash Proceeds of any Asset Sale of Parras Cone Machinery and Equipment, Parras Cone Land and Buildings or Equity Interests of any Subsidiary Guarantor, Borrower shall apply an amount equal to the applicable NFLV – Parras Cone Machinery and Equipment, FMV – Parras Cone Land and Buildings or Net Cash Proceeds with respect thereto to prepay the Term Loans.

(ii) In the event that insurance proceeds are payable in respect of any Casualty Event or any series of related Casualty Events, Borrower may elect to restore or replace the property affected by such Casualty Event so long as no Event of Default shall have occurred and be continuing and provided that Borrower provides notice to the Agent within fifteen (15) days of the occurrence of the Casualty Event of its election to restore or replace the affected property; provided that, if Borrower does not deliver such notice within such 15-day period, Borrower shall prepay the Term Loans in an amount equal to 100% of such proceeds. If Borrower so elects, it shall deliver to the Agent, within forty-five (45) days from the delivery of the notice referenced above, a restoration or replacement plan, for the application of such insurance proceeds and any other funds available to Borrower to restore or replace the property; provided that, if Borrower does not deliver such restoration or replacement plan within such 45-day period, Borrower shall prepay the Term Loans in an amount equal to 100% of such proceeds. All restoration or replacement of property must be completed within two hundred seventy (270) days of the Casualty Event. Borrower shall prepay the Term Loans in an amount equal to 100% of such proceeds within two (2) Business Days following the expiration of such two hundred seventy (270) day period.

20

(iii) Immediately upon receipt by ITG, or any Holding Company of ITG or BST, of the Net Issuance Proceeds of any issuance of Stock (as defined in the Revolving Loan Agreement) or Stock Equivalents (as defined in the Revolving Loan Agreement) (including any capital contribution but excluding any Net Issuance Proceeds from Excluded Equity Issuances), Borrower shall prepay, or cause to be prepaid, the Term Loans in an amount equal to the Relative Commitment Factor as of such date multiplied by such Net Issuance Proceeds.

(iv) Immediately upon receipt by Borrower or any of the Subsidiary Guarantors of the Net Cash Proceeds of any Equity Issuance, Borrower shall prepay the Term Loans in an amount equal to all such Net Cash Proceeds.

(v) Immediately upon receipt by ITG, or any Holding Company of ITG or BST, of the Net Issuance Proceeds of Holdco Debt, Borrower shall prepay, or cause to be prepaid, the Term Loans in an amount equal to the Relative Commitment Factor as of such date multiplied by such Net Issuance Proceeds.

(vi) Immediately upon receipt by Borrower or any of the Subsidiary Guarantors of the Net Cash Proceeds of any Debt Issuance, Borrower shall prepay the Term Loans in an amount equal to all such Net Cash Proceeds.

All mandatory prepayments made pursuant to Section 2.6(b) shall be applied as set forth in Section 2.10, shall not be subject to payment of break funding losses (if any) as set forth in Section 2.11, and shall be accompanied by payment of interest on the amount of such prepayment accrued to the date of such prepayment. Any portion of the Term Loans prepaid pursuant to this Section 2.6 may not be reborrowed.

2.7 Interest.

(a) Interest shall accrue on the outstanding unpaid principal amount of the Term Loans and all other Obligations at the Loan Rate from and including the Closing Date (or, with respect to Obligations other than the Term Loans, the date such Obligations are due and payable; provided that in the case of Obligations arising pursuant to the Guaranty Trust such Obligations shall accrue interest pursuant to the terms and conditions set forth in such agreements) to but excluding the Maturity Date or such later date or earlier date, as the case may be, on which all amounts due hereunder shall have been paid in full. Interest payable on the Term Loans and all other Obligations shall be calculated on the basis of a 360-day year and actual days elapsed in each period during which interest shall accrue.

(b) Interest on the Term Loans and all other Obligations shall be paid in arrears on each Interest Payment Date, the Maturity Date and, if any amounts hereunder remain outstanding thereafter, upon demand.

21

(c) Borrower shall have the option to continue all or any portion of any Term Loan upon the expiration of the applicable LIBOR Period. Any Term Loan or group of Term Loans having the same proposed LIBOR Period to be continued must be in a minimum amount of $1,000,000 and integral multiples of $100,000 in excess of such amount. Any such election must be made by Borrower by 2:00 p.m. (New York time) on the 3rd Business Day prior to the end of each LIBOR Period. If no election is received by 2:00 p.m. (New York time) on the 3rd Business Day prior to the end of the LIBOR Period with respect to any Term Loan, that Term Loan shall be continued with a LIBOR period of one month. Borrower must make such election by notice to the Agent in writing, by fax or overnight courier (or by telephone, to be confirmed in writing on such day) or Electronic Transmission. In the case of any continuation, such election must be made pursuant to a written notice (a “Notice of Continuation”) in the form of Exhibit K.

(d) Upon receipt of a Notice of Continuation, the Agent will promptly notify each Lender thereof. In addition, the Agent will, with reasonable promptness, notify Borrower and the Lenders of each determination of the LIBOR Rate; provided that any failure to do so shall not relieve Borrower of any liability hereunder or provide the basis for any claim against the Agent. All continuations shall be made pro rata according to the respective outstanding principal amounts of the Term Loans held by each Lender with respect to which the notice was given.

(e) Notwithstanding any other provision contained in this Agreement, after giving effect to any continuation of any Term Loans, there shall not be more than three (3) different LIBOR Periods in effect.

2.8 Default Interest. Notwithstanding anything contained in Section 2.7 to the contrary, while any Default or Event of Default exists pursuant to Sections 9.1(a), (f-h) or (m-n) or after acceleration of any of the Obligations hereunder, Borrower shall pay interest (to the extent permitted by applicable law) on the outstanding principal amount of the Term Loans and all other Obligations, at the Past Due Rate and such interest shall be payable from time to time on demand.

2.9 Payments. All payments (including prepayments) to be made by Borrower on account of principal, interest and other amounts required hereunder shall be made without set-off, recoupment, counterclaim or deduction of any kind, shall, except as otherwise expressly provided herein, be made to the Agent (for the ratable account of the Persons entitled thereto) at the address for payment specified in the signature page hereof in relation to the Agent (or such other address outside the territory of Mexico as the Agent may from time to time specify in accordance with Section 11.2), and shall be made in Dollars and in immediately available funds, no later than 2:00 p.m. (New York time) on the date due. Any payment which is received by the Agent later than 2:00 p.m. (New York time) shall be deemed to have been received on the immediately succeeding Business Day and any applicable interest shall continue to accrue. Borrower and each other Credit Party hereby irrevocably waives the right to direct the application during the continuance of an Event of Default of any and all payments in respect of any Obligation and any proceeds of Collateral.

22

2.10 Application of Payments. All payments received by the Agent (including, without limitation, proceeds received in connection with the sale of Collateral pursuant to the Guaranty Trust) hereunder or under any other Loan Document shall be applied first to the payment of any late charges, fees, taxes, levies, imposts, duties, charges, deductions or withholdings due and payable hereunder or under any other Loan Document, second to the payment of interest due and payable hereunder, third to the payment of the principal balance outstanding hereunder, fourth to the payment of any other amounts owing constituting Obligations, and fifth, for the account of and paid to whoever may be lawfully entitled thereto; provided, however, that (i) partial prepayments shall be applied to prepay scheduled installments of the Term Loans in inverse order of maturity and (ii) notwithstanding anything contained herein to the contrary (including this Section 2.10), insurance proceeds arising in connection with a Casualty Event affecting the Collateral shall be applied in accordance with Section 2.6(b)(ii). In carrying out the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category and (y) each of the Lenders or other Persons entitled to payment shall receive an amount equal to its pro rata share of amounts available to be applied pursuant to clauses second, third and fourth above. The Agent promptly shall provide Borrower with written notice if any payment received by the Agent hereunder does not fully satisfy Borrower’s obligations with respect to payments due on such date hereunder, which notice shall set forth the amount and nature of payments still due; provided, however, that failure to provide such notice shall not relieve Borrower of its obligation to pay interest at the Past Due Rate with respect to any amount of principal of the Term Loans not paid when due.

2.11 Break Funding Losses. Except as otherwise provided herein, if Borrower makes any payment or prepayment of principal of the Term Loans on a date that is not an Interest Payment Date, Borrower shall reimburse each Lender on demand for any losses incurred by such Lender as a result of the timing of such payment, including, without limitation, any losses incurred in liquidating or employing deposits from third parties. Each Lender will advise Borrower whether a break funding cost will be imposed on a specified payment. A certificate of such Lender setting forth the basis for determining such loss shall be conclusive and binding on Borrower, absent bad faith or manifest error. This covenant shall survive the Maturity Date.

2.12 Changes; Legal Restrictions. If any current or future applicable law, rule or regulation or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive of any such authority, central bank or comparable agency, whether or not having the force of law shall impose, modify or deem applicable any Reserve Requirements or any other reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System of the United States), special deposit, compulsory loan or similar requirements (other than any capital adequacy requirements) in connection with the Term Loans, or deposits or other liabilities with, of or for the account of the Term Loans, or credit extended by, or any acquisition of funds by or for the account of any office

23

of such Lender or shall impose on such Lender any other condition affecting its obligations relating to its Term Loans; and the result of any of the foregoing would be in the reasonable judgment of such Lender to increase the cost to such Lender of its Term Loans, or reduce the amount of any sum receivable by such Lender under this Agreement, then, upon written demand by such Lender, Borrower shall pay to such Lender such additional amount or amounts as would compensate such Lender for such increased costs or reduction. A statement by such Lender setting forth in reasonable detail the basis for the calculation and determination of any such additional amount or amounts necessary to compensate such Lender shall be conclusive and binding upon Borrower, absent manifest error. Notwithstanding the foregoing, if such charges or restrictions are the result of funding or maintaining its Term Loans, such Lender will use its best efforts to minimize or avoid the effects of such results by designating a different lending office or transferring its Term Loans to any other office or Affiliates of such Lender if such designation or transfer would avoid the need for such charges or restrictions and would not, in the sole opinion of such Lender, be otherwise disadvantageous to such Lender.

2.13 Illegality. Notwithstanding any other provision herein, in the event that it is or shall become unlawful in any jurisdiction for any Lender to continue to fund or to maintain its Term Loans or to comply with its obligations under this Agreement, such Lender shall give notice thereof to Borrower together with a description of the basis for such illegality. Upon the giving of such notice, the duties of such Lender hereunder shall terminate and all outstanding obligations of Borrower hereunder together with all accrued interest with respect thereto and all other amounts payable to such Lender hereunder shall be prepaid by Borrower immediately or at such later date up to and including the end of the current interest periods as may be permitted by law. Any such prepayment shall be made without premium, penalty or charges for break funding losses, unless maintaining the Term Loans becomes unlawful under the laws of Mexico in which event break funding losses, if any, will be chargeable to Borrower under Section 2.11. Notwithstanding the foregoing, if the illegality refers to funding and/or maintaining its Term Loans, such Lender will use its best efforts to minimize or avoid the effects of such illegality by designating a different lending office or transferring its Term Loans to any of such Lender’s Affiliates if such designation or transfer would be permissible under the applicable laws and avoid the need for a prepayment and would not, in the sole opinion of such Lender, be otherwise disadvantageous to such Lender.

2.14 Taxes. All payments of principal, interest, fees and other amounts made or in respect to this Agreement or the Loan Documents shall be made without set-off or counterclaim and free and clear of and without deduction for any and all Taxes (other than Excess Withholding Taxes). Borrower agrees to cause all such Taxes to be paid on behalf of the Agent and the Lenders directly to the appropriate Governmental Authority. Borrower shall provide the Agent with copies of tax receipts or such other documentation as will prove payment of tax in a Mexican court or in another court applying the United States Federal Rules of Evidence, for all Taxes paid by Borrower pursuant to this Section 2.14. Borrower shall deliver such receipts or other accountable documentation to the Agent within forty-five (45) days following the end of each Fiscal Quarter. If Borrower fails to pay any such Taxes when due to the appropriate taxing

24

authority or fails to remit to the Agent the required receipts or other required documentary evidence, Borrower agrees to indemnify and immediately upon demand reimburse the Agent and each Lender for any incremental taxes, interest or penalties that may become payable by the Agent or such Lender as a result of any such failure. The Agent and the Lenders shall not be obliged to pass on to Borrower any benefits that may accrue to any of them pursuant to this Section 2.14.

2.15 Currency Inconvertibility. In the event that any Credit Party is not able to satisfy an Obligation as a result of any restriction or prohibition on (i) the exchange of Mexican currency for Dollars or (ii) the transferring of Dollars outside of Mexico, Borrower shall use all means available to cause its shareholders (including, but not limited to, Parent), Subsidiaries or other income sources outside of Mexico to provide sufficient Dollars to satisfy such Obligation, provided that no Credit Party shall, nor be required to, take any action that would violate any Requirement of Law or result in an adverse tax consequence to any Credit Party. Borrower acknowledges and agrees that nothing contained in this Section 2.15 shall prohibit or restrict the Agent or the Lenders from exercising any remedies available to them by law or in this Agreement.

2.16 Maximum Rate. Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder, the applicable interest rate, together with all fees, charges and other payments which are treated as interest under applicable law, as provided for herein or in any other Loan Document, would exceed the maximum rate of interest which may be charged, contracted for, reserved, received or collected by the Lenders in connection with this Agreement under applicable law (the “Maximum Rate”), Borrower shall not be obligated to pay, and the Lenders shall not be entitled to charge, collect, receive, reserve or take, interest in excess of the Maximum Rate, and during any such period the interest payable hereunder shall be limited to the Maximum Rate.

2.17 Fees. Borrower agrees to pay to the Agent and the Lenders certain fees in the amounts and at the times separately agreed upon.

2.18 Pro Rata Shares; Settlement

(a) Pro Rata Shares. All Term Loans shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Term Loan requested hereunder.

(b) Settlement. At least once each calendar month or more frequently at Agent’s election (each, a “Settlement Date”), Agent shall advise each Lender by telephone or fax of the amount of such Lender’s Pro Rata Share of principal and interest paid for the benefit of Lenders with respect to each applicable Term Loan. Agent shall pay to each Lender such Lender’s Pro Rata Share of principal and interest paid by Borrower since the previous Settlement Date for the

25

benefit of such Lender on the Term Loans held by it. Such payments shall be made by wire transfer to such Lender not later than 2:00 p.m. (New York time) on the next Business Day following each Settlement Date.

(c) Availability of Lender’s Pro Rata Share. Agent may assume that each Lender will make its Pro Rata Share of each Term Loan available to Agent on the Closing Date. If such Pro Rata Share is not, in fact, paid to Agent by such Lender on the Closing Date, Agent will be entitled to recover such amount on demand from such Lender without setoff, counterclaim or deduction of any kind. If any Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent’s demand, Agent shall promptly notify Borrower and Borrower shall immediately repay such amount to Agent. Nothing in this Section 2.18(c) or elsewhere in this Agreement or the other Loan Documents shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights that Borrower may have against any Lender as a result of any default by such Lender hereunder. To the extent that Agent advances funds to Borrower on behalf of any Lender and is not reimbursed therefor on the same Business Day as such advance is made, Agent shall be entitled to retain for its account all interest accrued on such advance until reimbursed by the applicable Lender.

(d) Return of Payments.

(i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender on demand without setoff, counterclaim or deduction of any kind.

(ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to any Credit Party or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Loan Document, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without setoff, counterclaim or deduction of any kind.

2.19 Replacement of Lenders. Within forty-five days after: (i) receipt by Borrower of written notice and demand from any Lender (an “Affected Lender”) for payment of additional costs as provided in Sections 2.12, 2.13 or 2.14; or (ii) any failure by any Lender to consent to a requested amendment, waiver or modification to any Loan Document in which Required Lenders have already consented to such amendment, waiver or modification but the consent of each Lender (or each Lender directly affected thereby, as applicable) is required with respect thereto, Borrower may, at its option, notify the Agent and such Affected Lender (or such non-consenting Lender) of Borrower’s intention to obtain, at Borrower’s expense, a replacement Lender (which shall be an Assignee) (“Replacement Lender”) for such Affected Lender (or such non-consenting Lender), which Replacement Lender shall be an Assignee and shall be reasonably satisfactory to the Agent. In the event Borrower obtains a Replacement Lender within forty-five (45) days

26

following notice of its intention to do so, the Affected Lender (or non-consenting Lender) shall sell and assign its Term Loans to such Replacement Lender, at par, provided that Borrower has reimbursed such Affected Lender for its increased costs for which it is entitled to reimbursement under this Agreement through the date of such sale and assignment. In the event that a replaced Lender does not execute an Assignment pursuant to Section 11.11 within five (5) Business Days after receipt by such replaced Lender of notice of replacement pursuant to this Section 2.19 and presentation to such replaced Lender of an Assignment evidencing an assignment pursuant to this Section 2.19, such Assignment shall nonetheless become effective if it is executed by Borrower and the Agent. Upon any such assignment and payment and compliance with the other provisions of Section 11.11, such replaced Lender shall no longer constitute a “Lender” for purposes hereof; provided, any rights of such replaced Lender to indemnification hereunder shall survive as to such replaced Lender.

3. Security

3.1 Security in Collateral; Delivery of Guaranty Trust.

(a) As security for performance and payment of the Term Loans and all other Obligations, (i) Borrower and Parras Cone, as settlors (fideicomitentes) and beneficiaries, shall execute and deliver the Guaranty Trust pursuant to which Borrower and Parras Cone shall appoint the Agent, as first beneficiary (fideicomisario en primer lugar) and grant the Agent, for the benefit of the Secured Parties, a valid and perfected security interest in the Collateral (collectively, the “Pledged Assets”), (ii) Cone shall execute and deliver the Pledge Agreement in favor of the Agent pursuant to which Cone shall grant the Agent, for the benefit of the Secured Parties, a valid and perfected security interest in one share of the capital of each of the Subsidiary Guarantors, (iii) Parras Cone shall execute and deliver the Security Agreement in favor of the Agent pursuant to which Parras Cone shall grant the Agent, for the benefit of the Secured Parties, a valid and perfected security interest in certain Parras Cone Receivables payable in the United States and Equipment (as defined in the Security Agreement), (iv) each of the U.S. Affiliates shall execute and deliver the Affiliate Guaranty and Security Agreement in favor of the Agent pursuant to which each such U.S. Affiliate shall grant the Agent, for the benefit of the Secured Parties, a valid and perfected security interest in substantially all assets of such U.S. Affiliate, which security interest shall be subordinated to such U.S. Affiliate’s obligations relating to the Revolving Loan Agreement pursuant to the Intercreditor Agreement, (v) UK Guarantor shall execute and deliver the UK Debenture in favor of the Agent pursuant to which UK Guarantor shall grant the Agent, for the benefit of the Secured Parties, a valid and perfected security interest in substantially all assets of UK Guarantor, which security interest shall be subordinated to UK Guarantor’s obligations relating to the Revolving Loan Agreement pursuant to the Intercreditor Agreement and (vi) ASCI Holdings UK (DE), Inc. shall execute and deliver the UK Share Charge in favor of Agent pursuant to which ASCI Holdings UK (DE), Inc. shall grant the Agent, for the benefit of the Secured Parties, a valid and perfected security interest in the shares it holds in UK Guarantor, which security interest shall be subordinated to ASCI Holdings UK (DE), Inc.’s obligations relating to the Revolving Loan Agreement pursuant to the Intercreditor Agreement.

27

(b) The Loan Documents to be delivered to the Agent pursuant to Section 3.1(a) shall be (i) duly executed and delivered before a Mexican notary public (with the exception of the Security Agreement and the UK Security Documents) within 21 days of the Closing Date, and (ii) accompanied by (X) copies of insurance policies evidencing that the Collateral covered thereby is insured adequately to protect the Agent’s interest therein, together with endorsements acceptable to the Agent, showing the Trustee as a named additional loss payee with respect to, or named additional beneficiary of, any insurance proceeds resulting from any Casualty Event affecting such Collateral, (Y) an opinion of external counsel for Borrower opining on the validity and enforceability thereof, and (Z) such other approvals, opinions, agreement, documents or materials as the Agent shall request in connection therewith including, but not limited to, the NFLV and FMV calculations required pursuant to Section 3.2.

(c) Within 60 days of the Closing Date, Borrower shall deliver evidence that in respect of the Guaranty Trust all registration duties have been paid and the Guaranty Trust has been filed for recordation in all public registries and other places to the extent necessary or desirable, in the sole judgment of the Agent, to create a valid and enforceable first priority security interest (subject to Permitted Encumbrances) in favor of the Agent on the Pledged Assets.

3.2 Value of Collateral; Valuation of the Collateral . The NFLV – Parras Cone Machinery and Equipment and FMV – Parras Cone Land and Buildings shall be calculated (i) on or prior to the Closing Date and thereafter (ii) no more often than twice during any calendar year (consisting of one site visit and one desktop appraisal); provided, however, that during the occurrence or continuance of any Default or Event of Default, then the Agent shall be permitted to conduct audits, appraisals and valuations as often as it deems appropriate in its sole discretion. After the determination of the NFLV – Parras Cone Machinery and Equipment and FMV – Parras Cone Land and Buildings, the Agent shall provide Borrower with written notice informing Borrower of such NFLV – Parras Cone Machinery and Equipment and FMV – Parras Cone Land and Buildings.

4. Conditions Precedent

4.1 Conditions Precedent. The obligations of the Lenders to make the Term Loans hereunder are subject to the following conditions precedent:

(a) the Agent shall have received the following documents from the Credit Parties, each of which shall be in form and substance satisfactory to the Agent:

(1) a copy of this Agreement, duly executed and delivered by the parties hereto;

(2) the Evidence of Corporate Authority for Borrower and each of the Subsidiary Guarantors, together with such Person’s corporate charter (escritura constitutiva), current bylaws (estatutos sociales) and powers of attorney;

(3) an opinion of Romo, Paillés y Guzmán, S.C., Mexican special counsel to the Credit Parties, substantially in the form attached hereto as Exhibit F-1;

28

(4) an opinion of Jones Day, United States special counsel to the Credit Parties, substantially in the form attached hereto as Exhibit F-2;

(5) an opinion of Jones Day, UK special counsel to the UK Guarantor, substantially in the form attached hereto as Exhibit F-3;

(6) the Affiliate Guaranty and Security Agreement, duly executed and delivered by the U.S. Affiliates and the UK Guarantor;

(7) the Subsidiary Guaranty, duly executed and delivered by each of the Subsidiary Guarantors;

(8) the Promissory Notes payable to each Lender, duly executed by Borrower;

(9) the Guaranty Trust, duly executed and delivered by each of the parties thereto;

(10) the Security Agreement;

(11) the Pledge Agreement, duly executed and delivered by Cone;

(12) the Intercreditor Agreement, duly executed and delivered by the parties thereto;

(13) the UK Debenture, duly executed and delivered by the UK Guarantor;

(14) the UK Share Charge, duly executed and delivered by ASCI Holdings UK (DE), Inc.;

(15) UCC financing statements naming Agent as Secured Party and Borrower and the Subsidiary Guarantors, as debtors, filed in the District of Columbia;

(16) a certificate from Borrower certifying that (i) since December 31, 2005, there has not occurred (A) an event that has had, or would be expected to have, a Material Adverse Effect, or (B) any litigation against Borrower or any of its Subsidiaries which, if successful, would have a Material Adverse Effect or which would challenge the transactions contemplated hereunder; (ii) all representations and warranties contained in Article 5 applicable to Borrower or any of its Subsidiaries are true and correct in all material respects as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; and (iii) no Default or Event of Default shall have occurred or be continuing on such date;

(17) a certificate from the Secretary of each U.S. Affiliate (i) attesting to the resolutions of such U.S. Affiliate’s board of directors authorizing its execution, delivery, and performance of the Affiliate Guaranty and Security Agreement and the UK Share Charge, as applicable, (ii) authorizing specific officers of such U.S. Affiliate to execute the same; (iii) certifying copies of such U.S. Affiliate’s governing documents, as amended, modified, or supplemented to the Closing Date; (iv) attesting to the incumbency and signatures of such specific officers of such U.S. Affiliate; and (v) attaching a certificate of good standing with respect to such U.S. Affiliate, dated within 10 days of the Closing Date;

29

(18) a Director’s Certificate of the UK Guarantor (i) attesting to the board and shareholder resolutions authorizing its execution, delivery and performance of the Affiliate Guaranty and Security Agreement and the UK Debenture; (ii) authorizing specific officers of UK Guarantor to execute the same; (iii) certifying copies of UK Guarantor’s constitutional documents, as amended, modified, or supplemented to the Closing Date; and (iii) attesting to the incumbency and signatures of specific officers of UK Guarantor;

(19) a notice of borrowing and disbursement issued by Borrower, substantially in the form attached hereto as Exhibit H;

(20) a letter appointing CT Corporation System as agent for service of process in New York for the Credit Parties and proof of payment for term of the loan, together with a Mexican power of attorney, notarized and apostilled by means of which Borrower, Cone and Parras Cone appoint CT Corporation System as their agent for service of process in New York;

(21) a solvency certificate from Borrower in form, scope and substance satisfactory to the Agent, demonstrating that after giving effect to (i) the terms of this Agreement, (ii) the making of the Term Loans, and (iii) the payment and accrual of all transaction costs in connection with the foregoing, each of Borrower and its Subsidiaries is Solvent; and

(22) such other documents, instruments, opinions or agreements as the Agent or the Lenders may reasonably require; and

(b) Borrower and its Subsidiaries shall have (i) repaid in full all Existing Indebtedness substantially contemporaneously with the making of the Term Loans and (ii) delivered to the Agent all documents or instruments necessary to release all Liens securing Existing Indebtedness or other obligations of Borrower and its Subsidiaries thereunder being repaid on the Closing Date;

(c) the Agent and the Lenders shall have received payment of any expenses referenced in Section 11.8 for which Borrower has been invoiced as of the Closing Date; provided, however, that nothing contained in this Section 4.1(b) shall relieve Borrower from its obligation under this Agreement to pay for any expenses referenced in Section 11.8 that arise or are invoiced after the Closing Date; and

(d) no Default or Event of Default shall have occurred and be continuing.

5. Representations and Warranties. Borrower, with respect to itself and on behalf of each of its Subsidiaries, represents and warrants to the Agents and the Lenders as of the Closing Date, after giving effect to the transactions contemplated hereby, that:

5.1 Organization. Each of Borrower and the Subsidiary Guarantors is a Mexican stock limited liability corporation (sociedad anónima de capital variable) duly organized and validly existing under the laws of Mexico and has full corporate power and authority to conduct its business as presently conducted.

30

5.2 Financial Statements. Any financial statement delivered by Borrower or its Subsidiaries to the Agent has been prepared in accordance with GAAP, consistently applied, and presents fairly, in all material respects, as modified by the notes thereto, the financial condition of Borrower and its Subsidiaries as of the applicable date and the results of the operations of Borrower and its Subsidiaries during the periods ending on such dates.

5.3 Enforceable Obligations; Authorization. Each of this Agreement, the Guaranty Trust, the Pledge Agreement, the Security Agreement, any Promissory Note and the other Loan Documents to which Borrower or any of the Subsidiary Guarantors is a party is Borrower’s or such Subsidiary Guarantor’s legal, valid and binding obligations, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, concurso mercantil, insolvency and other similar laws affecting creditors’ rights generally and by general equitable principles. Any judgment against Borrower or any of the Subsidiary Guarantors rendered in a state or federal court in the state of New York may be enforced in the courts of Mexico. The execution, delivery and performance of the Loan Documents to which Borrower or any of the Subsidiary Guarantors is a party (i) have been duly authorized by all necessary corporate action; (ii) are within such Person’s power and authority to perform; (iii) do not and will not contravene or violate any Legal Requirement applicable to such Person or its Organizational Documents; (iv) do not and will not result in the breach of, or constitute a default under, any material agreement or instrument by which such Person or any of its property may be bound or affected; and (v) except for the Liens granted pursuant to Article 3, do not and will not result in the creation of any Lien upon any of its property. All necessary authorizations in connection with the performance of Borrower’s or any of the Subsidiary Guarantors’ obligations under this Agreement, the Guaranty Trust, the Security Agreement, the Promissory Notes and the other Loan Documents to which Borrower or such Subsidiary Guarantor is a party have been obtained and are in full force and effect, including but not limited to final approvals by all appropriate Governmental Authorities having jurisdiction over Borrower or such Subsidiary Guarantor.

5.4 Litigation. There is no litigation or administrative proceeding (including, without limitation, environmental proceedings) pending or, to its knowledge, threatened against, nor any outstanding judgment, order or decree affecting, Borrower or any of the Subsidiary Guarantors before or by any Governmental Authority having jurisdiction over Borrower or such Subsidiary which would reasonably be expected to have a Material Adverse Effect, nor is Borrower or such Subsidiary in default with respect to any judgment, order or decree of any Governmental Authority having jurisdiction over Borrower or such Subsidiary, which would reasonably be expected to have Material Adverse Effect.

31

5.5 Rank. The Obligations of Borrower and the Subsidiary Guarantors under this Agreement and each of the other Loan Documents to which Borrower or any such Subsidiary Guarantor is a party rank, and will rank, at least pari passu in priority of payment with all other senior, secured and unsubordinated Indebtedness of Borrower or such Subsidiary Guarantor in relation to the Pledged Assets, whether now existing or hereafter arising.

5.6 No Adverse Changes. Since December 31, 2005, no event or circumstance has occurred that would reasonably be expected to result in a Material Adverse Effect.

5.7 Liens. Good and marketable title to all property and assets (including the Collateral) is held by Borrower and the Subsidiary Guarantors free and clear of all Liens, except for Permitted Encumbrances.

5.8 No Default. Neither Borrower nor any of the Subsidiary Guarantors is in default under (i) any material contract, lease, sublease or other agreement to which it is a party or by which it or its properties may be bound, or (ii) any agreement for borrowed money.

5.9 No Immunity. None of Borrower or any of the Subsidiary Guarantors or any of their respective property has any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) under the laws of Mexico.

5.10 No Taxes. Except for any withholding tax imposed on interest payable by Borrower hereunder, there is no tax, levy, impost, duty, fee, assessment or other governmental charge, or any deduction or withholding, imposed by any Governmental Authority either (i) on or by virtue of the execution or delivery of the Loan Documents or (ii) on any payment to be made by Borrower or any other Credit Party pursuant to the Loan Documents.

5.11 Disclosure. None of the representations or warranties made by any Credit Party in the Loan Documents as of the date of such representations and warranties, and none of the statements contained in any certificate or in any other information with respect to any Credit Party or any of its Subsidiaries, including each exhibit thereof, furnished by or on behalf of it to the Agent or any Lender in connection with the Loan Documents, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein not misleading.

32

5.12 Compliance with Laws. Except as disclosed on Schedule 5.12, each of Borrower and the Subsidiary Guarantors is in compliance, in all material respects, with all Requirements of Law (including, without limitation, Environmental Laws, IMSS (Social Security Mexican Institute), INFONAVIT (National Housing Fund Institute) and SAR (Retirement Savings System)).

5.13 Environmental Laws. Without limiting the generality of Section 5.12, neither Borrower nor any of the Subsidiary Guarantors is in violation of any applicable health, safety, or Environmental Law or regulation regarding Hazardous Substances and is not the subject of any claim, proceeding, notice, or other communication regarding any Environmental Law or Hazardous Substances which would reasonably be expected to result in liabilities under any Environmental Law exceeding $250,000 in the aggregate.

5.14 Insurance. Borrower and the Subsidiary Guarantors have obtained all the necessary insurance policies, coverage and endorsements related thereto required under this Agreement (including, without limitation, pursuant to Sections 3.1 and 6.6).

5.15 Solvency. Both before and after giving effect to (a) the terms of this Agreement, (b) the making of the Term Loans, and (c) the payment and accrual of all transaction costs in connection with the foregoing, each of Borrower and the Subsidiary Guarantors is and will be Solvent.

5.16 Activities of Administración Parras Cone, S.A. de C.V. and Manufacturas Parras Cone, S.A. de C.V. Neither Administración Parras Cone, S.A. de C.V. nor Manufacturas Parras Cone, S.A. de C.V. engages in any business or activity or owns any assets other than employing persons who provide services to Parras Cone.

6. Affirmative Covenants

Borrower covenants and agrees with the Agent and the Lenders that until this Agreement terminates in accordance with Section 11.4, it will do, and where applicable, cause each of its Subsidiaries to do, all of the following:

6.1 Compliance with Laws . Comply with all Requirements of Law (including, without limitation, Environmental Laws, IMSS (Social Security Mexican Institute), INFONAVIT (National

33

Housing Fund Institute) and SAR (Retirement Savings System)) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply would not reasonably be expected to have a Material Adverse Effect.

6.2 Financial Statements and Information. Deliver to the Agent, in form and detail satisfactory to the Agent:

(a) As soon as available, but not later than one hundred twenty (120) days after the end of the Fiscal Year (commencing with the Fiscal Year ended December 31, 2006), audited financial statements for Borrower and its Subsidiaries on a consolidated basis, consisting of the balance sheet as of the end of such year and the related statements of income, shareholders’ equity, and retained earnings and cash flows for such year, setting forth in comparative form in each case the figures for the previous Fiscal Year, which financial statements shall be prepared in accordance with GAAP and certified without qualification, by an independent certified public accounting firm of national standing or otherwise acceptable to the Agent. Such financial statements shall be accompanied by the annual letters to such accountants in connection with their audit examination detailing contingent liabilities and material litigation matters. The financial statements delivered pursuant to this Section 6.2(a) shall be accompanied a Compliance Certificate as specified in Section 6.7(a).

(b) As soon as available, but not later than forty-five (45) days after the end of each Fiscal Quarter of each Fiscal Year (commencing with the Fiscal Quarter ended December 31, 2006), unaudited consolidated and consolidating financial statements for Borrower and its Subsidiaries, consisting of the balance sheet as of the end of such Fiscal Quarter and the related statements of income, shareholders’ equity, and retained earnings and cash flows for the period commencing on the first day and ending on the last day of such Fiscal Quarter, in each case setting forth in comparative form the figures for the corresponding period in the prior year, all prepared in accordance with GAAP (subject to normal year-end adjustments). The financial statements delivered pursuant to this Section 6.2(b) shall be accompanied a Compliance Certificate as specified in Section 6.7(a).

(c) As soon as available, but not later than thirty (30) days after the end of each Fiscal Month of each Fiscal Year (commencing with the Fiscal Month ended December 31, 2006), unaudited consolidated and consolidating financial statements for Borrower and its Subsidiaries, consisting of the balance sheet as of the end of such Fiscal Month and the related statements of income, shareholders’ equity, and retained earnings and cash flows for the period commencing on the first day and ending on the last day of such Fiscal Month, in each case setting forth in comparative form the figures for the corresponding period in the prior year, all prepared in accordance with GAAP (subject to normal year-end adjustments).

(d) Within five (5) Business Days after receipt thereof, copies of all management letters, exception reports or similar letters or reports received by Borrower or any of the Subsidiary Guarantors from its independent certified public accountants.

(e) As soon as available, but not later than sixty (60) days after the end of each Fiscal Year, an annual operating plan for Borrower, with annual forecasts (to include forecasted consolidated balance sheets, income statements and cash flow statements) for Borrower as at the end of and for each Fiscal Quarter of such Fiscal Year.

34

6.3 Notice of Certain Matters. Notify the Agent (a) within three (3) Business Days after any Responsible Officer of Borrower obtains knowledge of the occurrence of any change in the financial condition, business, operations or properties of Borrower or any of its Subsidiaries, respectively, if such change would reasonably be expected to result in a Material Adverse Effect; (b) within three (3) Business Days after any Responsible Officer of Borrower obtains knowledge of any Default or Event of Default, and if such Default or Event of Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of Borrower setting forth the details thereof and the action that Borrower is taking or proposes to take with respect thereto; and (c) within three (3) Business Days after any Responsible Officer of Borrower obtains knowledge of an action, suit or proceeding pending or threatened against Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which, in the good faith opinion of Borrower, there is a reasonable possibility of an adverse decision which would have a Material Adverse Effect (after taking into account all potential appeals) or which in any manner draws into question the validity of the Loan Documents, a certificate of an authorized Responsible Officer of Borrower setting forth in reasonable detail a description of such action, suit or proceeding.

6.4 Use of Proceeds. Use the proceeds of the Term Loans in accordance with Section 2.4.

6.5 Inspection of Property; Books and Records. Keep proper books of record and account in which full, true and correct entries shall be made of all financial transactions in relation to its business and activities; and will permit the Agent or any of its Related Persons, at Borrower’s expense, to visit and inspect any of Borrower’s or its Subsidiaries’ properties, to examine and make abstracts from any of its books and records and to discuss affairs, finances and accounts with Borrower’s or such Subsidiaries’ Responsible Officers, employees and independent public accountants, all at such times during normal business hours upon reasonable advance notice to Borrower and as often as may reasonably be desired, provided that such visitations and inspections are conducted in a manner that does not interfere with or otherwise interrupt in any material respect, the operations of Borrower or any such Subsidiary; provided, however, (i) Borrower will not be responsible for the expenses of more than one (1) field examination in any calendar year unless a Default or an Event of Default exists and (ii) when an Event of Default exists, the Agent may do any of the foregoing at the expense of Borrower at any time during normal business hours and without advance notice.

6.6 Insurance.

(a) Coverage. Without limiting any of the other obligations or liabilities of Borrower under this Agreement, Borrower and the Subsidiary Guarantors shall, during the term of this Agreement, carry and maintain, at such Person’s own expense, at least the minimum

35

insurance coverage set forth in this Section 6.6. Borrower and the Subsidiary Guarantors shall also carry and maintain any other insurance that the Agent may reasonably require from time to time. All insurance carried pursuant to this Section 6.6 shall be placed with such insurers having a minimum A.M. Best rating of A:X, and be in such form, with terms, conditions, limits and deductibles as shall be consistent with the requirements of this Agreement or otherwise reasonably acceptable to the Agent. Unless otherwise agreed by the Agent, such insurance shall comply with the following requirements:

(i) All Risk Property Insurance. Borrower and the Subsidiary Guarantors shall maintain all risk property insurance covering against physical loss or damage to their assets, including, but not limited to, fire and extended coverage, collapse, flood and comprehensive boiler and machinery coverage (including electrical malfunction and mechanical breakdown). Coverage shall be written on a replacement cost basis. Such insurance shall not contain an exclusion for resultant damage caused by faulty workmanship, design or materials. Such insurance policy shall contain an agreed amount endorsement waiving any coinsurance penalty and shall include expediting expense coverage in an amount not less than US$1,000,000.

(ii) Business Interruption Insurance. As an extension of the insurance required under Section 6.6(a)(i), or as a separate placement, Borrower and the Subsidiary Guarantors shall maintain business interruption insurance in an amount equal to twelve (12) months projected net profits, and continuing expenses (including principal and interest due on the Term Loans). Such coverage shall also provide for contingent business interruption covering the major suppliers and customers of Borrower and the Subsidiary Guarantors. Such insurance shall contain an agreed amount endorsement waiving any coinsurance penalty and also cover service interruption and extra expenses in an amount not less than US$1,000,000. The deductibles on this policy shall not be greater than thirty (30) days.

(iii) Comprehensive General Liability Insurance. Borrower and the Subsidiary Guarantors shall maintain comprehensive general liability insurance written on an occurrence basis with a limit of not less than US$2,000,000. Such coverage shall include premises/operations, explosion, collapse, underground hazards, contractual liability, independent contractors, property damage and personal injury liability.

(iv) Automobile Liability Insurance. Borrower and the Subsidiary Guarantors shall maintain automobile liability insurance covering owned, non-owned, leased, hired or borrowed vehicles against bodily injury or property damage. Such coverage shall have a limit of not less than between US$75,000 and US$100,000 or the Mexican Peso equivalent of such sums.

(b) Endorsements. Borrower shall, unless otherwise agreed by Agent, cause all insurance policies carried and maintained in accordance with this Section 6.6 to be endorsed as follows:

(i) The Trustee and the Agent shall be additional insureds with the Trustee as loss payee, with respect to the property policies described in Section 6.6(a)(i). The Trustee and the Agent shall be additional insureds with respect to the liability policies described in Sections 6.6(a)(ii) and (a)(iii). It shall be understood that any obligation imposed upon Borrower or any of the Subsidiary Guarantors, including but not limited to the obligation to pay premiums, shall be the sole obligation of Borrower or such Subsidiary Guarantor and not that of the Trustee nor the Agent;

36

(ii) inasmuch as the liability policies are written to cover more than one insured, all terms, conditions, insuring agreements and endorsements, with the exception of the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured;

(iii) the insurers thereunder shall waive all rights of subrogation against the Trustee and the Agent and any right of setoff or counterclaim and any other right to deduction, whether by attachment or otherwise; and

(iv) if such insurance is canceled for any reason whatsoever, including nonpayment of premium, or any changes are initiated by Borrower, the applicable Subsidiary Guarantor or insurance carrier which affect the interests of the Agent, such cancellation or change shall not be effective as to the Agent until thirty (30) days, except for non-payment of premium which shall be ten (10) days, after receipt by the Agent of written notice sent by mail from such insurer.

(c) Certifications. At each policy renewal, Borrower shall provide to the Agent approved certification from each insurer or by an authorized representative of each insurer. Such certification shall identify the underwriters, the type of insurance, the limits, deductibles, and term thereof and shall specifically list the special provisions delineated in Section 6.6(b) above, for such insurance required in this Section 6.6.

(d) General. The Agent and its Related Persons shall be entitled, upon reasonable advance notice, to review Borrower’s and each of the Subsidiary Guarantors’ books and records regarding all insurance policies carried and maintained with respect to Borrower’s and the Subsidiary Guarantors’ obligations under this Section 6.6. Upon request, Borrower shall furnish the Agent with copies of all insurance policies, binders, and cover notes or other evidence of such insurance. Notwithstanding anything to the contrary herein, no provision of this Section 6.6 or any provision of this Agreement shall impose on the Agent any duty or obligation to verify the existence or adequacy of the insurance coverage maintained by Borrower and the Subsidiary Guarantors, nor shall the Agent be responsible for any representations or warranties made by or on behalf of Borrower or any of the Subsidiary Guarantors to any insurance broker, company or underwriter. The Agent, at its sole option, may obtain such insurance if not provided by Borrower or by the Subsidiary Guarantors and in such event, Borrower shall reimburse the Agent upon demand for the cost thereof together with interest.

6.7 Certificates; Other Information. Furnish to the Agent and the Lenders:

(a) concurrently with the delivery of the financial statements referred to in Sections 6.2(a) and (b), a Compliance Certificate executed by Borrower’s chief financial officer or chief accounting officer which (i) sets forth in reasonable detail the calculations required to establish that Borrower was in compliance with the requirements of Article 8 on the date of such financial statements, (ii) certifies that all such financial statements present fairly in all material respects in accordance with GAAP the financial position, results of operations and statements of cash flows of Borrower and its Subsidiaries on a consolidated and consolidating basis, as at the

37

end of the relevant fiscal period then ended, and (iii) states whether any Default or Event of Default exists on the date of such certificate and, if any Default or Event of Default then exists, sets forth the details thereof and the action that Borrower is taking or proposes to take with respect thereto; and

(b) promptly, such additional information regarding the business, financial or corporate affairs of Borrower or any of the Subsidiary Guarantors as the Agent may from time to time reasonably request.

6.8 Payment of Obligations. Pay and discharge at or before maturity all of Borrower’s or any of its Subsidiaries’ material obligations and liabilities (including, without limitation, tax liabilities and claims of materialmen, warehousemen and the like, which, if unpaid, would by law give rise to a Lien), except where the same may be contested in good faith by appropriate negotiations or proceedings, and will maintain, in accordance with GAAP, appropriate reserves for the accrual of any of the same.

6.9 Conduct of Business and Maintenance of Existence.

(a) Preserve and maintain in full force and effect Borrower’s and each Subsidiary Guarantor’s organizational existence; and

(b) Continue to engage in business of the same general type as now conducted by Borrower or any of its Subsidiaries or any business complimentary or related thereto; do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of Borrower’s or such Subsidiary’s business except as would not reasonably be expected to have a Material Adverse Effect; provided, however, that the restrictions described in this Section 6.9 shall not prohibit the discontinuance of any business activity or operation if, in the good faith judgment of Borrower, such action is desirable in the conduct of the business of Borrower or such Subsidiary and is not disadvantageous in any material respect to the Lenders.

6.10 Licenses. Obtain and maintain all licenses, authorizations, consents, filings, exemptions, registrations and other governmental approvals of any Government Authority necessary in connection with the execution, delivery and performance of the Loan Documents and the consummation of the transactions therein contemplated.

6.11 Ranking. Take or cause to be taken all action which may be or become necessary or appropriate to ensure that Borrower’s Obligations under this Agreement and the other Loan Documents, as applicable, will continue to constitute its direct, unconditional and senior secured obligations.

38

6.12 Guarantors. Within ten (10) Business Days of the creation or acquisition (from time to time) by Parras Cone of any Subsidiary, cause such Subsidiary to (i) execute a joinder agreement in form and substance satisfactory to the Agent pursuant to which such Subsidiary shall become a “Guarantor” under the Subsidiary Guaranty and (ii) transfer its assets to a guaranty trust and grant such collateral and pledge such assets as set forth therein.

6.13 Hazardous Substances. Without limiting the generality of Section 6.1, comply with all applicable Environmental Laws, except as would not reasonably be expected to have a Material Adverse Effect. The Credit Parties shall promptly, at their sole cost and expense, take all reasonable actions with respect to any Hazardous Substances or other environmental condition at, on, or under any of their respective real property necessary to (except in each case, as would not reasonably be expected to have a Material Adverse Effect) (i) comply with all applicable Environmental Laws, (ii) allow continued use, occupation or operation of such property, and (iii) maintain the fair market value of such property.

6.14 Notices Regarding Hazardous Substances. Promptly notify the Agent in writing if it knows, suspects or believes that there may be any Hazardous Substance in or around any of its real property, or in the soil, groundwater or soil vapor on or under such property, or that it may be subject to any threatened or pending investigation by any Governmental Agency under any current or future law (including, without limitation, applicable Environmental Laws), regulation or ordinance pertaining to any Hazardous Substance, in each case, to the extent that a Material Adverse Effect would reasonably be expected to result therefrom.

6.15 Further Assurances. Promptly execute and deliver (or use reasonable efforts to cause other Persons to execute and deliver) any and all further documents, agreements and instruments, and to take further action (including, without limitation, giving notices of assignment, recording assignments of mortgages, pledges and other security documents) that may be required under applicable law, or that the Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to evidence, confirm, grant, preserve and perfect the Agent’s security interest in the Collateral.

6.16 Collateral. (a) Within ten (10) Business Days from the acquisition of land, buildings, machinery or equipment by any of the Subsidiary Guarantors (i) in an amount equal to or greater than US$200,000 for a single asset acquisition or (ii) in an amount equal to or greater than US$500,000 for asset acquisitions in the aggregate during an interim period prior to the dates

39

referenced in clause (b) and (b) on each June 1^st and December 1^st of each Fiscal Year for the cumulative amount of land, buildings, machinery or equipment acquired since the immediately preceding June 1^st or December 1^st for which the aggregate value of assets acquired during an interim period is less than US$500,000, Borrower shall cause such Subsidiary Guarantor to (i) grant as collateral and pledge any such other property or assets of whatever kind and nature consistent with the terms of the Guaranty Trust and (ii) cause such Subsidiary Guarantor to transfer such assets to the Guaranty Trust and grant as collateral and pledge any such other property or assets as set forth in the Guaranty Trust.

6.17 Maintenance of Property. Keep all property useful and necessary in Borrower’s or any of its Subsidiaries’ businesses in good working order and condition, ordinary wear and tear excepted; provided, however, that Borrower or such Subsidiary shall not be prevented by this Section 6.17 from discontinuing those operations or disposing of or suspending the maintenance of those properties which, in the reasonable judgment of Borrower or such Subsidiary, are no longer necessary or useful in the conduct of the business of Borrower or such Subsidiary, so long as such discontinuation, disposition or suspension is not disadvantageous in any material respect to the Lenders.

7. Negative Covenants

Borrower covenants and agrees with the Agent and the Lenders that until this Agreement terminates in accordance with Section 11.4, it will not do or permit, and where applicable, cause each of its Subsidiaries not to do or permit any of the following to occur:

7.1 Mergers. Consolidate or merge with or into any other Person; provided that any Subsidiary may merge into Borrower or into another Subsidiary, provided that in the case of Borrower, Borrower shall be the surviving entity.

7.2 Sale of Assets. Sell, lease or otherwise dispose of its properties or other assets, including the stock of any of its Subsidiaries or any of its accounts receivable or other forms of obligations during the term of this Agreement; provided that Borrower or any of its Subsidiaries may sell, lease or otherwise dispose of any of its assets in the ordinary course of business or otherwise in accordance with Section 6.9; provided further that Parras Cone may (i) sell, assign or otherwise transfer Parras Cone Receivables to any U.S. Affiliate and (ii) sell buildings, land, machinery or equipment so long as (a) the value of such assets do not exceed US$250,000 in any single transaction and (b) the aggregate value for all buildings, land, machinery or equipment sold during any fiscal year of Borrower do not exceed US$500,000. Notwithstanding anything contained in this Section 7.2, the sale of assets consisting of Collateral may only be made as provided in the Guaranty Trust or the Security Agreement, as applicable.

7.3 Sale and Lease-Back Transactions. Enter into any sale-leaseback, synthetic lease or similar transaction involving any arrangement, directly or indirectly, with any person whereby Borrower or any of its Subsidiaries shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred unless the sale of such property is permitted by Section 7.2.

40

7.4 Other Indebtedness; Cancellation of Indebtedness; Affiliate Transactions.

(a) Create, incur, assume or permit to exist any Indebtedness or Guaranteed Indebtedness, except (i) Indebtedness secured by Permitted Encumbrances, (ii) the Term Loans and the other Obligations, (iii) deferred taxes, (iv) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, (v) Guaranteed Indebtedness described in Schedule 7.4(a), (vi) Capital Lease Obligations secured only by the acquired asset of Borrower or any of its Subsidiaries in the ordinary course of business, and (vii) existing Indebtedness described in Schedule 7.4(a) and refinancings thereof or amendments or modifications thereto on terms and conditions no less favorable to Borrower or the applicable Subsidiary of Borrower, as determined by the Agent in the exercise of its reasonable discretion, than (x) the terms of the Indebtedness being refinanced, amended or modified or (y) the terms of this Agreement, unless in either case, such terms and conditions are incorporated into this Agreement for the benefit of the Agent and the Lenders.

(b) Cancel any claim or debt owing to it, except for reasonable consideration negotiated on an arm’s length basis and in the ordinary course of its business consistent with past practices.

(c) Enter into or be a party to any transaction with any Affiliate thereof except in the ordinary course of and pursuant to the reasonable requirements of Borrower’s or any of its Subsidiary’s business and upon fair and reasonable terms that are no less favorable to Borrower or such Subsidiary than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate of Borrower or such Subsidiary; provided that (i) Borrower may contribute the proceeds of the Term Loans and such additional amounts to Parras Cone as are necessary in order for Parras Cone to repay the Existing Indebtedness and pay fees and expenses in connection therewith and (ii) Parras Cone may sell, assign or otherwise transfer the Parras Cone Receivables to any U.S. Affiliate.

7.5 Liens. Create, incur or allow to exist Liens other than Permitted Encumbrances with respect to any assets of Borrower or any of its Subsidiaries.

7.6 Restriction on Dividend Payments and Intercompany Transfers.

(a) Declare or pay any dividend on, or repurchase or commit to repurchase, any of the shares of Borrower’s capital stock of any class or make or commit to make any other payment in respect thereof or cause any equity reduction in Borrower’s capital stock of any class.

41

(b) Directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) that could directly or indirectly restrict, prohibit or require the consent of any Person (other than Borrower’s shareholders) with respect to the payment of dividends or distributions or the making or repayment of intercompany loans by a Subsidiary of Borrower to Borrower.

7.7 Restriction on Amendments to Organizational Documents. Amend or modify Borrower’s or any of its Subsidiaries’ Organizational Documents in a manner that is material and adverse to the Lenders.

7.8 Changes in Business. Borrower shall not engage in any business activities other than (i) ownership of the Equity Interests of Parras Cone or of any other Subsidiary in existence on the date hereof or from time to time created or acquired in accordance with this Agreement or investments in other Persons not prohibited by this Agreement, (ii) activities incidental to maintenance of its existence and (iii) performance of its obligations under this Agreement and the other Loan Documents.

7.9 Permitted Activities of Administración Parras Cone, S.A. de C.V. and Manufacturas Parras Cone, S.A. de C.V. Administración Parras Cone, S.A. de C.V. and Manufacturas Parras Cone, S.A. de C.V. shall not (a) incur, directly or indirectly, any Indebtedness, (b) create or suffer to exist any Lien upon any property or assets now owned or hereafter acquired by it other than Liens created under the respective Loan Documents to which it is a party or permitted pursuant to Section 7.5 hereof; or (c) engage in any business or activity or own any assets other than (i) employing persons who provide services to Parras Cone, (ii) performing its respective obligations and activities incidental thereto under the Loan Documents and (iii) performing any activities incidental to the foregoing clauses (i) and (ii).

8. Specific Financial Covenants

Borrower shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated on a quarterly basis in accordance with GAAP (provided that the covenant set forth in Section 8.3 shall be calculated on an annual basis):

8.1 Minimum Collateral Coverage Ratio. The Minimum Collateral Coverage Ratio, measured as of the end of the Fiscal Quarter ending on each date set forth below, shall not to be less than the following:

Period	Minimum Collateral Coverage
December 31, 2006	1.288:1.0
March 31, 2007	1.310:1.0
June 30, 2007	1.332:1.0
September 30, 2007	1.356:1.0
December 31, 2007	1.380:1.0
March 31, 2008	1.405:1.0
June 30, 2008	1.431:1.0
September 30, 2008	1.458:1.0
December 31, 2008	1.486:1.0
March 31, 2009	1.515:1.0
June 30, 2009	1.546:1.0
September 30, 2009 and thereafter	1.577:1.0

42

8.2 Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio shall not at any time be less than 1.05:1.0.

8.3 Maximum Capital Expenditures. Borrower and the Subsidiary Guarantors, on a consolidated basis, shall not make Capital Expenditures during the following periods that exceed in the aggregate the amounts set forth opposite each of such periods:

Period	Maximum Capital Expenditures per Fiscal Year
From the Closing Date through December 31, 2006	US$	375,000
January 1, 2007 through December 31, 2007	US$	2,650,000
January 1, 2008 through December 31, 2008	US$	4,000,000
January 1, 2009 through December 31, 2009	US$	1,000,000

; provided, that (x) if at the end of any period set forth above, the amount specified above for Capital Expenditures during such period (before giving effect to the Excess Amount, as hereinafter defined) exceeds the aggregate amount of Capital Expenditures actually made or

43

incurred by Borrower and the Subsidiary Guarantors on a consolidated basis during such period (the amount of such excess being referred to herein as the “Excess Amount”), Borrower and the Subsidiary Guarantors shall be entitled to make additional Capital Expenditures in the immediately (but not any other) succeeding period in an aggregate amount equal to the sum of the Excess Amount plus the amount set forth above for such period and (y) in determining whether any amount is available for carryover, the amount expended in any period shall first be deemed to be from the amount allocated to such period (before giving effect to the Excess Amount).

9. Events of Default and Remedies

9.1 Events of Default. If one or more of the following events (“Events of Defaults”) shall have occurred and be continuing:

(a) Borrower shall fail to pay when due (i) any principal of or interest on the Term Loans or any fees or any other amounts payable to the Trustee hereunder or under any other Loan Document, or (ii) any other fees or any other amount payable hereunder or under any Loan Document within five (5) Business Days of the due date hereof;

(b) any Credit Party shall fail to observe or perform any covenant contained in Sections 3.1, 6.2, 6.3, 6.4, 6.6, and 6.9(a), Article 7, Sections 8.1 through 8.3, inclusive, of this Agreement;

(c) any Credit Party shall fail to observe or perform any covenant or agreement contained in any Loan Document (other than those covered by clause (a) or (b) above) for thirty (30) days after notice thereof has been given to Borrower by the Agent or any Lender;

(d) any representation, warranty, certification or statement made by or on behalf of any Credit Party in any Loan Document or in any certificate, financial statement or other document delivered pursuant thereto shall prove to have been incorrect in any material respect when made (or deemed made);

(e) this Agreement or any other Loan Document or any material provision hereof or thereof shall at any time and for any reason cease to be valid, binding and enforceable in accordance with its terms, be declared to be null and void, or a proceeding shall be commenced by any Credit Party, or by a Governmental Authority having jurisdiction over such party, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof);

(f) Borrower or any Subsidiary Guarantor shall fail (i) to make any payment of any principal of, or interest or premium on, any Indebtedness (other than in respect of the Term Loans) in principal amount outstanding (individually or in the aggregate) of at least US$500,000 (or its equivalent in another currency), whether by scheduled maturity, required prepayment, acceleration, demand or otherwise, and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness as of the date of such failure, or (ii) to perform or observe any term, covenant or

44

condition on its part to be performed or observed under any agreement or instrument relating to any such Indebtedness, when required to be performed or observed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof;

(g) Borrower, any of the Subsidiary Guarantors, UK Guarantor, or any U.S. Affiliate with assets in excess of $1,000,000 shall commence a voluntary case or other proceeding seeking liquidation, reorganization, concurso mercantil, or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, síndico, visitador, conciliador, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit or creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(h) an involuntary case or other proceeding shall be commenced against Borrower, any of the Subsidiary Guarantors, UK Guarantor, or any U.S. Affiliate with assets in excess of $1,000,000 seeking liquidation, reorganization, concurso mercantil or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, síndico, visitador, conciliador, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) consecutive days; or an order for relief shall be entered against Borrower, any of the Subsidiary Guarantors, UK Guarantor or any U.S. Affiliate with assets in excess of $1,000,000 under applicable bankruptcy or insolvency laws as now or hereafter in effect;

(i) any writ, execution, attachment or similar process shall be levied against all or any substantial part of the property of Borrower or any of the Subsidiary Guarantors in connection with any judgment exceeding US$500,000 (or its equivalent in any other currency), except to the extent covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage, and shall remain unsatisfied, undischarged and in effect for a period of thirty (30) consecutive days without a stay of execution, unless the same is adequately bonded or is being contested by appropriate proceedings properly instituted and diligently conducted and, in either case, such process is not being executed against such property;

(j) (1) a Governmental Authority shall take any action, including a moratorium, having a material adverse effect on (A) the schedule of payments of the Borrower or any Subsidiary Guarantor under this Agreement, any Promissory Note, the other Loan Documents or otherwise, or (B) the currency in which any Credit Party may pay its obligations under this Agreement, the Promissory Notes, the other Loan Documents or otherwise, or (2) any Governmental Authority, agency or official shall nationalize, expropriate, seize or otherwise compulsorily acquire all or a substantial part of the assets of Borrower or any of its Subsidiaries;

45

provided, however, that the events or actions by a Governmental Authority, agency or official set forth in immediately preceding clauses (1) and (2) shall constitute Events of Default only if such events or actions remain in effect for more than forty-five (45) consecutive days;

(k) Borrower or any of its Subsidiaries shall fail to pay within ten (10) days of the due date thereof, amounts due IMSS (Social Security Mexican Institute), INFONAVIT (National Housing Fund Institute) and/or SAR (Retirement Savings System) if the aggregate of such amounts at any time equals or exceeds US$100,000, unless the amounts due are being contested in good faith through appropriate proceedings;

(l) [RESERVED];

(m) a Change of Control;

(n) [RESERVED];

(o) any security interest and Lien purported to be created by the Guaranty Trust, the Security Agreement, the Affiliate Guaranty and Security Agreement, the UK Security Documents or the Pledge Agreement shall cease to be in full force and effect, or shall cease (other than through the failure of the Agent to take any actions within its control) to give the Agent, for the benefit of the Secured Parties, the Liens and security interests purported to be created and granted under such documents;

(p) all or any material part of the property of Borrower or any of its Subsidiaries shall be nationalized, expropriated or condemned, seized or otherwise appropriated, or custody or control of such property or of Borrower or such Subsidiary shall be assumed by any Governmental Authority or any court of competent jurisdiction at the instance of any Governmental Authority, except where contested in good faith by proper proceedings diligently pursued where a stay of enforcement is in effect; or

(q) any loss, theft, damage or destruction of any item or items of Collateral or other property of Borrower or any of its Subsidiaries occurs in ether case, which would reasonably be expected to cause a Material Adverse Effect and is not adequately covered by insurance;

then, and in every such event, the Agent may, and shall at the request of the Required Lenders, by notice to Borrower (i) terminate the obligations of the Lenders to extend credit hereunder and they shall thereupon terminate; (ii) declare the Term Loans (together with accrued interest thereon) to be, and the Term Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) without any notice to Borrower or any other act by the Agent, the Lenders’ obligations to extend credit hereunder shall thereupon terminate and the Term Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower; and (iii) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under any other Loan Document, including the Guaranty Trust, the Security Agreement, the Pledge Agreement and, subject to the Intercreditor Agreement, the Affiliate Guaranty and

46

Security Agreement and the UK Security Documents. Nothing contained in this Section 9.1 shall relieve Borrower of its obligation to make default interest payments in accordance with Section 2.8.

9.2 Remedies Cumulative. No remedy, right or power conferred upon the Lender hereunder or by applicable law is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative.

10. The Agent

10.1 Appointment and Duties.

(a) Appointment of Agent. Each Lender hereby appoints GE Capital (together with any successor Agent pursuant to Section 10.9) as the Agent hereunder and authorizes the Agent to (i) execute and deliver the Loan Documents and accept delivery thereof on its behalf from any Credit Party, (ii) take such action on its behalf and to exercise all rights, powers and remedies and perform the duties as are expressly delegated to the Agent under such Loan Documents and (iii) exercise such powers as are reasonably incidental thereto.

(b) Duties as Collateral and Disbursing Agent. Without limiting the generality of clause (a) above, the Agent shall have the sole and exclusive right and authority (to the exclusion of the Lenders), and is hereby authorized, to (i) act as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in connection with the Loan Documents (including in any proceeding described in Section 9.1(h) or any other bankruptcy, insolvency or similar proceeding), and each Person making any payment in connection with any Loan Document to any Secured Party is hereby authorized to make such payment to the Agent, (ii) file and prove claims and file other documents necessary or desirable to allow the claims of the Secured Parties with respect to any Obligation in any proceeding described in Section 9.1(h) or any other bankruptcy, insolvency or similar proceeding (but not to vote, consent or otherwise act on behalf of such Person), (iii) act as collateral agent for each Secured Party for purposes of the perfection of all Liens created by such agreements and all other purposes stated therein, (iv) subject to the Guaranty Trust, manage, supervise and otherwise deal with the Collateral, (v) subject to the Guaranty Trust, take such other action as is necessary or desirable to maintain the perfection and priority of the Liens created or purported to be created by the Loan Documents, (vi) except as may be otherwise specified in any Loan Document, exercise all remedies given to the Agent and the other Secured Parties with respect to the Collateral, whether under the Loan Documents, any Requirement of Law or otherwise and (vii) execute any amendment, consent or waiver under the Loan Documents on behalf of any Lender that has consented in writing to such amendment, consent or waiver.

(c) Limited Duties. Under the Loan Documents, the Agent (i) is acting solely on behalf of the Lenders (except to the limited extent provided in Section 11.11(e) with respect to the Register), with duties that are entirely administrative in nature, notwithstanding the use of the defined term “Agent”, the terms “agent”, “Agent” and “collateral agent” and similar terms in any

47

Loan Document that to refer to the Agent, which terms are used for title purposes only, (ii) is not assuming any obligation under any Loan Document other than as expressly set forth therein or any role as agent, fiduciary or trustee of or for any Lender or any other Person and (iii) shall have no implied functions, responsibilities, duties, obligations or other liabilities under any Loan Document, and each Lender hereby waives and agrees not to assert any claim against the Agent based on the roles, duties and legal relationships expressly disclaimed in clauses (i) through (iii) above.

10.2 Binding Effect. Each Lender agrees that (i) any action taken by the Agent or the Required Lenders (or, if expressly required hereby, a greater proportion of the Lenders) in accordance with the provisions of the Loan Documents, (ii) any action taken by the Agent in reliance upon the instructions of Required Lenders (or, where so required, such greater proportion) and (iii) the exercise by the Agent or the Required Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Secured Parties.

10.3 Use of Discretion

(a) No Action without Instructions. The Agent shall not be required to exercise any discretion or take, or to omit to take, any action, including with respect to enforcement or collection, except any action it is required to take or omit to take (i) under any Loan Document or (ii) pursuant to instructions from the Required Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders).

(b) Right Not to Follow Certain Instructions. Notwithstanding clause (a) above, the Agent shall not be required to take, or to omit to take, any action (i) unless, upon demand, the Agent receives an indemnification satisfactory to it from the Lenders (or, to the extent applicable and acceptable to the Agent, any other Person) against all Liabilities that, by reason of such action or omission, may be imposed on, incurred by or asserted against the Agent or any Related Person thereof or (ii) that is, in the opinion of the Agent or its counsel, contrary to any Loan Document or applicable Requirement of Law.

10.4 Delegation of Rights and Duties. The Agent may, upon any term or condition it specifies, delegate or exercise any of its rights, powers and remedies under, and delegate or perform any of its duties or any other action with respect to, any Loan Document by or through any trustee, co-agent, employee, attorney-in-fact and any other Person (including any Secured Party). Any such Person shall benefit from this Article 10 to the extent provided by the Agent.

10.5 Reliance and Liability.

(a) The Agent may, without incurring any liability hereunder, (i) treat the payee of any Promissory Note as its holder until such Promissory Note has been assigned in accordance

48

with Section 11.11, (ii) rely on the Register to the extent set forth in Section 11.11(e), (iii) consult with any of its Related Persons and, whether or not selected by it, any other advisors, accountants and other experts (including advisors to, and accountants and experts engaged by, any Credit Party) and (iv) rely and act upon any document and information (including those transmitted by Electronic Transmission) and any telephone message or conversation, in each case believed by it to be genuine and transmitted, signed or otherwise authenticated by the appropriate parties.

(b) None of the Agent and its Related Persons shall be liable for any action taken or omitted to be taken by any of them under or in connection with any Loan Document, and each Lender, Borrower and each other Credit Party hereby waive and shall not assert (and Borrower shall cause each other Credit Party to waive and agree not to assert) any right, claim or cause of action based thereon, except to the extent of liabilities resulting primarily from the gross negligence or willful misconduct of the Agent or, as the case may be, such Related Person (each as determined in a final, non-appealable judgment by a court of competent jurisdiction) in connection with the duties expressly set forth herein. Without limiting the foregoing, the Agent:

(i) shall not be responsible or otherwise incur liability for any action or omission taken in reliance upon the instructions of the Required Lenders or for the actions or omissions of any of its Related Persons selected with reasonable care (other than employees, officers and directors of the Agent, when acting on behalf of the Agent);

(ii) shall not be responsible to any Lender or other Person for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency or value of, or the attachment, perfection or priority of any Lien created or purported to be created under or in connection with, any Loan Document;

(iii) makes no warranty or representation, and shall not be responsible, to any Lender or other Person for any statement, document, information, representation or warranty made or furnished by or on behalf of any Credit Party or any Related Person of any Credit Party in connection with any Loan Document or any transaction contemplated therein or any other document or information with respect to any Credit Party, whether or not transmitted or (except for documents expressly required under any Loan Document to be transmitted to the Lenders) omitted to be transmitted by the Agent, including as to completeness, accuracy, scope or adequacy thereof, or for the scope, nature or results of any due diligence performed by the Agent in connection with the Loan Documents; and

(iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any provision of any Loan Document, whether any condition set forth in any Loan Document is satisfied or waived, as to the financial condition of any Credit Party or as to the existence or continuation or possible occurrence or continuation of any Default or Event of Default and shall not be deemed to have notice or knowledge of such occurrence or continuation unless it has received a notice from Borrower or any Lender describing such Default or Event of Default clearly labeled “notice of default” (in which case the Agent shall promptly give notice of such receipt to all Lenders);

49

and, for each of the items set forth in clauses (i) through (iv) above, each Lender and Borrower hereby waives and agrees not to assert (and Borrower shall cause each other Credit Party to waive and agree not to assert) any right, claim or cause of action it might have against the Agent based thereon.

10.6 Agent Individually. The Agent and its Affiliates may make loans and other extensions of credit to, acquire Equity Interests of, or engage in any kind of business with, any Credit Party or Affiliate thereof as though it were not acting as Agent and may receive separate fees and other payments therefor. To the extent the Agent or any of its Affiliates makes any Loan or otherwise becomes a Lender hereunder, it shall have and may exercise the same rights and powers hereunder and shall be subject to the same obligations and liabilities as any other Lender and the terms “Lender”, “Required Lender”, and any similar terms shall, except where otherwise expressly provided in any Loan Document, include, without limitation, the Agent or such Affiliate, as the case may be, in its individual capacity as Lender or as one of the Required Lenders.

10.7 Lender Credit Decision. Each Lender acknowledges that it shall, independently and without reliance upon the Agent, any Lender or any of their Related Persons or upon any document (including any offering and disclosure materials in connection with the syndication of the Loans) solely or in part because such document was transmitted by the Agent or any of its Related Persons, conduct its own independent investigation of the financial condition and affairs of each Credit Party and make and continue to make its own credit decisions in connection with entering into, and taking or not taking any action under, any Loan Document or with respect to any transaction contemplated in any Loan Document, in each case based on such documents and information as it shall deem appropriate. Except for documents expressly required by any Loan Document to be transmitted by the Agent to the Lenders, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Credit Party or any Affiliate of any Credit Party that may come in to the possession of the Agent or any of its Related Persons.

10.8 Expenses; Indemnities. (a) Each Lender agrees to reimburse the Agent and each of its Related Persons (to the extent not reimbursed by any Credit Party) promptly upon demand, severably and ratably, of any costs and expenses (including fees, charges and disbursements of financial, legal and other advisors) that may be incurred by the Agent or any of its Related Persons in connection with the preparation, syndication, execution, delivery, administration, modification, consent, waiver or enforcement (whether through negotiations, through any work-out, bankruptcy, restructuring or other legal or other proceeding or otherwise) of, or legal advice in respect of its rights or responsibilities under, any Loan Document.

(b) Each Lender further agrees to indemnify the Agent and each of its Related Persons (to the extent not reimbursed by any Credit Party), severably and ratably, from and against Liabilities (including taxes, interests and penalties imposed for not properly withholding or backup withholding on payments made to on or for the account of any Lender) that may be

50

imposed on, incurred by or asserted against the Agent or any of its Related Persons in any matter relating to or arising out of, in connection with or as a result of any Loan Document, any Related Document or any other act, event or transaction related, contemplated in or attendant to any such document, or, in each case, any action taken or omitted to be taken by the Agent or any of its Related Persons under or with respect to any of the foregoing; provided, however, that no Lender shall be liable to the Agent or any of its Related Persons to the extent such liability has resulted primarily from the gross negligence or willful misconduct of the Agent or, as the case may be, such Related Person, as determined by a court of competent jurisdiction in a final non-appealable judgment or order.

10.9 Resignation of Agent.

(a) The Agent may resign at any time by delivering notice of such resignation to the Lenders and Borrower, effective 30 days after the date of the notice. If the Agent delivers any such notice, the Required Lenders shall have the right to appoint a successor Agent. If, within 30 days after the retiring Agent having given notice of resignation, no successor Agent has been appointed by the Required Lenders that has accepted such appointment, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent from among the Lenders. Each appointment under this clause (a) shall be subject to the prior consent of Borrower, which may not be unreasonably withheld but shall not be required during the continuance of an Event of Default.

(b) Effective immediately upon its resignation, (i) the retiring Agent shall be discharged from its duties and obligations under the Loan Documents, (ii) the Lenders shall assume and perform all of the duties of the Agent until a successor Agent shall have accepted a valid appointment hereunder, (iii) the retiring Agent and its Related Persons shall no longer have the benefit of any provision of any Loan Document other than with respect to any actions taken or omitted to be taken while such retiring Agent was, or because such Agent had been, validly acting as Agent under the Loan Documents and (iv) subject to its rights under Section 10.3, the retiring Agent shall take such action as may be reasonably necessary to assign to the successor Agent its rights as Agent under the Loan Documents. Effective immediately upon its acceptance of a valid appointment as Agent, a successor Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the retiring Agent under the Loan Documents.

10.10 Release of Collateral or Guarantors Each Lender hereby consents to the release and hereby directs the Agent to release (or, in the case of clause (b)(ii) below, release or subordinate) the following:

(a) any Subsidiary of a Borrower from its guaranty of any Obligation if all of the Equity Interests of such Subsidiary owned by any Credit Party are sold or transferred in a transaction permitted under the Loan Documents (including pursuant to a waiver or consent), to the extent that, after giving effect to such transaction, such Subsidiary would not be required to guaranty any Obligations pursuant to Section 6.12; and

(b) any Lien held by the Agent for the benefit of the Secured Parties against (i) any Collateral that is sold, transferred, conveyed or otherwise disposed of by a Credit Party in a transaction permitted by the Loan Documents (including pursuant to a valid waiver or consent),

51

to the extent all Liens required to be granted in such Collateral pursuant to Section 6.16 after giving effect to such transaction have been granted, (ii) any property subject to a Lien permitted under clause (h) of the definition of Permitted Encumbrances and (iii) all of the Collateral and all Credit Parties, upon (A) payment and satisfaction in full of all Loans and all other Obligations under the Loan Documents and all interest thereon, that the Agent has been notified in writing are then due and payable and (B) to the extent requested by the Agent, receipt by Agent and the Secured Parties of liability releases from the Credit Parties each in form and substance acceptable to the Agent.

Each Lender hereby directs the Agent, and the Agent hereby agrees, upon receipt of five (5) days advance notice from the Borrower, or such shorter period as may be agreed by the Agent, to execute and deliver or file such documents and to perform other actions reasonably necessary to release the guaranties and Liens when and as directed in this Section 10.10.

11. Miscellaneous

11.1 No Waiver, Amendment, Optional Notice.

(a) No waiver of any Default or Event of Default shall be deemed to be a waiver of any other Default or Event of Default. No failure to exercise or delay in exercising any right or power under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any further or other exercise thereof or the exercise of any other right or power.

(b) No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Credit Party therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Agent with the consent of the Required Lenders), the Borrower and acknowledged by the Agent, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders directly affected thereby (or by the Agent with the consent of all the Lenders directly affected thereby) (in addition to the Required Lenders or the Agent with the consent of the Required Lenders), the Borrower and acknowledged by the Agent, do any of the following:

(i) postpone or delay any date fixed for, or waive, any scheduled installment of principal or any payment of interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document;

(ii) reduce the principal of, or the rate of interest specified herein or the amount of interest payable in cash specified herein on any Loan, or of any fees or other amounts payable hereunder or under any other Loan Document;

(iii) change the percentage of the aggregate unpaid principal amount of the Loans which shall be required for the Lenders or any of them to take any action hereunder;

(iv) amend this Section 11.1 or the definition of Required Lenders or any provision providing for consent or other action by all Lenders; or

52

(v) discharge any Credit Party from its respective payment Obligations under the Loan Documents, or release all or substantially all of the Collateral, except as otherwise may be provided in this Agreement or the other Loan Documents;

it being agreed that all Lenders shall be deemed to be directly affected by an amendment or waiver of the type described in the preceding clauses (iii), (iv) and (v).

(c) No amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Required Lenders or all the Lenders directly affected thereby, as the case may be (or by the Agent with the consent of the Required Lenders or all the Lenders directly affected thereby, as the case may be), affect the rights or duties of the Agent under this Agreement or any other Loan Document.

(d) Notwithstanding anything to the contrary contained in this Section 11.1, the Agent may amend Schedule 1.19 to reflect assignments entered into pursuant to Section 11.11.

(e) No optional notice to or demand on Borrower, or any other Person shall entitle Borrower or such other Person to any other or further notice or demand in similar or other circumstances.

11.2 Notices; Electronic Transmission.

(a) Notices.

(i) Addresses. All notices, demands, requests, directions and other communications required or expressly authorized to be made by this Agreement shall, whether or not specified to be in writing but unless otherwise expressly specified to be given by any other means, be given in writing or by electronic mail (if such electronic transmission includes an attachment that may be posted) and (A) addressed to the address set forth on the applicable signature page hereto, (B) posted to Intralinks^® (to the extent such system is available and set up by or at the direction of the Agent prior to posting) in an appropriate location by uploading such notice, demand, request, direction or other communication to www.intralinks.com, faxing it to 866-545-6600 with an appropriate bar-code fax coversheet or using such other means of posting to Intralinks^® as may be available and reasonably acceptable to the Agent prior to such posting, (C) posted to any other E-System set up by or at the direction of Agent or (D) addressed to such other address as shall be notified in writing (1) in the case of the Borrower and the Agent, to the other parties hereto and (2) in the case of all other parties, to the Borrower and the Agent.

(ii) Effectiveness. All communications described in clause (i) above and all other notices, demands, requests and other communications made in connection with this Agreement shall be effective and be deemed to have been received (A) if delivered by hand, upon personal delivery, (B) if delivered by overnight courier service, 1 Business Day after delivery to such courier service, (C) if delivered by mail, when deposited in the mails, (D) if delivered by facsimile (other than to post to an E-System pursuant to clause (i)(B) or (i)(C) above), upon sender’s receipt of confirmation of proper transmission, and (E) if delivered by posting to any E-System, on the later of the date of such posting and the date access to such posting is given to the recipient thereof in accordance with the standard procedures applicable to such E-System; provided, however, that no communications to Agent pursuant to Article 2 shall be effective until received by Agent.

53

(iii) Each Lender shall notify the Agent in writing of any changes in the address to which notices to such Lender should be directed, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request.

(b) Electronic Transmissions.

(i) Authorization. Subject to the provisions of Section 11.2(a)(i), each of Agent, Lenders, each Credit Party and each of their Related Persons, is authorized (but not required) to transmit, post or otherwise make or communicate, in its sole discretion, Electronic Transmissions in connection with any Loan Document and the transactions contemplated therein. Each Credit Party and each Secured Party hereto acknowledges and agrees that the use of Electronic Transmissions is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each indicates it assumes and accepts such risks by hereby authorizing the transmission of Electronic Transmissions.

(ii) Signatures. Subject to the provisions of Section 11.2(a)(i), (A)(1) no posting to any E-System shall be denied legal effect merely because it is made electronically, (2) eac` E-Signature on any such posting shall be deemed sufficient to satisfy any requirement for a “signature” and (3) each such posting shall be deemed sufficient to satisfy any requirement for a “writing”, in each case including pursuant to any Loan Document, any applicable provision of the Code, the federal Uniform Electronic Transactions Act, the Electronic Signatures in Global and National Commerce Act and any substantive or procedural Requirement of Law governing such subject matter, (B) each such posting that is not readily capable of bearing either a signature or a reproduction of a signature may be signed, and shall be deemed signed, by attaching to, or logically associating with such posting, an E-Signature, upon which Agent, each Secured Party and each Credit Party may rely and assume the authenticity thereof, (C) each such posting containing a signature, a reproduction of a signature or an E-Signature shall, for all intents and purposes, have the same effect and weight as a signed paper original and (D) each party hereto or beneficiary hereto agrees not to contest the validity or enforceability of any posting on any E-System or E-Signature on any such posting under the provisions of any applicable Requirement of Law requiring certain documents to be in writing or signed; provided, however, that nothing herein shall limit such party’s or beneficiary’s right to contest whether any posting to any E-System or E-Signature has been altered after transmission.

(iii) Separate Agreements. All uses of an E-System shall be governed by and subject to, in addition to this Section 11.2, separate terms and conditions posted or referenced in such E-System and related contractual obligations executed by Agent and Credit Parties in connection with the use of such E-System.

(iv) LIMITATION OF LIABILITY. ALL E-SYSTEMS AND ELECTRONIC TRANSMISSIONS SHALL BE PROVIDED “AS IS” AND “AS AVAILABLE”. NONE OF AGENT, ANY LENDER OR ANY OF THEIR RELATED PERSONS WARRANTS THE ACCURACY, ADEQUACY OR COMPLETENESS OF ANY E-SYSTEMS OR ELECTRONIC TRANSMISSION AND DISCLAIMS ALL LIABILITY FOR ERRORS OR OMISSIONS

54

THEREIN. NO WARRANTY OF ANY KIND IS MADE BY AGENT, ANY LENDER OR ANY OF THEIR RELATED PERSONS IN CONNECTION WITH ANY E-SYSTEMS OR ELECTRONIC COMMUNICATION, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS. Each of Borrower, each other Credit Party executing any Loan Document and each Secured Party agrees that Agent has no responsibility for maintaining or providing any equipment, software, services or any testing required in connection with any Electronic Transmission or otherwise required for any E-System.

11.3 Governing Law; Jurisdiction; Waiver.

(a) This Agreement shall be governed by and construed in accordance with the law of the State of New York (without giving effect to the conflict of laws principles thereof, other than Section 5-1401 of the New York General Obligations Law).

(b) Each of the parties hereto hereby expressly, irrevocably and unconditionally: (i) agrees that any legal proceeding against it arising out of or in connection with this Agreement, any other Loan Document (other than any Promissory Note or the Guaranty Trust), or the Term Loans shall be brought in the competent courts of the State of New York or in the United States District Court for the Southern District of New York, both located in New York City, New York (collectively, the “New York Courts”), (ii) expressly submits to the jurisdiction of the New York Courts, (iii) agrees and consents that service of process may be made upon it in any proceeding arising out of this Agreement, any other Loan Document (other than any Promissory Note, the Guaranty Trust or the Pledge Agreement), or the Term Loans by service of process as provided by New York law; (iv) waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of this Agreement, any other Loan Document (other than any Promissory Notes, the Guaranty Trust or the Pledge Agreement), or the Term Loans in the New York Courts; (v) waives, to the fullest extent permitted by law, any claim that any such suit, action or proceeding in any New York Court has been brought in an inconvenient forum; and (vi) to the fullest extent permitted by law, waives the right to object, with respect to such proceedings, that such court does not have jurisdiction over such party.

(c) Borrower (i) irrevocably appoints CT Corporation System, which is presently located at 111 Eighth Avenue, New York, New York 10011, United States, as its agent to receive, on behalf of itself and its properties and revenues, service of process in the United States in connection with any such suit, action or proceeding, and (ii) irrevocably consents to the service of process out of any of the New York Courts in any such suit, action or proceeding by the mailing of copies thereof by courier service, return receipt requested, postage prepaid, to it at its addresses set forth herein.

(d) BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, THE PROMISSORY NOTES, ANY OTHER LOAN DOCUMENT OR THE TERM LOANS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT OR ACTIONS OF THE AGENT, ANY LENDER OR BORROWER RELATING HERETO.

55

(e) Waiver of Immunities. To the extent permitted by applicable law, if Borrower has or hereafter may acquire any immunity (sovereign or otherwise) from any legal action, suit or proceeding, jurisdiction of any court or set-off or any legal process (whether service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) with respect to itself or any of its property, Borrower hereby irrevocably waives and agrees not to plead or claim such immunity in respect of its Obligations under this Agreement, any Promissory Note or any other Loan Document. Borrower agrees that the waivers set forth above shall have the force and effect to the fullest extent permitted under the Foreign Sovereign Immunities Act of 1976 of the United States of America and are intended to be irrevocable for purposes of such Act.

11.4 Survival, Parties Bound; Reinstatement. All representations, warranties, covenants and agreements made by or on behalf of any Credit Party, the Agent or any Lender in connection herewith (other than Section 11.17) shall (a) survive, as of the date each is made, the execution and delivery of the Loan Documents; (b) not be affected by an investigation made by any Person; and (c) bind each of the parties hereto and their respective successors, trustees, receivers and assigns and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement shall terminate upon the full and final payment in cash of all the Obligations. Notwithstanding anything contained in the preceding sentence to the contrary, this Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower for liquidation, concurso mercantil, or reorganization, should Borrower become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver, trustee, liquidator, síndico, conciliador, visitador, custodian or other similar official be appointed for all or any significant part of Borrower’s assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference” (or its equivalent under Mexican law), “fraudulent conveyance” (or its equivalent under Mexican law), or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

11.5 Counterparts. This Agreement may be executed in several identical counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 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.

56

11.6 Language. Each notice, communication or other document delivered under the Loan Documents by any Credit Party on its behalf or on behalf of any of its Subsidiaries, unless submitted in the English language, shall be accompanied by an English translation thereof and the English version shall govern in the event of any conflict with the non-English version thereof; provided that if any such conflict should arise with respect to Mexican governmental authorizations or approvals, or any other Loan Document originally executed in Mexico, in connection with any proceeding in Mexico, then the Spanish language version thereof shall govern.

11.7 Captions. The headings and captions appearing on the Loan Documents have been included solely for convenience of reference and shall not be considered in construing the Loan Documents.

11.8 Expenses. Whether or not the transactions contemplated by this Agreement shall be consummated, Borrower shall bear all reasonable expenses of the Agent and the Lenders (including, without limitation, travel expenses and fees and expenses of attorneys and other professionals) in connection with the (i) negotiation, preparation, execution, filing and recording of the Loan Documents and the making of the Term Loans, (ii) the negotiation, preparation, execution, filing or recording of any amendments to the Loan Documents and (iii) the maintenance of the Guaranty Trust and for other costs and expenses (including, without limitation, fees to the Trustee, travel expenses and audit and appraisal costs) incurred in connection with the valuation of the Collateral including the determination of the NFLV and FMV. Borrower shall further bear all expenses of the Agent and the Lenders (including, without limitation, travel expenses and reasonable fees and expenses of attorneys and other professionals) in connection with the (x) enforcing, refiling, re-recording, modification, supplementing and consents and waivers relating to any of the Loan Documents, and (y) the servicing and collection of the Term Loans and other amounts due under any of the Loan Documents after the occurrence of an Event of Default. The obligations of Borrower under this Section 11.8 shall survive the termination of this Agreement.

11.9 Entire Agreement. This Agreement, the other Loan Documents and the Schedules or Exhibits hereto embody the entire agreement between the parties with respect to the transactions contemplated herein and supersede all prior proposals, agreements and undertakings relating to the subject matter hereof.

11.10 Severability. If any provision of any Loan Document shall be judged invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions thereof shall not be affected or impaired thereby.

57

11.11 Assignment; Participations.

(a) Borrower shall not, without the prior written consent of the Lenders, be entitled to assign any Loan Document or any of its rights or Obligations thereunder to any other Person and any purported assignment thereof shall be deemed null and void and of no force or effect.

(b) Each Lender may at any time sell, transfer, negotiate or assign (a “Sale”) to one or more Registered Entities or a Mexican Person (but excluding any entity which is a direct competitor of Borrower, Cone Denim LLC or their respective Affiliates) or a Mexican bank or Mexican financial institution (each an “Assignee”) all, or any ratable part of all, of such Lender’s Term Loans, Promissory Note and the other rights and Obligations of such Lender hereunder; provided, however, that the aggregate outstanding principal amount (determined as of the effective date of the applicable Assignment) of the Term Loans subject to any such Sale shall be in a minimum amount of $1,000,000, unless such Sale is of the assignor’s (together with its Affiliates) entire interest in the Term Loans or is made with the prior consent of the Borrower and the Agent. The parties to each such Sale shall execute and deliver to the Agent (which shall keep a copy thereof) an Assignment and payment by the Assignee of an assignment fee in the amount of $3,500 (unless waived by Agent in its sole discretion). Upon receipt of all the foregoing, from and after the effective date specified in such Assignment, the Agent shall record or cause to be recorded in the Register the information contained in such Assignment. Effective upon the entry of such record in the Register, (i) such Assignee shall become a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to such Assignee pursuant to such Assignment, shall have the rights and obligations of a Lender and (ii) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment, relinquish its rights (except for those surviving the payment in full of the Obligations) and be released from its obligations under the Loan Documents, other than those relating to events or circumstances occurring prior to such assignment (and, in the case of an Assignment covering all or the remaining portion of an assigning Lender’s rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto). Within five (5) Business Days after its receipt of notice from the Agent that a Lender has assigned all or part of its interest in the Term Loans, Borrower shall execute and deliver to the assigning Lender or the Assignee, as applicable, a new Promissory Note evidencing the Assignee’s assigned portion of the Term Loans and (i) if the assigning Lender has retained a portion of the Term Loans, a replacement Promissory Note, in the principal amount of the portion of the Term Loans retained by the assigning Lender (such Promissory Note to be in exchange for, but not in payment of, the Promissory Note held by the assigning Lender), or (ii) if the assigning Lender assigns its entire interest in the Term Loans, such Lender shall deliver the original Promissory Note evidencing such Term Loans to Borrower.

(c) In addition to the other rights provided in this Section 11.11 each Lender may grant a security interest in, or otherwise assign as collateral, any of its rights under this Agreement, whether now owned or hereafter acquired (including rights to payments of principal or interest on the Term Loans), to (A) any federal reserve bank (pursuant to Regulation A of the Federal Reserve Board), without notice to the Agent or (B) any holder of, or trustee for the benefit of the holders of, such Lender’s Indebtedness or equity securities, by notice to the Agent; provided, however, that no such holder or trustee, whether because of such grant or assignment

58

or any foreclosure thereon (unless such foreclosure is made through an assignment in accordance with clause (b) above), shall be entitled to any rights of such Lender hereunder and no such Lender shall be relieved of any of its obligations hereunder.

(d) Each Lender may at any time sell to any Person (other than a natural person or any Affiliate of Borrower) (a “Participant”) participating interests in such Lender’s Term Loans, and the other interests of such Lender hereunder and under the other Loan Documents. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 2.12, 2.14, 11.12, 11.13 and 11.14 as though it also were a Lender hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as if it were a Lender under this Agreement.

(e) The Agent, acting as agent of the Borrower solely for tax purposes and solely with respect to the actions described in this Section 11.11(e), shall establish and maintain at its address referred to in Section 11.2 (or at such other address as the Agent may notify the Borrower) (A) a record of ownership (the “Register”) in which the Agent agrees to register by book entry the interests (including any rights to receive payment hereunder) of the Agent and each Lender in the Term Loans and any assignment of any such interest and (B) accounts in the Register in accordance with its usual practice in which it shall record (1) the names and addresses of the Lenders (and each change thereto pursuant to Section 11.11), (2) the amount of each Loan, (3) the LIBOR Period applicable to each Loan, (4) the amount of any principal or interest due and payable or paid, and (5) any other payment received by the Agent from Borrower and its application to the Obligations.

11.12 Indemnification. Whether or not the transactions contemplated hereby are consummated, Borrower shall indemnify, defend and hold the Agent, each Lender and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an “Indemnified Person”) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including, without limitation, reasonable attorney fees) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Term Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein (including, without limitation, the other Loan Documents), or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any insolvency proceeding or appellate proceeding) related to or arising out of this Agreement, the other Loan Documents or the Term Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the “Indemnified Liabilities”); provided, that Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements and obligations under this Section 11.12 shall survive the payment of all other Obligations.

59

11.13 Indemnity Regarding Use of Real Property. Without limiting the generality of Section 11.12, Borrower shall indemnify and hold each Indemnified Person (including, for purposes of this Section, the Trustee) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including, without limitation, reasonable attorney fees) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Term Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of or resulting from the ownership, operation, or use of any real property (including the Collateral) of Borrower or any of its Subsidiaries, whether such claims are based on theories of derivative liability, comparative negligence or otherwise. The agreements in this Section 11.13 shall survive payment of all other Obligations.

11.14 Indemnity Regarding Hazardous Substances. Without limiting the generality of Sections 11.12 and 11.13, Borrower shall indemnify and hold each Indemnified Person (including, for purposes of this Section, the Trustee) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including, without limitation, reasonable attorney fees) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Term Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of or resulting from any of the following:

(a) Any Hazardous Substance being present at any time, in or around any part of any real property (including the Collateral) of Borrower or its Subsidiaries, or in the soil, groundwater or soil vapor on or under such property, including those incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work, or any resulting damages or injuries to the person or property of any third parties or to any natural resources.

(b) Any use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a Hazardous Substance on any property currently or formerly owned, operated or utilized by Borrower, Borrower’s Subsidiaries or their respective shareholders. This indemnity will apply whether the Hazardous Substance is on, under or about any of Borrower’s or its Subsidiaries’ property or operations or property leased to Borrower or such Subsidiary, whether or not such property has been taken by the Agent as collateral.

11.15 Judgment Currency. The obligation of Borrower hereunder to make payments in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than Dollars except to the extent to which such tender or recovery shall result in the effective receipt by the Agent and the Lenders of the full amount of

60

Dollars expressed to be payable hereunder, and Borrower agrees as an obligation independent of any Obligation hereunder, to indemnify the Agent and the Lenders (as an alternative or additional cause of action) for the amount (if any) by which such effective receipt shall be less than the full amount of Dollars expressed to be payable hereunder and such obligation to indemnify shall not be affected by judgment being obtained for any other sums due hereunder.

11.16 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

11.17 Confidentiality. The Agent and the Lenders agree to keep confidential any information furnished or made available to any of them by any Credit Party pursuant to this Agreement; provided that nothing herein shall prevent the Agent or any Lender from disclosing such information (a) to any of its Affiliates, or any officer, director, employee, agent, or advisor of the Agent or such Lender or any of its Affiliates whom it determines has a reasonable need to be furnished such information and who agrees to be bound by the terms of this Section 11.17, (b) to any other Person who agrees to be bound by the terms of this Section 11.17 if such disclosure is reasonably incidental to the administration of the Term Loans, (c) as required by any law, rule, or regulation, (d) upon a request or requirement (orally or in writing, by interrogatory, court order, subpoena, administrative proceeding, civil investigatory demand, or any similar legal process) of any court or administrative agency, governmental authority or civil litigant (the Agent or such Lender, however, shall to the extent permitted by law and as promptly as practicable, notify the applicable Credit Party prior to such disclosure so that such Credit Party may seek at such Credit Party’s sole expense a protective order or other appropriate remedy), (e) upon the request or demand of any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to the Agent or such Lender other than as a result of a disclosure by the Agent or such Lender prohibited by this Agreement, (g) to the extent necessary in connection with the exercise of any remedy under this Agreement or any of the Loan Documents, and (h) subject to provisions substantially similar to those contained in this Section, to any actual or proposed assignee.

11.18 Set-off; Sharing of Payments.

(a) Right of Setoff. Subject to the Intercreditor Agreement, each of the Agent, each Lender and each Affiliate (including each branch office thereof) of any of them is hereby authorized, without notice or demand (each of which is hereby waived by each Credit Party), at any time and from time to time during the continuance of any Event of Default and to the fullest extent permitted by applicable Requirements of Law, to set off and apply any and all deposits (whether general or special, time or demand, provisional or final) at any time held and other Indebtedness, claims or other obligations at any time owing by the Agent, such Lender or any of their respective Affiliates to or for the credit or the account of Borrower or any other Credit Party

61

against any Obligation of Borrower or any other Credit Party now or hereafter existing, whether or not any demand was made under any Loan Document with respect to such Obligation and even though such Obligation may be unmatured. Each of the Agent and each Lender agrees promptly to notify Borrower and the Agent after any such setoff and application made by such Lender or its Affiliates; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights under this Section 11.18 are in addition to any other rights and remedies (including other rights of setoff) that the Agent, the Lenders, their Affiliates and the other Secured Parties, may have.

(b) Sharing of Payments, Etc. If any Lender, directly or through an Affiliate or branch office thereof, obtains any payment of any Obligation of any Credit Party (whether voluntary, involuntary or through the exercise of any right of setoff or the receipt of any Collateral or “proceeds” (as defined under the Code) of Collateral) and such payment exceeds the amount such Lender would have been entitled to receive if all payments had gone to, and been distributed by, the Agent in accordance with the provisions of the Loan Documents, such Lender shall purchase for cash from other Lenders such participations in their Obligations as necessary for such Lender to share such excess payment with such Lenders to ensure such payment is applied as though it had been received by the Agent and applied in accordance with this Agreement (or, if such application would then be at the discretion of Borrower, applied to repay the Obligations in accordance herewith); provided, however, that (a) if such payment is rescinded or otherwise recovered from such Lender in whole or in part, such purchase shall be rescinded and the purchase price therefor shall be returned to such Lender without interest and (b) such Lender shall, to the fullest extent permitted by applicable Requirements of Law, be able to exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the applicable Credit Party in the amount of such participation.

11.19 No Third Parties Benefited

This Agreement is made and entered into for the sole protection and legal benefit of Borrower, the Lenders, the Agent and, subject to the provisions of Section 10.11 hereof, each other Secured Party, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. Neither the Agent nor any Lender shall have any obligation to any Person not a party to this Agreement or the other Loan Documents.

11.20 Lender-Creditor Relationship

The relationship between Agent and each Lender, on the one hand, and the Credit Parties, on the other hand, is solely that of lender and creditor. No Secured Party has any fiduciary relationship or duty to any Credit Party arising out of or in connection with, and there is no agency, tenancy or joint venture relationship between the Secured Parties and the Credit Parties by virtue of, any Loan Document or any transaction contemplated therein.

[Signature pages to follow.]

62

IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto have executed this Agreement as of the day and year first above written.

BURLINGTON MORELOS, S.A. DE C.V. as Borrower
By:	/s/ Karyl P. McClusky
Name:	Karyl P. McClusky
Title:	Vice President, Treasurer

By:	/s/ Neil W. Koonce
Name:	Neil W. Koonce
Title:	Vice President

Address for Notices:

Km. 2.5 Carretera Yecapixtla - Agua Hedionda

Yecapixtla, Morelos. 62820

Mexico

Attn: General Manager

Tel: 011-52-842-426-0010

Fax: 011-52-842-426-0030

and

General Counsel

ITG

804 Green Valley Road, Suite 300

Greensboro, NC 27408

Tel: 336-379-6220

Fax: 336-379-6043

63

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and a Lender
By:	/s/ Donald Cavanagh
Name:	Donald Cavanagh
Title:	Duly Authorized Signatory

Address for Notices:

General Electric Capital Corporation

201 Merritt 7

P.O. Box 5201

Norwalk, Connecticut 06851

Attn: International Textiles Account Officer

Tel:(203) 956-4202

Fax:(203) 956-4238

64

UBS AG, STAMFORD BRANCH, as a Lender
By:	/s/ Richard L. Tavrow
Name:	Richard L. Tavrow
Title:	Director Banking Products Services, US

By:	/s/ Irja R. Otsu
Name:	Irja R. Otsu
Title:	Associate Director Banking Products Services, US

Address for Notices:

UBS AG, Stamford Branch

677 Washington Boulevard

Stamford, Connecticut 06901

Attn.:

Tel:

Fax:

65

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Todd Plasker
Name:	Todd Plasker
Title:	Director

Address for Notices:

Wachovia Bank, National Association

110 E. Broward Blvd., Suite 2050

Ft. Lauderdale, FL 33301

Attn.: Josephine Norris

Tel: (954) 467-2262

Fax: (954) 467-5520

66

BANK OF AMERICA, N.A, as a Lender
By:	/s/ Sherry Lail
Name:	Sherry Lail
Title:	Senior Vice President

Address for Notices:

Bank of America, N.A.

300 Galleria Parkway

Atlanta, GA 30339

Attn.: John Yankauskas

Tel: (770) 857-2925

Fax: (770) 857-2947

67

EX-10.23

Exhibit 10.23

EXECUTION COPY

STOCK EXCHANGE AGREEMENT

THIS STOCK EXCHANGE AGREEMENT (this “Agreement”) is made and entered into as of March 8, 2007 by and between WLR Recovery Fund III, L.P., a Delaware limited partnership (“Fund III”), the individuals listed as “Other Stockholders” on the signature page hereto (the “Other Stockholders”), and International Textile Group, Inc., a Delaware corporation (“ITG”).

RECITALS

A. Fund III and the Other Stockholders (collectively, the “BST US Holders”) are the record holders of all of the issued and outstanding shares of the common stock of BST US Holdings, Inc., a Delaware corporation (“BST US”);

B. BST US, through its direct and indirect Subsidiaries (as defined herein), develops and manufactures fabrics for automotive airbags as well as seatbelts and other textile products (the “Safety Textiles Business”);

C. ITG believes that it is in its best interests, and therefore desires, to acquire the Safety Textiles Business from the BST US Holders;

D. Each of the BST US Holders desires to exchange (the “Exchange”) all of the outstanding stock of BST US (the “BST Shares”) held by each of them for shares of Series A Convertible Preferred Stock of ITG (the “Preferred Stock”);

E. A special committee of the board of directors of ITG (the “Special Committee”) has approved and recommended to the board of directors of ITG that it approve, and such board of directors has so approved, the terms and conditions of the Exchange and of this Agreement; and

F. The BST US Holders and ITG are entering into this Agreement to set forth the terms and conditions applicable to the Exchange.

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged by the parties hereto, the parties hereby agree as follows:

ARTICLE I

THE EXCHANGE

1.1 Reservation of Preferred Stock. ITG shall, prior to the Closing (as defined below), take all such actions to ensure that a sufficient number of shares of Series A Convertible Preferred Stock, having the rights, restrictions, privileges and preferences as set forth in the Certificate of Designation of Series A Convertible Preferred Stock of ITG, a copy of which is attached hereto as Exhibit A, are duly reserved for issuance to the BST US Holders at the Closing.

1.2 Exchange of Shares. (a) Upon the terms and subject to the conditions set forth herein, at the Closing ITG shall acquire, and each of the BST US Holders shall sell and transfer to ITG, all of the BST Shares owned of record by each respective BST US Holder, and in exchange therefor ITG shall issue to each of the BST US Holders 60 shares of Preferred Stock for each BST Share (the “Exchange Ratio”) held by such BST US Holder as of the date of Closing. Upon the completion of the Exchange, BST US will be a wholly owned subsidiary of ITG.

(b) At the Closing, (i) each of the BST US Holders shall deliver to ITG the certificates representing all of the issued and outstanding BST Shares owned by such BST US Holder, duly and properly endorsed for transfer to ITG, and accompanied by a written instrument or instruments of transfer, in form and content satisfactory to ITG, duly executed by each of the BST US Holders; and (ii) ITG shall deliver to each of the BST US Holders certificates representing such number of shares of Preferred Stock as is calculated by multiplying the number of BST Shares held by each such BST US Holder by the Exchange Ratio. The number of shares of Preferred Stock to be issued to each BST US Holder is set forth on Exhibit B hereto opposite the name of such BST US Holder.

1.3 Closing. Subject to the satisfaction or waiver of all covenants or conditions precedent set forth in Articles I and V hereof, the Exchange shall be completed (the “Closing”) at the offices of Jones Day, 1420 Peachtree Street, Suite 800, Atlanta, Georgia 30309, at 10:00 a.m., local time, on April 2, 2007, or at such other place and on such other date and time as the parties may agree.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF ITG

ITG hereby represents and warrants to the BST US Holders that:

2.1 Corporate Status. ITG is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate or other power and authority to carry on its business as now being conducted.

2.2 Capitalization. The authorized capital stock of ITG consists of 250,000,000 shares, consisting of 150,000,000 shares of common stock, par value $0.01 per share (the “Common Stock”), and 100,000,000 shares of preferred stock, of which 12,000,000 shares are designated as Series A Convertible Preferred Stock. As of the date of this Agreement, 17,481,596 shares of Common Stock are issued and outstanding and 4,719,695 shares of Preferred Stock are issued and outstanding.

2.3 Power and Authority; Binding Agreement. ITG has the requisite corporate power and authority to execute and deliver, and when the Certificate of Designation has been adopted and filed with the Secretary of State of the State of Delaware, to perform its obligations under, this Agreement, and ITG has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the consummation of the Exchange. This Agreement has been duly executed and delivered by ITG and, assuming the due authorization, execution and delivery by each of the other parties hereto, constitutes the valid and binding agreement of ITG enforceable against ITG in accordance with its terms.

2

2.4 Non-Contravention. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement, and compliance with the provisions hereof, will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under the Certificate of Incorporation or By-laws of ITG. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation of any lien or encumbrance upon any of the properties or assets of ITG or any of its subsidiaries under, (i) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, obligation, instrument, permit, concession, franchise, license or similar authorization applicable to ITG or any of its subsidiaries or their respective properties or assets or (ii) subject to the governmental filings and other matters referred to in Section 2.5 below, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to ITG or any of its subsidiaries or their respective properties or assets, other than any such conflicts, violations, defaults, rights, losses, liens or encumbrances that, individually or in the aggregate, are not reasonably likely to have a material adverse effect on (x) the business condition of ITG and its subsidiaries taken as a whole or (y) the ability of ITG to perform its obligations under this Agreement.

2.5 Consents and Governmental Approvals. No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with, any federal, state, local or foreign government, any court, administrative, regulatory or other governmental agency, commission, body or authority or any non-governmental self-regulatory agency, commission, body or authority (each a “Governmental Entity”) is required by ITG in connection with the execution and delivery of this Agreement by ITG or the consummation by ITG of the Exchange or the other transactions contemplated by this Agreement, except for (i) the filing of a premerger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and any applicable filings and approvals under similar foreign antitrust or competition laws and regulations, (ii) the filing of the Certificate of Designation with the Secretary of State of the State of Delaware, and (iii) such other consents, approvals, orders or authorizations the failure of which to be made or obtained, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect on ITG.

2.6 Valid Issuance. When issued pursuant to this Agreement in connection with the Exchange, the Preferred Shares will be duly authorized, validly issued, fully paid and nonassessable, and each of the BST US Holders will receive good title to such shares, free and clear of any liens, claims, security interest or encumbrances.

3

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE BST US HOLDERS

The BST US Holders represent and warrant to ITG as follows:

3.1 Status, Power and Authority. Fund III represents and warrants that (a) it is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business as now being conducted, (b) it has taken all action necessary to authorize the execution, delivery and performance of this Agreement, and (c) it has the power and authority to execute and deliver, and to perform its obligations under, this Agreement. Each Other Stockholder respectively represents and warrants that (i) he has the full right, power and capacity to execute and deliver, and to perform his obligations under, this Agreement, (ii) he has read the provisions of this Agreement, has reviewed such provisions with counsel to the extent he deemed appropriate, understands each of such provisions and voluntarily agrees to be bound hereby, and (iii) if such other stockholder is married, he has, to the extent required by applicable law, obtained all requisite consents of his spouse to the provisions of this Agreement and the transactions contemplated hereby.

3.2 Binding Agreement. Each BST US Holder represents and warrants that this Agreement has been duly executed and delivered by such BST US Holder and constitutes a valid and binding agreement of such BST US Holder, enforceable against such BST US Holder in accordance with its terms.

3.3 Non-Contravention with Respect to BST US Holders. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement, and compliance with the provisions hereof, will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation any lien or encumbrance upon any of the properties or assets of such BST US Holder under (i) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, obligation, instrument, permit, concession, franchise, license or similar authorization applicable to such BST US Holder or its respective properties or assets, other than such conflicts, violations, defaults, rights, losses, liens or encumbrances that, individually or in the aggregate, are not reasonably likely to have a material adverse effect on (x) the BST Shares or the business condition of BST US and its Subsidiaries taken as a whole or (y) the ability of such BST US Holder to perform its obligations under this Agreement.

3.4 Non-Contravention with Respect to BST US. Except as set forth on Schedule 3.4, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement, and compliance with the provisions hereof, will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, the Certificate of Incorporation or By-laws of BST US. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a

4

right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation of any lien or encumbrance upon any of the properties or assets of BST US or any of its Subsidiaries under, (i) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, obligation, instrument, permit, concession, franchise, license or similar authorization applicable to BST US or any of its Subsidiaries or their respective properties or assets or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to BST US or any of its Subsidiaries or their respective properties or assets, other than any such conflicts, violations, defaults, rights, losses, liens or encumbrances that, individually or in the aggregate, are not reasonably likely to have a material adverse effect on (x) the operations or financial or business condition of BST US and its Subsidiaries taken as a whole or (y) the ability of BST US to perform its obligations under this Agreement.

3.5 Consents and Governmental Approvals. No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with, any Governmental Entity is required by any BST US Holder in connection with the execution and delivery of this Agreement by such BST US Holder or the consummation of the Exchange or the other transactions contemplated by this Agreement, except for (i) the filing of a premerger notification and report form by Fund III under the HSR Act and any applicable filings and approvals under similar foreign antitrust or competition laws and regulations and (ii) such other consents, approvals, orders or authorizations, the failure of which to be made or obtained, individually or in the aggregate, is not reasonably likely to have a material adverse effect on (x) the business condition of BST US and its Subsidiaries taken as a whole or (y) the ability of such BST US Holder for perform its obligations under this Agreement.

3.6 Capitalization of BST US. The authorized capital stock of BST US consists of 500,000 shares, consisting of 400,000 shares of common stock, par value $0.01 per share, and 100,000 shares of preferred stock. As of the date hereof, 55,927 shares of BST US common stock are issued and outstanding, all of which shares are validly issued, fully paid and non-assessable, and are held of record by the BST US Holders in the amounts set forth on Exhibit B attached hereto. There are no shares of preferred stock issued or outstanding. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require BST US to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to BST US. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of BST US.

3.7 Title to BST Shares. As of the date hereof, and immediately prior to the Exchange, each BST US Holder has, or will have, good and valid title to the BST Shares owned by such BST US Holder, free and clear of all claims, liens, security interests, title defects and objections or any other encumbrances of any kind or nature whatsoever; and upon the Exchange ITG will receive good and valid title to such BST Shares, free and clear of any claims, liens, security interests, title defects and objections or any other encumbrances of any kind or nature whatsoever.

3.8 Ownership of Safety Textiles Business. As of the date hereof, BST US, through its Subsidiaries, owns substantially all of the assets that comprise the Safety Textiles

5

Business and that were acquired by BST US on December 8, 2006, pursuant to that certain Share Purchase Agreement dated September 1, 2006, as amended by that certain Amendment Agreement dated December 7, 2006, by and among BST Safety Textiles Acquisition GmbH, BST Safety Textiles Luxembourg S.à.r.l., WLR Recovery Fund III, L.P., and the other signatories thereto, except such assets (i) as have been disposed of in the ordinary course of business and (ii) where the failure to own such assets would not have a material adverse effect on the operations or financial or business condition of the Safety Textiles Business.

3.9 Absence of Certain Changes or Events. Since December 8, 2006, the Safety Textiles Business has been conducted, and its books, records and accounts have been maintained, in the ordinary course of business and, since such date, there has not been:

(a) any merger, business combination or acquisition or sale of assets, in each case relating to the Safety Textiles Business, outside of the ordinary course of business, except as set forth on Schedule 3.9(a);

(b) any distributions or dividends declared or paid to the stockholders of BST US;

(c) any transactions between BST US and any of its affiliates other than as part of the transactions contemplated hereby or as set forth on Schedule 3.9(c);

(d) any failure by BST US: (i) to make and keep books, records, and accounts which accurately and fairly reflect the assets of BST US or (ii) to devise and maintain a system of internal controls sufficient to provide reasonable assurances that: (A) transactions are executed in accordance with BST US management’s general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with applicable generally accepted accounting principles and to maintain accountability for its assets, and (C) access to assets is permitted only in accordance with management’s general or specific authorization;

(e) any issuance or sale of any debt securities or warrants or other rights to acquire any debt security of BST US or any of its Subsidiaries (other than to or by another Subsidiary of BST US), or the incurrence by BST US of any other indebtedness subsequent to its acquisition of the Safety Textiles Business;

(f) any Material Adverse Change in the business, assets or financial condition of BST US, taken as a whole; or

(g) any authorization or agreement by BST US to do any of the foregoing.

For purposes of this Agreement, “Material Adverse Change” means any change, effect, event, occurrence or state of facts that is materially adverse to the business, operations, condition (financial or otherwise), assets or liabilities of such party, or that could reasonably be expected to result in a material adverse effect on the ability of the BST US Holders to consummate the transaction contemplated by this Agreement, other than any change, effect, event, occurrence or state of facts (x) relating to the economy in general which does not have a disproportionate impact on such party or (y) relating to the industries in which such party operates in general and not specifically relating to such party.

6

3.10 Material Liabilities. As of the date hereof, to the knowledge of the BST US Holders there are no material liabilities, obligations or loss contingencies of any nature (whether absolute, accrued, contingent or otherwise) that (a) are not provided for in the Balance Sheet included in the December 2006 Monthly Report for the Safety Textile Business and (b) could reasonably be expected to result in a Material Adverse Change.

3.11 Subsidiaries. Schedule 3.11 sets forth for each direct and indirect subsidiary (collectively the “Subsidiaries” and each individually a “Subsidiary”) of BST US: (a) its name and jurisdiction of incorporation or organization, (b) the number of shares or membership interests or similar ownership interests of each class of capital stock or similar ownership interest outstanding, (c) the number of shares or membership interests or similar ownership interests of each class of capital stock or similar ownership interest and the number of such interests held by each holder, and (d) the number of shares or membership interests or similar ownership interests of each class of capital stock or similar ownership interest held in treasury. All of the issued and outstanding shares or membership interests or similar ownership interests of each class of capital stock or similar ownership interest of each Subsidiary have been duly authorized, are validly issued, fully paid and nonassessable, and are held of record by the holders in the amounts set forth on Schedule 3.11. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require any Subsidiary to issue, sell, or otherwise cause to become outstanding any of its shares or membership interests or similar ownership interests of each class of capital stock or similar ownership interest. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of any Subsidiary.

3.12 Due Diligence Reports. To the knowledge of Fund III, the due diligence reports, memoranda, assessments, appraisals, and related materials (collectively, the “Due Diligence Reports”) made available by Fund III to ITG are the only material written reports prepared at the direction or on behalf of Fund III or any of its affiliates in connection with its purchase of the Safety Textiles Business, and such reports have not been amended, supplemented, or modified, as of the date thereof, except for those amendments and supplements as have been provided or disclosed to ITG. To the knowledge of Fund III, no fact has come to the attention of Fund III that has caused Fund III to believe that any of the Due Diligence Reports contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances and the context, and subject to the conditions specified therein, in which they were made, not misleading.

3.13 Aggregate Purchase Price. The original purchase price paid by each of the BST US Holders for the BST Shares owned by such holder is set forth on Exhibit B.

7

ARTICLE IV

SECURITIES LAW MATTERS

4.1 Investment Representations and Warranties. Each BST US Holder represents and warrants to ITG as follows:

(a) Such BST US Holder is acquiring the shares of Preferred Stock pursuant to this Agreement for its own account, for investment and not with a view to the distribution thereof (within the meaning of the Securities Act of 1933, as amended (the “Securities Act”)) in violation of the Securities Act.

(b) Such BST US Holder understands that (i) the shares of Preferred Stock have not been registered under the Securities Act or any state securities laws and have been issued by ITG in a transaction exempt from the registration requirements thereof and will be “restricted securities” as defined in Rule 144 under the Securities Act, and (ii) shares of Preferred Stock may not be sold unless such disposition is registered under the Securities Act and applicable state securities laws or is exempt from registration thereunder.

(c) Such BST US Holder further understands that the exemption from registration afforded by Rule 144, as promulgated under the Securities Act, upon a transfer of any shares of Preferred Stock or (the provisions of which are known to the Investor) depends on the satisfaction of various conditions, and that, if applicable, Rule 144 may afford the basis for sales only in limited amounts.

(d) Such BST US Holder has had and continues to have the opportunity (i) to propose questions to and to receive information from the responsible parties at ITG and (ii) to obtain any additional information concerning ITG and its business that such BST US Holder deems relevant to make an informed decision as the investment made hereby.

(e) Such BST US Holder is an “accredited investor” (as defined in Rule 501(a) promulgated pursuant to the Securities Act), has such knowledge and experience in financial and business matters to be capable of evaluating an investment in the Preferred Stock, and has the ability to bear the economic risks of such an investment.

4.2 Restrictive Legend. Each BST US Holder acknowledges that any certificates representing the shares of Preferred Stock (or any part thereof) will bear the following legend, together with any and all other legends as may be required pursuant to applicable law:

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under any applicable state law and may not be transferred, sold or otherwise disposed of unless registered under such act and applicable state laws or unless an exemption from the registration requirements under such act or applicable state law requirements is available.”

8

Such legend may be removed and ITG may issue a certificate representing such securities without such legend to the holder thereof if (i) such securities are hereafter registered under the Securities Act of 1933, or (ii) if such securities are sold pursuant to Rule 144 under the Securities Act of 1933, or (iii) if such securities are eligible for transfer under Rule 144(k) under the Securities Act of 1933, and, in the case of (ii) or (iii), when such BST US Holder has furnished to ITG evidence to such effect that ITG finds reasonably satisfactory which may include, without limitation, an opinion of counsel reasonably acceptable to issuer (as to form and substance and counsel).

ARTICLE V

CONDITIONS

5.1 Conditions to Closing of ITG. The obligations of ITG to issue the shares of Preferred Stock to the BST US Holders at the Closing is subject to the fulfillment to its satisfaction, on or prior to the date of Closing, of the following conditions:

(a) The representations and warranties of the BST US Holders set forth in Article III hereof shall be true and correct in all material respects as of the Closing and the BST US Holders shall have complied with or performed in all material respects all of the agreements, covenants and obligations hereunder required to be performed by them as of such date, including the delivery of the BST shares as contemplated by Section 1.2(b) hereof; and ITG shall have received at the Closing a certificate from the BST US Holders to that effect, dated as of the date of Closing;

(b) All consents, approvals, orders or authorizations or filings of or with any Governmental Entity, or any other consents or approvals, that are required in connection with the transactions contemplated by this Agreement shall have been duly obtained and shall be effective on and as of the Closing;

(c) Each BST Holder, if not already a party thereto, shall have become a party to that certain Stockholders Agreement, dated as of March 2, 2007, by and among ITG, Fund III, WLR Recovery Fund II, L.P. and the investors from time to time party thereto; and

(d) The BST US Holders shall have delivered to ITG such other documents, certificates or other information, including with respect to the Safety Textiles Business, as ITG or its counsel may reasonably request.

5.2 Conditions to Closing of the BST US Holders. The obligations of the BST US Holders to transfer the BST shares to ITG at the Closing is subject to the fulfillment to their satisfaction, on or prior to the date of Closing, of the following conditions:

(a) The representations and warranties of ITG set forth in Article II hereof shall be true and correct in all material respects as of the Closing and ITG shall have complied with or performed in all material respects all of the agreements, covenants and obligations hereunder required to be performed by it as of such date, including the reservation of the Preferred Stock as contemplated by Section 1.1 hereof and the delivery of shares of Preferred Stock as contemplated by Section 1.2(b) hereof, and the BST US Holders shall have received at the Closing a certificate from ITG to that effect, dated as of the date of Closing;

9

(b) The requirements set forth in the Term and Revolving Facilities Agreement to which BST US is a party shall have been fulfilled and satisfied;

(c) All consents, approvals, orders or authorizations or filings of or with any Governmental Entity, or any other consents or approvals, that are required in connection with the transactions contemplated by this Agreement shall have been obtained and shall be effective on and as of the Closing;

(d) A copy of the Certificate of Designation, as filed with, and certified as of a recent date by, the Secretary of State of the State of Delaware, shall have been delivered to the BST US Holders; and

(e) ITG shall have delivered to the BST US Holders such other documents, certificates or other information as the BST US Holders or their counsel may reasonably request.

ARTICLE VI

MISCELLANEOUS

6.1 Authorization. No action taken or purported to have been taken on behalf of ITG after the date hereof with respect to any Specified Matter shall be valid or effective unless such action has been approved by the Special Committee. For purposes of this Agreement, the following shall be deemed to be a “Specified Matter”: (i) any amendment or termination of, and any exercise or enforcement of any right (or refraining from enforcing any such right) under, this Agreement by ITG, (ii) an extension of time for performance granted by ITG, (iii) any waiver of any right, condition or obligation by ITG under this Agreement, (iv) any action or failure to act that would reasonably be expected to result in a breach by ITG, or (v) any exercise by ITG of ITG’s consent rights under this Agreement.

6.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective must be in writing and, unless otherwise expressly provided herein, are deemed to have been duly given or made when delivered by hand or by courier, or by certified mail, or, when transmitted by facsimile and a confirmation of transmission printed by sender’s facsimile machine. A copy of any notice given by facsimile also must be mailed, postage prepaid, to the addressee. Notices to the respective parties hereto must be addressed as follows:

If to the BST US Holders:	WL Ross & Co. LLC 600 Lexington Avenue, 19th Floor New York, New York 10022 Attention:     David L. Wax Telephone:   (212) 826-2111 Telecopier:   (212) 317-4891
	With a copy to:
	Jones Day 1420 Peachtree Street, Suite 800 Atlanta, Georgia 30309 Attention:     Mark L. Hanson, Esq. Telephone:   (404) 521-3939 Telecopier:   (404) 581-8330

10

If to ITG:	International Textile Group, Inc. 804 Green Valley Road, Suite 300 Greensboro, North Carolina 27408 Attention:     Joseph L. Gorga Telephone:   (336) 379-2200 Telecopier:   (336) 379-2221
	With a copy to:
	Kilpatrick Stockton LLP Suite 2500 1100 Peachtree Street Atlanta, Georgia 30309 Attention:     David Stockton, Esq. Telephone:   (404) 815-6500 Telecopier:   (404) 541-3402
If to the Special Committee:	Special Committee of the Board of Directors of International Textile Group, Inc. c/o David Stockton, Esq. Kilpatrick Stockton LLP Suite 2800 1100 Peachtree Street Atlanta, Georgia 30309 Telephone:   (404) 815-6500 Telecopier:   (404) 541-3402

Any party may alter the address to which communications or copies are to be sent by giving notice of the change of address under this Section.

6.3 Amendments. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto.

6.4 Entire Agreement. This Agreement and the other agreements and documents contemplated herein constitute the entire agreement between the parties hereto as to the subject matter herein and supersede any prior agreement or understanding between the parties, whether oral or written, with respect to the matters contemplated hereby.

11

6.5 Headings. The headings in this Agreement are for purposes of reference only and are not to be considered in construing this Agreement.

6.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered constitutes an original and all together shall constitute one Agreement.

6.7 Enforceability. If any term or provision of this Agreement, or the application thereof to any person or circumstance, is, to any extent, invalid or unenforceable, the remaining terms and provisions of this Agreement or application to other Persons and circumstances are not invalidated thereby, and each term and provision hereof is to be construed with all other remaining terms and provisions hereof to effect the intent of the parties hereto to the fullest extent permitted by law.

6.8 Governing Law. This Agreement is to be construed and enforced in accordance with and shall be governed by the laws of the State of New York applicable to contracts executed in and to be fully performed in that state.

[Signatures on next page]

12

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

WLR RECOVERY FUND III, L.P.
By:	WLR RECOVERY ASSOCIATES III LLC,
its General Partner
/s/ David L. Wax
Name:
Title:
“OTHER STOCKHOLDERS”
/s/ Georg Saint-Denis
Georg Saint-Denis
/s/ Frank Goehring
Frank Goehring
INTERNATIONAL TEXTILE GROUP, INC.
/s/ Neil Koonce
Name:
Title:

EX-10.25

Exhibit 10.25

DEBT EXCHANGE AGREEMENT

THIS DEBT EXCHANGE AGREEMENT (this “Agreement”) is made and entered into as of March 2, 2007 by and among International Textile Group, Inc. (the “Issuer”), a Delaware corporation and successor-by-merger of ITG Holdings, Inc. (f/k/a International Textile Group, Inc.) (“Old ITG”), and WLR Recovery Fund II, L.P. (the “Investor”).

RECITALS

A. The Investor has heretofore made certain loans to Old ITG pursuant to those promissory notes, made by Old ITG in favor of the Investor, set forth on Exhibit A hereto (collectively, the “Notes”);

B. Effective on December 31, 2006, Old ITG merged with and into its sole stockholder, the Issuer, which in accordance with the terms and conditions of such merger resulted in the Issuer becoming the successor obligor under the Notes;

C. The Issuer desires to cause the Notes to be repaid, and the obligations of the Issuer represented thereby to be cancelled, by exchanging shares of Series A Convertible Preferred Stock (the “Preferred Stock”) of the Issuer for the Notes, as set forth herein;

D. The Investor desires to acquire shares of the Preferred Stock in exchange for the satisfaction and cancellation of the Notes; and

E. The Issuer and the Investor are entering into this Agreement to set forth the terms and conditions applicable to the exchange of the Notes for shares of Preferred Stock;

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged by the parties hereto, the parties hereby agree as follows:

Article 1

EXCHANGE OF STOCK AND DEBT SECURITIES

1.1 Exchange.

(a) The Investor hereby agrees, subject to the terms and conditions set forth herein, to exchange the aggregate principal amount of the Notes, together with all interest thereon accrued up to but not including the effective date of such exchange, for shares of the Preferred Stock (the “Exchange Shares”) at an exchange price of $25.00 per share (the “Debt Exchange”).

(b) Subject to the terms and conditions of this Agreement, the consummation of the Debt Exchange shall take place at a closing (the “Closing”) to be held at 10:00 a.m., local time, on March 2, 2007, at the offices of Jones Day, 1420 Peachtree Street, Suite 800, Atlanta, Georgia 30309, or at such other time, date or place as the parties hereto may mutually agree upon. At the Closing, the Investor shall deliver the Notes for cancellation and the Issuer shall deliver to the Investor certificates representing the Exchange Shares.

(c) The Exchange Shares will be issued in full satisfaction and payment of the Notes, and from and after the consummation of the Debt Exchange the Notes shall represent solely the right to receive the Exchange Shares. In the event that as a result of the Debt Exchange, fractional shares of Preferred Stock would be required to be issued, such fractional shares shall be rounded up or down to the nearest whole share. The Issuer shall pay any documentary, stamp or similar issue or transfer tax due with respect to the Debt Exchange.

1.2 Legend. Any certificate or certificates representing the Preferred Shares (or any part thereof) will bear the following legend, together with any and all other legends as may be required pursuant to applicable law (and the Issuer may issue appropriate corresponding stop transfer instructions to any transfer agent for any of such securities):

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under any applicable state law and may not be transferred, sold or otherwise disposed of unless registered under such act and applicable state laws or unless an exemption from the registration requirements under such act or applicable state law requirements is available.”

Such legend and the stop transfer instructions shall be removed and the Issuer shall issue a certificate representing such securities without such legend to the holder thereof if (i) such securities are registered under the Securities Act of 1933, or (ii) if such securities are sold pursuant to Rule 144 under the Securities Act of 1933, or (iii) if such securities are eligible for transfer under Rule 144(k) under the Securities Act of 1933, and, in the case of (ii) or (iii), when the Investor has furnished to the Issuer evidence to such effect that Issuer finds reasonably satisfactory which may include, without limitation, an opinion of counsel reasonably acceptable to issuer (as to form and substance and counsel).

Article 2

REPRESENTATIONS AND WARRANTIES OF THE ISSUER

The Issuer hereby represents and warrants to the Investor that:

2.1 Corporate Status. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate or other power and authority to carry on its business as now being conducted.

2.2 Capitalization. The authorized capital stock of the Issuer consists (or will consist upon the filing with the Secretary of State of the State of Delaware and effectiveness of the Certificate of Designation creating the Preferred Stock) of 250,000,000 shares, consisting of 150,000,000 shares of common stock, par value $0.01 per share (the “Common Stock”), and 100,000,000 shares of preferred stock, of which 12,000,000 shares are designated as Series A Convertible Preferred Stock. As of the date of this Agreement, 17,481,596 shares of Common Stock are issued and outstanding and no shares of preferred stock are issued or outstanding.

2

2.3 Power and Authority; Binding Agreement. The Issuer has the requisite corporate power and authority to execute and deliver, and when the Certificate of Designation has been adopted and filed with the Secretary of State of the State of Delaware, to perform its obligations under, this Agreement, and the Issuer has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the consummation of the Debt Exchange. This Agreement has been duly executed and delivered by the Issuer and, assuming the due authorization, execution and delivery by each of the other parties hereto, constitutes the valid and binding agreement of the Issuer enforceable against the Issuer in accordance with its terms.

2.4 Non-Contravention. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement, and compliance with the provisions hereof, will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under the Certificate of Incorporation or By-laws of the Issuer. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation of any lien or encumbrance upon any of the properties or assets of the Issuer or any of its subsidiaries under, (i) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, obligation, instrument, permit, concession, franchise, license or similar authorization applicable to the Issuer or any of its subsidiaries or their respective properties or assets or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Issuer or any of its subsidiaries or their respective properties or assets, other than any such conflicts, violations, defaults, rights, losses, liens or encumbrances that, individually or in the aggregate, are not reasonably likely to have a material adverse effect on (x) the business condition of the Issuer and its subsidiaries taken as a whole or (y) the ability of the Issuer to perform its obligations under this Agreement.

2.5 Consents and Governmental Approvals. No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with, any federal, state, local or foreign government, any court, administrative, regulatory or other governmental agency, commission, body or authority or any non-governmental self-regulatory agency, commission, body or authority (each a “Governmental Entity”) is required by the Issuer in connection with the execution and delivery of this Agreement by the Issuer or the consummation by the Issuer of the Debt Exchange or the other transactions contemplated by this Agreement, except for the filing of the Certificate of Designation with the Secretary of State of the State of Delaware, and such other consents, approvals, orders or authorizations the failure of which to be made or obtained, individually or in the aggregate, is not reasonably likely to have a material adverse effect on the Issuer.

2.6 Valid Issuance. When issued pursuant to this Agreement in connection with the Debt Exchange, the Exchange Shares will be duly authorized, validly issued, fully paid and nonassessable, and the Investor will receive good title to such shares, free and clear of any liens, claims, security interest or encumbrances.

3

Article 3

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

The Investor represents and warrants to the Issuer that:

3.1 Authority. The Investor has all requisite power and authority to execute and deliver, and perform its obligations under, this Agreement. All acts required to be taken by the Investor to enter into this Agreement and consummate the transactions contemplated hereby have been properly taken.

3.2 Title to the Notes. The Investor is the record and beneficial holder of the Notes, and holds the Notes free and clear of all claims, liens, security interests, title defects and objections or any other encumbrances of any kind or nature whatsoever.

3.3 Investment Intent. Investor is acquiring the Exchange Shares being delivered to Investor under this Agreement for its own account and with no present intention of distributing or selling any of them in violation of the Securities Act of 1933 or any applicable state securities law. Investor will not sell or otherwise dispose of any of such Exchange Shares unless such sale or other disposition has been registered or is exempt from registration under the Securities Act of 1933 and has been registered or qualified or is exempt from registration or qualification under applicable state securities laws. Investor understands that the Exchange Shares it is acquiring under this Agreement have not been registered under the Securities Act of 1933 by reason of their contemplated issuance in transactions exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 and that the reliance of the Issuer on this exemption is predicated in part on these representations and warranties of Investor. Investor acknowledges and agrees that a restrictive legend consistent with the foregoing has been or will be placed on the certificates for the Exchange Shares and related stop transfer instructions will be noted in the transfer records of the Issuer and/or its transfer agent for the Exchange Shares, and that such Investor will not be permitted to sell, transfer or assign any of the Exchange Shares acquired hereunder until such Exchange Shares are registered or an exemption from the registration and prospectus delivery requirements of the Securities Act of 1933 is available.

3.4 Investor Status. Investor (i) is either (x) a “Qualified Institutional Buyer” as such term is defined in Rule 144A under the Securities Act of 1933 or (y) an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933; (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investments to be made by it hereunder; (iii) has the ability to bear the economic risks of its investments for an indefinite period of time; and (iv) has sole investment discretion with respect to the Debt Exchange; and (v) has been given an opportunity to obtain such information from the Issuer as Investor deems necessary or appropriate with respect to the Debt Exchange.

4

Article 4

CONDITIONS

4.1 Issuer’s Conditions. The obligations of the Issuer to consummate the transactions contemplated by this Agreement shall be subject to fulfillment of the following conditions on or prior to the date of Closing:

(a) The representations and warranties of the Investor set forth in Article 3 shall be true and correct on and as of the date of Closing.

(b) All proceedings, corporate or otherwise, required to be taken by the Investor on or prior to the date of Closing in connection with this Agreement, and the Debt Exchange contemplated hereby, shall have been duly and validly taken, and all necessary consents, approvals or authorizations required to be obtained by the Investor on or prior to the Closing shall have been obtained.

(c) The Investor shall have delivered the Notes to the Issuer for cancellation.

(d) The Investor shall have delivered to the Issuer such other documents, certificates or other information as the Issuer or its counsel may reasonably request.

4.2 Investor’s Conditions. The obligations of the Investor to consummate the transaction contemplated by this Agreement shall be subject to fulfillment of the following conditions on or prior to the date of Closing:

(a) The representations and warranties of the Issuer set forth in Article 2 shall be true and correct on and as of the date of Closing.

(b) All proceedings, corporate or otherwise required to be taken by the Issuer on or prior to the date of Closing in connection with this Agreement, and the Debt Exchange contemplated hereby, shall have been duly and validly taken, and all necessary consents, approvals or authorizations required to be obtained by the Issuer on or prior to the Closing shall have been obtained.

(c) A copy of the Certificate of Designation, as filed with, and certified as of a recent date by, the Secretary of State of the State of Delaware, shall have been delivered to the Investor.

(d) The Issuer shall have issued and delivered, or cause to be issued and delivered, to the Investor, stock certificates, registered in the name of the Investor, representing duly authorized, validly issued, fully paid and non-assessable Exchange Shares.

(e) The Issuer shall have delivered to the Investor such other documents, certificates or other information as the Investor or its counsel may reasonably request.

5

Article 5

MISCELLANEOUS

5.1 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective must be in writing and, unless otherwise expressly provided herein, are deemed to have been duly given or made when delivered by hand or by courier, or by certified mail, or, when transmitted by facsimile and a confirmation of transmission printed by sender’s facsimile machine. A copy of any notice given by facsimile also must be mailed, postage prepaid, to the addressee. Notices to the respective parties hereto must be addressed as follows:

If to the Investor:	c/o WL Ross & Co. LLC 600 Lexington Avenue, 19th Floor New York, New York 10022
	Attention:     David L. Wax
	Telephone:   (212) 826-2111
	Telecopier:   (212) 317-4891
	With a copy to:
	Jones Day 1420 Peachtree Street, Suite 800 Atlanta, Georgia 30309
	Attention:     Mark L. Hanson, Esq.
	Telephone:   (404) 521-3939
	Telecopier:   (404) 581-8330
If to the Issuer:	International Textile Group, Inc. 804 Green Valley Road, Suite 300 Greensboro, North Carolina 27408
	Attention:     Joseph L. Gorga
	Telephone:   (336) 379-2200
	Telecopier:   (336) 379-2221
	With a copy to:
	Kilpatrick Stockton LLP Suite 2500 1100 Peachtree Street Atlanta, Georgia 30309
	Attention:     David Stockton, Esq.
	Telephone:   (404) 815-6500
	Telecopier:   (404) 541-3402

6

If to the Special	Special Committee of the Board of Directors
Committee	of International Textile Group, Inc.
	c/o David Stockton, Esq.
	Kilpatrick Stockton LLP
	Suite 2800
	1100 Peachtree Street
	Atlanta, Georgia 30309
	Telephone: (404) 815-6500
	Telecopier: (404) 541-3402

Any party may alter the address to which communications or copies are to be sent by giving notice of the change of address under this Section.

5.2 Headings. The headings in this Agreement are for purposes of reference only and are not to be considered in construing this Agreement.

5.3 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered constitutes an original and all together shall constitute one Agreement.

5.4 Enforceability. If any term or provision of this Agreement, or the application thereof to any person or circumstance, is, to any extent, invalid or unenforceable, the remaining terms and provisions of this Agreement or application to other Persons and circumstances are not invalidated thereby, and each term and provision hereof is to be construed with all other remaining terms and provisions hereof to effect the intent of the parties hereto to the fullest extent permitted by law.

5.5 Law Governing. This Agreement is to be construed and enforced in accordance with and shall be governed by the laws of the State of New York applicable to contracts executed in and to be fully performed in that state.

5.6 Confidentiality. Until the Issuer makes a press release or other public announcement about the Exchange, the Investor will maintain the confidentiality of the Debt Exchange and the terms of the Debt Exchange.

[Signatures on following page]

7

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

INTERNATIONAL TEXTILE GROUP, INC.
/s/ Gary L. Smith
Name: Gary L. Smith
Title: EVP and CEO
WLR RECOVERY FUND II, L.P.
By:	WLR RECOVERY ASSOCIATES II, LLC,
	its General Partner
	By:	/s/ David L. Wax
	Name:	David L. Wax
	Title:	Principal Member

EX-14.1

Exhibit 14.1

Standards of

Business Conduct

INDEX

President’s Letter	1
Employee’s Duty	3
Conflict of Interest Policy	4
Ethics Policy	6
Securities Trading Compliance	9
Antitrust Laws	11

2

January 23, 2007

Dear Fellow Employees

We at ITG Corporation believe, and take pride, in being a responsive and responsible producer of quality fabric and fabric-based product solutions and services throughout the world. In working to achieve our mission, we constantly adjust our business initiatives to match consumer demand and add value for our customers and investors. While flexibility in our response to changing markets, customers and economic conditions is important, adhering to the highest standards of integrity in the way we conduct our business is equally important. By issuing the enclosed Standards of Business Conduct, I am pleased to reaffirm, in written form, our company’s commitment to the highest standards of ethics and integrity in business.

Integrity in dealing with others is a guiding principle of ITG. We must comply completely with all applicable laws and regulations in every country where we operate. Beyond legal and regulatory compliance, our dealings with others inside and outside the company must be based on mutual respect, open communication and cooperation. Such behavior preserves the trust and respect of our fellow employees, customers, suppliers, investors and our neighbors in the communities where we live and work.

The Standards of Business Conduct manual explains the company’s policies related to the integrity of our business activities regarding conflict of interest, ethics and compliance with antitrust laws.

These standards have three purposes:

1. To make sure that each employee knows the basic legal and ethical standards that govern the job;

2. To communicate to each employee the clear directive of the company’s Board of Directors and management that employees in every case must adhere to the law and must conduct themselves ethically; and

3. To insure that employees realize that part of their jobs is to make sure that the company remains in compliance with all applicable laws and standards of ethical conduct.

All newly hired employees will receive a copy of this manual, and an updated copy will be maintained on the Company’s Intranet.

3

It is very important that you carefully read, understand and comply with these policies in all respects. Please remember that no policy statement can answer all potential questions. If you are unsure what the law or the company’s policy is, it is your right and responsibility to get advice from your supervisor, plant manager or the company’s Internal Audit or Law Departments.

These policies continue the company’s tradition of regulatory compliance and reflect our focus on ethics and integrity. The policies will be fully effective only if each employee recognizes and accepts the responsibility to comply with them.

Sincerely,

/s/ Joseph L. Gorga

Joseph L. Gorga

President and Chief Executive Officer

4

EMPLOYEE’S DUTY

All ITG employees are required to follow the Standards of Business Conduct set forth in this manual. The importance of securing every employee’s cooperation cannot be overstated, and any failure to follow these policies may result in discipline. Likewise, any failure to report a violation, even if the violation is committed by some other employee, may result in discipline because failure to report is also a violation of company policy. Each ITG employee must report any violation of these policies and procedures to his/her manager or human resources manager immediately. Any person who reports a violation of these policies or procedures by another employee will not be subject to punishment or retribution for reporting the violation.

The Company’s Open Door and Grievance policies provide avenues for employees to ask questions, express concerns, or report complaints related to the issues of integrity as well as company rules and policies, job related questions or issues related to harassment or discrimination. In addition to these options, the Company has also established the Integrity Line, an outside company resource for reporting concerns related to business ethics, an option for employees who prefer not to speak directly with management or wish to remain anonymous. Additional information on the Open Door Policy, Grievance Policy and the Integrity Line can be found on the Company’s Intranet, InTouch OnLine.

How to Report Violations

If an employee knows of a violation of a policy or compliance procedure or if there is a question about how to handle a particular situation, the employee should advise his/her manager immediately or report it to:

1) Their supervisor

2) Their plant manager or the equivalent manager

3) Their human resources manager

4) The Audit Department or

5) The Law Department.

If you are hesitant or reluctant to report a violation to your supervisor because, for example, the supervisor is personally involved, you may report to someone else listed above. You will not be punished or retaliated against for making the report if you have not committed a violation.

5

CONFLICT OF INTEREST POLICY

Principle

The primary principle underlying the company’s Conflict of Interest Policy is that an employee must never permit his personal interest to conflict, or appear to conflict, with the best interests of the company or its customers.

Policy

Each ITG employee must avoid situations where personal interests conflict, or even appear to conflict, with the best interests of ITG. A conflict of interest exists when employees use their positions or responsibilities with ITG to advance interests other than the company’s such as private business or financial affairs or those of a friend or relative. It is impossible to list every situation where such conflict could occur, but the following guidelines may help you determine whether or not your actions violate the Conflict of Interest Policy.

Guidelines for Compliance

Outside Relationships/Trading with the Company

Employees should not have any business, financial, family or other relationships with any of ITG suppliers, customers or competitors that could create conflicting loyalties and possibly impair the independence of any judgment rendered on behalf of the company.

Example: Your spouse owns an office supply store, and your job includes the authority to purchase office supplies. If you purchase office supplies for the company from your spouse’s store even though comparable quality and service were available elsewhere at a more favorable price to ITG, you would be in violation of the Conflict of Interest Policy. Even if you purchase supplies at your spouse’s store on terms favorable to the company, the situation should be reported to your supervisor because of the perceived or potential conflict of interest. An independent review by the Internal Audit Department is necessary to protect both you and the company.

Gifts or Gratuities

To prevent a potential or perceived conflict of interest, ITG prohibits its employees from giving or accepting, directly or indirectly, gifts of more than nominal value to or from customers, suppliers, public or political party officials or other persons in similar positions. Prohibited gifts or gratuities include, but are not limited to, free services, loans, discounts, money, vacation trips or items of value to you personally. Permissible, however, are loans from financial institutions with which ITG does business provided that they are offered on the same terms as they are offered to the general public; inexpensive articles used for sales promotions (a ball point pen or golf balls, for example); and infrequent business lunches, dinners or entertainment customary in a normal business relationship.

6

Misuse of Confidential Information

ITG employees deal on a daily basis with confidential information about the company. This information includes business plans, manufacturing processes and technology, marketing and pricing information, customer lists and plans for new businesses and ventures. ITG business could be damaged if this information were disclosed to competitors or to anyone else outside the company.

Each ITG employee should assume that all information about ITG and its business is confidential. Each ITG employee is required, during and after employment, to hold all such information in confidence, not to disclose such information to any person outside the company without the company’s prior consent and to use such information for no purpose other than the performance of duties to the company. If, however, ITG has disclosed the information in its press releases or the employee can otherwise verify that the information is publicly known through other means of proper disclosure, the information does not need to be treated confidentially.

ITG also respects the rights of its competitors to maintain the confidentiality of their proprietary information. No ITG employee should use improper means to obtain confidential information from any competitor. Under no circumstances should any ITG employee make any payment to, or any arrangement with, an employee or representative of a competitor in order to obtain information, plans or other secret or confidential information from that competitor.

Relatives within the Company

A conflict of interest may exist if your job involves, directly or indirectly, supervising a relative or someone who lives with you. If you process payments, such as payroll checks or employee benefits payments, for a relative or someone who lives with you, a conflict of interest may also exist. If situations such as these exist, you should tell your supervisor. The mere fact that a relative or someone who lives with you also works for ITG, however, does not mean that a conflict of interest exists.

Reporting of Conflict of Interest

It is important to remember that even when a conflict exists, it will not necessarily result in corrective action. Some conflicts are acceptable, but each conflict must be independently investigated to determine that the company’s interests are best served.

Any employee who feels that he may have, or knows of, a conflict situation (actual, potential or perceived) should report all pertinent details in writing to his/her manager. The manager will be responsible for referring the matter to the Internal Audit Department for review and further investigation if necessary. If there appears to be a detrimental conflict, it will be reported to the Vice President of Human Resources, the appropriate Division Vice President and the General Counsel. These three individuals constitute a Business Conduct Committee, which will then determine the proper action to take.

All statements and other information reported to the company will be kept confidential.

7

Administration of the Conflict of Interest Policy

The Conflict of Interest Policy is administered as set forth herein with oversight by the Audit Committee of the Board of Directors of ITG. At least once a year, the Internal Audit Department and the Law Department will submit a report to the Audit Committee concerning any significant events related to the policy.

ETHICS POLICY

Principle

The primary principle underlying the company’s Ethics Policy is that each director, officer, employee and consultant must deal with others, inside and outside the company, in a fair and honest manner. Our stakeholders have the right to expect our behavior to be in full compliance with all applicable laws and regulations and to be based on candor and honesty.

Policy

Every employee shall, at all times and in all ways, comply with the letter, spirit and intent of federal, state and local laws, and foreign laws where applicable, and the highest standards of ethics, morality, honesty and decency in the performance of the job.

To ensure that every employee adheres to the Ethics Policy, ITG has adopted specific guidelines. The guidelines, however, cannot cover every conceivable situation an employee may face. You should talk to your manager or human resources manager if you are unsure about certain conduct.

Guidelines for Compliance

Illegal and Unethical Acts

The ITG Ethics Policy forbids the following unethical or illegal acts by employees:

1. Employee theft, fraud, embezzlement, misappropriation or any form of wrongful conversion of property belonging to the company or to another employee. Company property or resources are not to be used for personal benefit or any other improper use. This applies whether or not the action is a criminal act subject to criminal prosecution.

2. Any act of fraud or deception involving the company, a customer, a supplier, the government or any other party. This prohibition covers not only direct disbursement of company funds but also indirect payments made through any consultant, supplier, advisor or other third party.

Example: Kickbacks of money, property or other favor.

Example: Billing a customer at an inflated price or for merchandise not received.

3. Any act of bribery, including a promise, offer, gift or payment of money or anything of value made or offered by an employee, to:

a) A government official or someone acting for the government. This includes foreign governments and foreign officials.

8

b) A person employed by, or acting on behalf of, a customer, supplier or other organization with which the company does business or wants to do business.

4. Any political contribution of money, services or other property of the company that is in violation of the law where the contribution is made.

a) United States Contribution Except as permitted by law and only when approved by the President and Chief Executive Officer, the company’s financial and other resources and facilities shall not be used for the purpose of supporting, directly or indirectly, the campaign of any candidate for federal, state or local office or any political party. This prohibition covers not only direct contributions but also indirect support for candidates or political parties, such as the purchase of tickets for special dinners or other fund raising events, the loan of employees to political parties or committees or the furnishing of transportation or other services.

b) Foreign Contribution We abide by the U.S. Foreign Corrupt Practices Act (FCPA). The Company’s financial and other resources and facilities shall not be used for the purpose of supporting, directly or indirectly, the campaign of any candidate or political party in any foreign jurisdiction in which such use is prohibited by law. In some foreign countries, corporate political contributions are lawful. If an employee thinks that conditions justify a lawful corporate political contribution in such a country, he should provide the details of each proposed contribution to the General Counsel who will then present the matter for decision by the President and Chief Executive Officer. No one else in the company is authorized to make or approve a contribution of this type.

c) Personal Contribution The above prohibitions relate only to the use of the company’s funds and are not intended to discourage an employee from making personal contributions to candidates or political parties of his choice. Employees will not, however, be reimbursed by the company in any way for such personal contributions.

Accounting Practices

ITG employees may not knowingly create, maintain or submit records, reports or statements that are inaccurate, false or misleading. No false or deliberately incorrect entries shall be made in the company’s books and records for any reason. Each ITG employee must be sure that any statement or representation made on behalf of the company is truthful and accurate. It is always preferable to be honest and admit ignorance when that is the case rather than to speculate. Similarly, it is important to check facts and be certain they are accurate rather than write letters or reports based on guesses or assumptions. Our investors, creditors, government agencies and other decision makers rely on our records and have a right to information that is complete, accurate and reliable.

9

Safety and Health Issues

The safety and health of ITG employees is of primary importance in the operation of the company. Each employee must comply with all of ITG health and safety standards and policies, laws and regulations at all times.

In order to ensure compliance with all company and government safety and health rules, ITG requires that all plant managers, line managers and supervisory personnel periodically inspect the workplace according to the procedures established by the Corporate Safety and Health Practice Manual.

Each employee is also responsible for ensuring the safety of the workplace. ITG employees must report any condition that renders the work site dangerous to management or to the plant safety coordinator. No employee who makes such a report can be subject to any discipline or retaliation for his or her action.

Environmental Protection Issues

ITG operates its businesses in a manner that protects the environment. The company recognizes environmental protection as a sound business practice that conserves resources, reduces potential liabilities and safeguards employees and the community. Environmental protection and pollution prevention are the responsibility of every ITG employee.

ITG works constantly to:

1. Comply with all environmental laws and regulations.

2. Reduce risks associated with the use of hazardous materials.

3. Reduce hazardous waste generation through a source reduction and waste minimization program in accordance with governmental agency and company guidelines.

4. Conserve energy in operations and design efficient and safe manufacturing processes.

5. Increase environmental awareness and knowledge of requirements among all levels of employees.

6. Adopt, as appropriate, improvements in environmental and safety and health protection technology.

Every ITG employee must:

1. Comply with all company and governmental environmental rules and laws.

2. Report immediately all spills, releases and other incidents involving hazardous materials to a manager or to the plant safety coordinator.

Reporting of Ethics Violations

Any situation which you believe involves a violation of the Ethics Policy must be reported to your manager or human resources manager. Failure to promptly report is a violation of company policy. Your manager will promptly report the situation to the Internal Audit Department. The Internal Audit Department will review the information and investigate it further if necessary. If there appears to have been a violation, it will be reported to the Vice President of Human Resources, the appropriate Division Vice President and the General Counsel. These three

10

individuals constitute a Business Conduct Committee which will then determine the proper action to take and will maintain appropriate records.

All statements and other information reported to the company will be kept confidential where permissible.

Administration of the Ethics Policy

The Ethics Policy is administered as set forth herein with oversight by the Audit Committee of the Board of Directors of ITG. At least once a year, the Internal Audit Department and the Law Department will submit a report to the Audit Committee concerning any significant events related to the policy.

SECURITIES TRADING COMPLIANCE

Insider Information

The purchase or sale of securities while possessing material nonpublic (“insider”) information or the selective disclosure of such information to others who may trade is prohibited by federal and state laws. An employee may obtain insider information about the company or about the company’s business as an essential part of his work. Material information is any information that a reasonable investor would likely consider important in a decision to buy, hold or sell company stock. In short, it is any information which could reasonably affect the price of the company’s stock.

Nonpublic information is any information that has not been disclosed generally to the marketplace. All information that you learn about the company or its business plans in connection with your employment is potentially insider information until publicly disclosed or made available by the company. You should treat all such information as confidential and proprietary to the company. You may not disclose it to others, such as family, business or social acquaintances, anyone who does not need to know it for legitimate business reasons. If this nonpublic information is also material, you are required by law and company policy to refrain from trading in the company’s stock and from passing the information on to others who may trade. Federal and state law penalties apply whether or not the person passing on material nonpublic information derives any benefit from someone else’s actions in response to the information.

Common examples of information that will frequently be regarded as material, assuming it has not been publicly disclosed by the company, are unannounced profits or losses or projections of future earnings or losses; financial problems or major marketing changes; news of a pending or proposed joint venture, merger, acquisition or tender offer; news of a significant sale of assets or the disposition of a subsidiary; changes in dividend policies or the declaration of a stock split or the offering of additional securities; changes in management; significant new products or discoveries; significant litigation or governmental investigations; or the gain or loss of a substantial customer or supplier.

11

Insider Trading Policy

No director, officer or employee who has material nonpublic information relating to the company may buy or sell stock or other securities of the company, directly or indirectly, or engage in any other action to take personal advantage of that information or to pass it on to others. This policy also applies to insider information relating to any other company, including customers or suppliers, obtained in the course of employment. Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure) are not an exception and must be avoided.

The company, as well as a director, officer or other employee, is subject to liability under federal securities laws if insider trading knowingly occurred. Consequently, individual trading while in possession of material insider information is strictly prohibited. The penalties imposed under the securities laws can be significant, and any employee who violates such laws and this policy will be dismissed.

If a director, officer or employee has or believes he or she has material nonpublic information, it should not be disclosed to anyone outside the company without clearance from the General Counsel or the Corporate Secretary. If material nonpublic information is inadvertently disclosed to anyone outside of the company, no matter what the circumstances, by any company director, officer or employee, the person making or discovering that disclosure should immediately report the facts to the General Counsel or the Corporate Secretary.

Timing of Trading by Insiders

Employees who have insider information must take special precautions when trading in company stock. The most appropriate time to buy or sell company stock is the period beginning forty-eight hours following the release of quarterly or annual financial results and ending on the thirtieth day after such release (“window period”). The Securities and Exchange Commission has identified this period as the time when there should be the least amount of inside information about the company that is unavailable to the investing public. It is permissible to trade at other times when there are no undisclosed developments pending; however, company securities should not be bought or sold even during window periods by any person in possession of material nonpublic information. It is important to wait until forty-eight hours after the public announcement of material information to afford the investing public ample time to receive and act on such information.

Company Assistance

Any person who has any questions about specific transactions may obtain guidance from the General Counsel or the Corporate Secretary. The ultimate responsibility for adhering to this policy and avoiding improper transactions, however, rests with the employee.

Pre-Clearance of Trades by Directors, Officers and Employees

To provide assistance in preventing inadvertent violations and avoid the appearance of an improper transaction (which could result, for example, where an officer engages in a trade while unaware of a pending major development), the following procedure must be obeyed by directors, officers and any other employee who possesses material nonpublic information. All transactions in securities of the company (acquisitions, dispositions, transfers, etc.) by any member of the above mentioned groups must be pre-cleared by the General Counsel or the Corporate Secretary.

12

If you contemplate a transaction, you should contact the General Counsel or the Corporate Secretary in advance. This requirement does not apply to stock option exercises, however it does cover market sales of option stock.

ANTITRUST LAWS

Principle

The principle of antitrust laws is to keep business competitive. Fair competition is fundamental to the free enterprise system.

The antitrust laws are federal and state laws designed to preserve free and open competition in the marketplace. They require that businesses engage in vigorous competition, and they prohibit activity among competitors that unreasonably lessens business rivalry. Antitrust laws might be more appropriately called “competition laws” or “maintenance of competition laws” as they are in some other countries. Legal advice should be obtained whenever an employee has any doubt concerning the lawfulness of any contemplated course of action or proposed transaction. Few employees can be experts on antitrust laws, but the company expects and insists that each employee learn the:

1. Actions which are specifically required or prohibited by antitrust laws, and

2. Areas where antitrust law problems can arise in order to seek advice, as appropriate, from the Law Department.

This policy is intended to help you understand the principles of competition, which you and your fellow employees must follow when conducting company business.

Policy

Each employee should compete vigorously and fairly for business while operating in compliance with all applicable antitrust laws. Employees who deal with foreign countries must also comply with the competition laws of those countries.

Guidelines for Compliance

Existing Antitrust Laws

1. The Sherman Act prohibits agreements, contracts, combinations of businesses and conspiracies designed to restrain free trade. It also prohibits business monopolies. The Sherman Act is a criminal statute. Violation of the Sherman Act is a felony under federal law. A person convicted of a Sherman Act violation can be sentenced to up to three years in prison and can be subject to substantial fines.

2. The Clayton Act prohibits a company from selling its products to a purchaser on the condition that the purchaser agrees not to buy goods from another supplier. It also prohibits mergers and other acquisitions that substantially and adversely affect competition.

3. The Robinson-Patman Act prohibits a seller from selling the same product to different customers at different prices if one customer receives a competitive advantage from the different price.

13

4. The Federal Trade Commission Act prohibits unfair competition and unfair or deceptive trade practices.

5. Other countries also have antitrust laws, and their antitrust laws must be observed in all countries where ITG does business.

Antitrust Compliance Procedures

Severe civil and criminal penalties can, and frequently do, result from antitrust violations. Often the result is jail sentences and personal fines for the responsible individuals and a major fine for the corporation. Each ITG employee should compete vigorously, aggressively and fairly without any anticompetitive understandings or agreements with competitors. Participation in agreements or understandings which violate the antitrust laws is contrary to company policy. The following are examples of activities that violate the United States antitrust laws: agreements or understandings between two or more competitors to:

1) Fix prices, discounts or terms of sale,

2) Divide markets, customers or territories or

3) Refuse to deal with, or boycott, third parties.

Each of these activities can lead to criminal prosecution and conviction of the individuals involved as well as their employers. Their mention is not intended to minimize the importance of other less obvious activities which may also violate the antitrust laws such as improper discussions with competitors concerning prices, wages, costs, profits, terms of sale, credit arrangements, market share, production volume, sales territories, products and services to be offered, bidding strategy, customer allocation and methods of distribution.

These prohibitions are not intended to diminish the company’s efforts to secure from the marketplace, through legal and ethical means, the best information available concerning prices, plans and operations of our competitors.

Your Division Vice Presidents and the Law Department share the company’s commitment to compliance with the antitrust laws. Please consult them if you have any questions or concerns and any time you need assistance in understanding or complying with this policy.

Responsibility and Authority

This policy applies to all employees of ITG and its subsidiaries. This includes business transactions with third parties outside of the United States if they affect the company’s business dealings in the United States. This policy has special application to employees who have management, marketing, sales, pricing, bidding or purchasing responsibilities.

14

EX-21.1

Exhibit 21.1

SUBSIDIARIES

Set forth below is a list of subsidiaries of the Company at December 31, 2006. All listed subsidiaries are 100% owned, except as noted.

Name	Jurisdiction of Organization
International Textile Group, Inc. (f/k/a Safety Components International, Inc.)	Delaware
Valentec Wells, LLC	Delaware
Safety Components Fabric Technologies, Inc.	Delaware
International Textile Group Acquisition Group LLC	Delaware
Carlisle Finishing LLC	Delaware
Cone Jacquards LLC	Delaware
BWW CT, Inc.	Delaware
ITG (Barbados) SRL	Barbados
Cone Denim Jiaxing Limited	China (51% owned)
Jiaxing Burlington Textile Company Limited	China
ITG-Phong Phu Joint Venture Company	Vietnam (60% owned)
Burlington Industries LLC	Delaware
Burlington Industries IV, LLC	North Carolina
Burlington Industries V, LLC	North Carolina
Burlington International Services Company	Delaware
Apparel Fabrics Properties, Inc.	Delaware
BI Properties I, Inc.	Delaware
Burlington Apparel Services Company	Delaware
Apparel Services Europe, B.V.	Netherlands
BILLC Acquisition LLC	Delaware
Burlington Worldwide Inc.	Delaware
Burlington Worldwide Limited	Hong Kong
ITG International Trading (Shanghai) Company Limited	China
Cone Denim LLC	Delaware
Cone Administrative and Sales LLC	Delaware
Cone Denim White Oak LLC	Delaware
Cliffside Denim LLC	Delaware
WLR Cone Mills IP, Inc.	Delaware
Cone Acquisition LLC	Delaware
Summit Yarns, LLC	North Carolina (50% owned)
Iskone Denim Pazarlama, A.S	Turkey (51% owned)
Compania Industrial de Parras, S.A. de C.V.	Mexico
Cone International Holdings, Inc.	Delaware
Cone Denim De Nicaragua, S.A.	Nicaragua
Cone International Holdings II, Inc.	Delaware
Burlington Morelos, S.A. de C.V.	Mexico
Burlington (Nustart), S.A. de C.V.	Mexico
Burlington Yecapixtla, S.A. de C.V.	Mexico

Burlmex Denim Apparel Services, S.A. de C.V.	Mexico
Cone Denim Yecapixtla, S.A. de C.V. (f/k/a Burlmex Denim, S.A. de C.V.)	Mexico
Casa Burlmex, S.A. de C.V.	Mexico
Casimires Burlmex, S.A. de C.V.	Mexico
Servicios Burlmex, S.A. de C.V.	Mexico
Parras Cone de Mexico, S.A. de C.V.	Mexico
Administracion Parras Cone, S.A. de C.V.	Mexico
Manufacturas Parras Cone, S.A. de C.V.	Mexico
Summit Yarn Holding I, Inc.	Delaware (50% owned)
Summit Yarn Holding II, Inc.	Delaware (50% owned)
Grupo Burlpark, S.A. de C.V.	Mexico
Servicios Burlpark, S.A. de C.V	Mexico
Commercializadora Burlpark, S.A. de C.V.	Mexico
Hilos de Yecapixtla, S.A. de C.V.	Mexico
Immobiliaria Burlpark, S.A. de C.V.	Mexico
Automotive Safety Components International, Inc.	Delaware
ASCI Holdings Mexico (DE), Inc.	Delaware
Automotive Safety Components International S.A. de C.V.	Mexico
ASCI Holdings Czech (DE), Inc.	Delaware
Automotive Safety Components International sro	Czech Republic
ASCI Holdings Germany (DE), Inc.	Delaware
Automotive Safety Components International Verwaltungs GmbH	Germany
Automotive Safety Components International GmbH & Co. KG	Germany
Automotive Safety Components International GT (Proprietary) Limited	South Africa (75% owned)
ASCI Holdings UK (DE), Inc.	Delaware
Automotive Safety Components International, Ltd.	United Kingdom
Automotive Safety Components International RO S.R.L.	Romania
ASCI Holdings Asia Pacific (DE), LLC	Delaware
SCI-Huamao China Investment Limited	Hong Kong (65% owned)
Automotive Safety Components International (Changshu) Co., Ltd.	China (65% owned)

EX-31.1

EXHIBIT 31.1

Certification Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Joseph L. Gorga, certify that:

1. I have reviewed this annual report on Form 10-K of International Textile 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. 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

c. 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: April 23, 2007

/s/ Joseph L. Gorga

Joseph L. Gorga

President & Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to International Textile Group, Inc. and will be retained by International Textile Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-31.2

EXHIBIT 31.2

Certification Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Gary L. Smith, certify that:

1. I have reviewed this annual report on Form 10-K of International Textile 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-l 5(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. 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

c. 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: April 23, 2007

/s/ Gary L. Smith

Gary L. Smith

Executive Vice President and Chief Financial Officer (Principal Financial Officer)

A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to International Textile Group, Inc. and will be retained by International Textile Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.1

EXHIBIT 32.1

STATEMENT OF PRINCIPAL EXECUTIVE OFFICER OF

INTERNATIONAL TEXTILE GROUP, INC.

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of International Textile Group, Inc. (the “Company”) for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph L. Gorga, President and Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Joseph L. Gorga

Joseph L. Gorga

President and Chief Executive Officer

The foregoing statement is being furnished to accompany International Textile Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Report”) solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a separate disclosure document and shall not be deemed incorporated by reference into any other filing of International Textile Group, Inc. that incorporates the Report by reference. A signed original of this written statement required by Section 906 has been provided to International Textile Group, Inc. and will be retained by International Textile Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

STATEMENT OF PRINCIPAL FINANCIAL OFFICER OF

INTERNATIONAL TEXTILE GROUP, INC.

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of International Textile Group, Inc. (the “Company”) for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary L. Smith, Executive Vice President and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Gary L. Smith

Gary L. Smith

Executive Vice President and Chief Financial Officer

The foregoing statement is being furnished to accompany International Textile Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Report”) solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a separate disclosure document and shall not be deemed incorporated by reference into any other filing of International Textile Group, Inc. that incorporates the Report by reference. A signed original of this written statement required by Section 906 has been provided to International Textile Group, Inc. and will be retained by International Textile Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.