answer of wlr defendants

Greenville: 819718 v.1

STATE OF SOUTH CAROLINA ) ) IN THE COURT OF COMMON PLEAS COUNTY OF GREENVILLE ) ) In re International Textile Group Merger Litigation

) C.A. No. 2009-CP-23-3346

ANSWER, DEFENSES AND COUNTERCLAIM OF WL ROSS & CO. LLC; WILBUR L. ROSS, JR.; MICHAEL J. GIBBONS; DAVID H. STORPER; DAVID L. WAX; GARY L. SMITH; JOSEPH L. GORGA; STEPHEN B. DUERK; WLR RECOVERY FUND II, L.P.;

WLR RECOVERY FUND III, L.P.; WLR RECOVERY ASSOCIATES II LLC; AND WLR RECOVERY ASSOCIATES III LLC.

ANSWER AND DEFENSES

Defendants WL Ross & Co. LLC; Wilbur L. Ross, Jr.; Michael J. Gibbons; David H.

Storper; David L. Wax; Gary L. Smith, Joseph L. Gorga; Stephen B. Duerk; WLR Recovery

Fund II, L.P.; WLR Recovery Fund III, L.P.; WLR Recovery Associates II LLC; and WLR

Recovery Associates III LLC (“Defendants”), by and through their undersigned counsel, answer

the First Amended Consolidated Complaint (“Complaint”) filed by Plaintiffs Brian P. Menezes;

FURSA Alternative Strategies LLC; FURSA Master Global Event Driven Fund, LP

(collectively, “FURSA”); Ramius Securities, LLC; Ramius Credit Opportunities Master Fund,

Ltd.; Kirk Wortman; Joseph Asiaf; Marilyn Asiaf, and Juanita Marett (“Plaintiffs”) as follows:

INTRODUCTION

Defendants answer the Complaint upon their knowledge or upon information and belief.

Defendants deny each and every allegation of Plaintiffs’ Complaint not herein specifically

admitted, qualified, modified, or explained. Defendants further state in response to the

allegations of Plaintiffs’ Complaint that:

1. To the extent any fiduciary duties were owed, Defendants did not breach them by

merging International Textile Group, Inc. (“FITG”) and Safety Components International, Inc.

(“SCI”). To the contrary, Defendants designed and executed a business plan that was embraced

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by the textile industry, the companies’ customers, the investing public, and, most notably, SCI’s

minority shareholders. Indeed, Menezes and FURSA, two of SCI’s largest minority

shareholders, ratified the merger of SCI and FITG in the most critical way—they invested in it.

2. Menezes, the former CFO and interim CEO of SCI, was part of the merger

planning from the very beginning and, after he was terminated by SCI, still invested

approximately $1 million in SCI while in possession of the initial terms for the proposed

merger—information that was not public at the time of his investment. Likewise, after learning

about the merger, FURSA—a hedge fund with more than $1.5 billion in managed assets at the

time—contacted Wilbur Ross to advise him that it saw “the strategic rationale for the deal” and

that “it certainly makes sense to create a larger, more diversified company by combining the two

companies.” FURSA then purchased approximately 72,000 additional shares of SCI and the

combined company (“NITG”), a 20% increase in FURSA’s position.

3. Why did Menezes and FURSA increase their holdings in SCI after learning about

the merger with FITG? Because the merger made good business sense and they knew Wilbur

Ross’s ability to reform and reorganize poor performing companies.

4. Mr. Ross, through his private equity management company, W.L. Ross & Co,

LLC (“WLR”), was enjoying a well publicized, record breaking year in 2006 thanks to the

successful implementation of WLR’s investment strategy—identifying high risk, out of favor

industries and distressed companies and restructuring them to create value. For example, WLR

had taken bankrupt steel companies, restructured and reorganized them into a new entity,

International Steel Group, and provided strong returns to his investors and the associated

portfolio companies’ shareholders. At the time of the merger of SCI and FITG, WLR Recovery

Fund II, L.P. (“Fund II”), the private equity fund that controlled the majority of shares of FITG,

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had an internal rate of return of over 100% and had distributed more than $700 million to its

investors. At the same time, WLR Recovery Fund III, L.P. (“Fund III”), a $1.1 billion fund

launched in June 2005 that held the majority of shares of SCI, posted an internal rate of return of

approximately 70%.

5. The potential rewards flowing from a successful reorganization, however, also

presented numerous risks. Plaintiffs were fully aware of these risks, which were prominently

and frequently disclosed in public filings. Indeed, the very risks attacked by Plaintiffs in this

lawsuit were communicated in these filings. Those filings confirm that:

• FITG was losing cash in the short term;

• FITG would have to make tremendous capital expenditures;

• The transaction would be dilutive to SCI’s shareholders for several years

following the merger;

• FITG was not projected to provide positive cash flows for several years

after the merger;

• There was no guarantee that the Greenfield projects would succeed; and

• Cone Mills and Burlington Industries had recently been purchased out of

bankruptcy.

There is no dispute that Plaintiffs were aware of all of these risks but still elected to remain as

investors in the company after the merger, and, in the case of FURSA, continued to invest

significant sums in the combined company because they believed the potential reward was worth

the risk.

6. Plaintiffs were also aware of SCI’s declining performance before the merger,

including the following negative trends:

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A. SCI tried to find a buyer in 2004 and 2005, but attracted tepid interest.

SCI hired a financial advisor to auction the company and, despite contacting more than 50

strategic potential buyers, only one was interested enough to make a preliminary offer and

conduct due diligence. But that potential buyer cut its offer nearly in half after reviewing SCI’s

declining financial performance and its persistent loss of market share. By the end of July 2005,

SCI’s EBITDA projections had declined to such an extent that SCI’s CEO admitted that

subjecting the company to an auction process was not advisable.

B. SCI’s EBITDA declined sharply from 2004 through 2006, falling by 50%

each year. Indeed, in the quarter before the merger closed, SCI posted an operating loss of

approximately $2.5 million, and had a 2006 year-end EBITDA of about $4 million, nearly $15.5

million less than projected.

C. SCI’s market position was also eroding. SCI lost contracts not only due to

program phase outs, but was also losing market share to lower cost providers with superior

equipment and pricing. Moreover, SCI’s ongoing product quality issues created tremendous

customer relationship problems that had SCI ranked dead last in service by one of its principal

customers. Menezes exacerbated the problem while interim CEO by taking extreme positions

due to his unfamiliarity with technical issues.

D. John Corey, the former CEO of SCI, abruptly resigned approximately two

weeks after the majority stake in SCI was purchased by Fund III. Corey’s resignation was

unexpected, as he and Menezes pocketed $1.4 million and $620,000, respectively, in bonuses

related to Fund III’s acquisition of shares from SCI’s prior controlling shareholder. After

Corey’s resignation, SCI named Menezes interim CEO in addition to his CFO duties, but he

quickly proved to be unsuitable for the job and was terminated.

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7. A merger between SCI and FITG provided a path for addressing SCI’s negative

performance trends and management turnover. In fact, SCI’s minority shareholder

representative agreed to the sale of SCI’s majority block because of Mr. Ross’s track record in

consolidating businesses and his intent to vertically integrate SCI. The desired vertical

integration began with the merger of SCI and FITG, and continued in 2007 with the contribution

to the combined company of a third textile manufacturer, BST.

8. In addition to vertical integration, SCI enjoyed many more benefits from the

merger. The merger provided SCI a desperately needed CEO, CFO, and other experienced

managers. FITG management helped solve certain quality problems that were interfering with

SCI’s sales to Europe; improved and grew SCI’s technical fabric business; and modernized

SCI’s manufacturing process. FITG management also implemented long overdue rationalization

and streamlining of SCI’s Mexican and German facilities, saving millions of dollars.

9. Through the merger, SCI realized millions of dollars in cost saving synergies that

continued to grow after BST was contributed to NITG. SCI further benefited from FITG’s tax

credits and improved stop-loss insurance levels.

10. SCI also was instantly diversified by the merger. SCI became part of a much

larger company, joining well known and respected textile manufacturers Burlington Industries

and Cone Mills, and leveraged economies of scale with suppliers.

11. The exchange ratio for the merger between SCI and FITG was arrived at through

arm’s length dealing between two separate special committees to the exclusion of any

participation by any interested directors of SCI or FITG or any officers of either of those

companies. The dual special committee structure not only assured that the process for

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negotiating the merger was fair, but also confirmed that the SCI special committee exercised its

business judgment with appropriate care.

12. Dr. Daniel Tessoni, the independent director on the SCI special committee, was

the longest-serving SCI director, was appointed by SCI’s previous owners and directors, and had

no relationship with WLR or its affiliates. Dr. Tessoni also was SCI’s “Continuing Director”

and expressly authorized by SCI’s charter to approve interested stockholder transactions like the

merger. In fact, Dr. Tessoni had previously worked on a similar one-man special committee

during SCI’s arduous sale process. As SCI’s Continuing Director, Dr. Tessoni was uniquely

positioned to approve, broker, or veto the merger because under the express terms of SCI’s

Certificate of Incorporation, he could not be replaced by a controlling shareholder without his

own approval. The Charter creating the SCI special committee also granted it very broad

powers, including the power to say “no.”

13. Dr. Tessoni consistently exercised his broad powers under the special committee

Charter and SCI’s Articles of Incorporation. His first act was to demand that FITG sign a

confidentiality agreement before reviewing any non-public SCI information. Then he imposed a

30-day time limit in which FITG was to investigate a possible transaction with SCI and, if a

transaction was to be pursued, required that the SCI Board of Directors create a new special

committee to review, evaluate, investigate, negotiate, and approve that transaction.

14. After SCI’s Board of Directors formed the merger special committee, the SCI

special committee retained its own independent advisors and established its own time table,

taking several weeks to make extensive revisions to the proposed merger agreement. Dr. Tessoni

also bargained so aggressively that he broke off negotiations until securing desired concessions,

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which included many additional representations and warranties for SCI, protection in the event

of a material adverse change, and other indemnities.

15. Dr. Tessoni and his advisors rejected the opening demand made by the FITG

special committee for an exchange ratio of 72% (for FITG)/28% (for SCI). He then rejected the

FITG special committee’s demand for an exchange ratio of 70/30%. He also rejected the

demand made by the FITG special committee for an exchange ratio of 67/33%. Dr. Tessoni

finally negotiated an exchange ratio of 65/35 while simultaneously securing a 70% discount on

the appraised value of FITG’s significant off-balance sheet assets. FITG’s special committee

advisors admitted afterward that they had hoped to achieve a better deal.

16. Defendants did not breach any fiduciary duties, commit corporate waste, or

conspire to harm SCI’s minority shareholders. Funds II and III invested hundreds of millions of

dollars in NITG in the belief that its business model would be successful. Like Menezes,

FURSA, and the other minority shareholders, Funds II and III understood the risks involved in

this investment, but hoped that NITG would succeed and increase stockholder value through the

execution of its business plan.

17. But there are no guarantees that a business plan will be successful, or that a

merger will lead to a desired outcome or achieve that outcome in a precise time frame. Delaware

law fully recognizes this point. A fundamental bedrock under Delaware law is that the role of

the Court is not to serve as a Monday-morning quarterback. It is not to serve as a scorekeeper as

to whether a particular business plan has worked. The policy behind this rule is open and

obvious. If we allowed second-guessing you would chill risk-taking. You would inhibit

innovation. You would frighten corporate boards into inaction for fear of being sued for taking a

risk.

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18. This entire case is based upon Plaintiffs’ disappointment that the combined

company’s business plan has not yet been successful. Because it has not yet succeeded they

want to be made whole. They want all of the value of their original investment plus much, much

more. What Plaintiffs want is investment insurance. They wanted the potential upside of a WLR

affiliated investment, but they now disavow the risk related to that reward. They, in effect, want

a riskless option, and this lawsuit is nothing more than their effort to exercise that option.

GENERAL DENIAL

19. Defendants object to Plaintiffs definition of WLR in the Complaint on the

grounds that it is so broad that it makes an already prolix pleading even more burdensome, and

renders many allegations vague and ambiguous. Accordingly, Defendants interpret every

references to WLR in the Complaint as solely meaning the entity WL Ross & Co., LLC, and

Defendants deny each and every allegation in the Complaint in which Plaintiffs interpret WLR to

include any Defendant other than the entity WL Ross & Co., LLC. Defendants further state that

all reference to WLR in this Answer strictly mean the entity WL Ross & Co., LLC and do not

encompass any WLR affiliates, including but not limited to Associates II and III, Funds II and

III, or Messrs. Ross, Storper, Gibbons, or Wax.

AFFIRMATIVE DEFENSES

FIRST DEFENSE

Defendants respond to the individual paragraphs of the Complaint as follows:

20. Defendants state that the section entitled “contents” is not subject to an admission

or denial. To the extent a response is possible, Defendants admit that Plaintiffs Brian P.

Menezes; FURSA Alternative Strategies LLC; FURSA Master Global Event Driven Fund, LP

(collectively, “FURSA”); Ramius Securities, LLC; Ramius Credit Opportunities Master Fund,

Ltd.; Kirk Wortman; Joseph Asiaf; Marilyn Asiaf, and Juanita Marett are named as Plaintiffs in

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this action and that Brian P. Menezes and FURSA Master Global Event Driven Fund, LP were

minority shareholders of Safety Components International, Inc. (“SCI”) before it merged with

International Textile Group, Inc. (“FITG”) and became a new combined company (“NITG”).

Defendants further admit that Wilbur L. Ross, Jr.; Michael J. Gibbons; David H. Storper; David

L. Wax; Gary L. Smith, Joseph L. Gorga; Daniel D. Tessoni; Stephen B. Duerk; WL Ross & Co.

LLC (“WLR”); WLR Recovery Fund II, L.P. (“Fund II”); WLR Recovery Fund III, L.P. (“Fund

III”); WLR Recovery Associates II LLC (“Associates II”); WLR Recovery Associates III LLC

(“Associates III”), and RSM EquiCo Capital Markets LLC (n/k/a McGladrey Capital Markets,

LLC) (“RSM”) are Defendants in this matter, and that NITG is the nominal defendant is this

matter. Defendants further admit that Wilbur L. Ross is CEO of WLR, chairman of NITG’s

board, and has been chairman of the boards of SCI and FITG. Defendants further admit that

Associates II is the general partner of Fund II and that Associates III is the general partner of

Fund III. Defendants further admit that Michael J. Gibbons is CFO of WLR, is a director of

NITG, and has been a director of SCI. Defendants further admit that David H. Storper is a senior

managing director of WLR, is a director of NITG, and has been a director of SCI. Defendants

further admit that David L. Wax is a managing director of WLR, is a director of NITG, and has

been a director of FITG. Defendants further admit that Joseph L. Gorga is a director and CEO of

NITG, was CEO of FITG, and has been a director of SCI and FITG. Defendants further admit

that Daniel D. Tessoni is a director of NITG, and has been a director of SCI. Defendants further

admit that Stephen B. Duerk was President of SCI. Defendants further admit that Gary L. Smith

was a director and CFO of FITG and NITG. Defendants further admit that RSM was the

financial advisor for the SCI special committee that reviewed, investigated, negotiated, and

approved the merger of SCI and FITG. Defendants further admit that SCI special committees

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waived a standstill provision so that affiliates of WLR could purchase SCI and so that a

transaction between SCI and FITG could be explored. Defendants further admit that WLR

provided the special committees of FITG and SCI with a proposal to merge those two

companies. Defendants further admit that SCI’s special committee recommended approving the

merger of FITG and SCI to the SCI Board and that the Board, in reliance on that

recommendation, approved the merger. Defendants further admit that the merger of FITG and

SCI closed on October 20, 2006. Defendants deny that FITG was failing, that they were acutely

aware of it failing, or that it needed SCI’s liquidity to keep FITG from failing. Defendants

further deny that they disregarded risks to SCI. Defendants further deny that there was any “co-

opting” of Tessoni or that there was a problematic basis for the second standstill waiver.

Defendants further deny that SCI was not authorized to conduct diligence on FITG. Defendants

further deny that Ross directed that SCI acquire FITG to avoid spending cash to buy out SCI’s

minority shareholders. Defendants further deny that the SCI special committee for the merger

was fatally flawed. Defendants further deny that there was pressure on Tessoni to select RSM as

its financial advisor. Defendants further deny that the merger agreement was unfair to SCI.

Defendants further deny that FITG or WLR improperly communicated with RSM. Defendants

further deny that the value of SCI or NITG collapsed because of the merger. Defendants further

deny that the new credit facility or debt for equity swap were negative consequences of the

merger. Defendants further state that the Causes of Action 1 through 8A are legal conclusions

not subject to admission or denial, but to the extent a response is possible, Defendants deny these

allegations. Except as expressly admitted and denied, Defendants state that the remaining

allegations in the section entitled “contents” are so vague and ambiguous that Defendants are

without knowledge or information to form a belief as to the truth of those allegations.

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21. Defendants deny the allegations in Paragraph 1 of the Complaint except

Defendants admit that this is a putative derivative action and class action brought on behalf of

the minority stockholders of a public company formerly known as SCI that, before October 20,

2006, was headquartered in Greenville, South Carolina. Except as expressly admitted,

Defendants deny any remaining allegations in Paragraph 1.


Defendants admit that FITG and SCI were combined on October 20, 2006 and that the combined

company and FITG were located in Greensboro, North Carolina at that time. Defendants further

admit that SCI was not worth $164 million and could not issue consideration in that amount.

Except as expressly admitted, Defendants deny any remaining allegations in Paragraph 2.


Defendants admit that FITG merged with a subsidiary of SCI and that SCI was renamed

International Textile Group, Inc. (“NITG”). Except as expressly admitted, Defendants deny any

remaining allegations in Paragraph 3.


Defendants admit that the asked for price of SCI’s stock on August 29, 2006 ranged between

$14.00 and $14.65 per share on the Over the Counter Bulletin Board (“OTCBB”), and that SCI’s

stock was thinly traded and that OTCBB bid prices do not represent SCI’s actual value. Except

as expressly admitted, Defendants deny any remaining allegations in Paragraph 4.

25. Defendants deny the allegations in Paragraph 5.

26. Defendants state that under SCRCP, Rule 8 they are not required to investigate

third party historical stock charts for more than a dozen independent companies to ascertain the

underlying accuracy of Plaintiffs’ proposed trial demonstrative, and, on that basis, they are

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without knowledge or information to form a belief as to the truth of the allegations in Paragraph

6, the footnote to Paragraph 6, and the chart following Paragraph 6.


Defendants admit that on April 2, 2008, the asked for price of NITG’s stock was $1.65 a share

on the OTCBB, that NITG’s stock was thinly traded and that OTCBB bid prices do not represent

NITG’s actual value. Except as expressly admitted, Defendants deny any remaining allegations

in Paragraph 7.


Defendants admit that the asked for price of NTIG’s stock has been less than ten cents a share on

the OTCBB, that NITG’s stock is thinly traded, and that OTCBB bid prices do not represent

NITG’s actual value. Except as expressly admitted, Defendants deny any remaining allegations

in Paragraph 8.


Defendants admit that Plaintiffs purport to paraphrase and quote from NITG’s Form 10-Q filed

on November 12, 2010, this document speaks for itself, and Defendants deny any allegations

inconsistent with the content of that document. Except as expressly admitted and stated,




32. Defendants state that the allegations in Paragraph 12 state a legal conclusion that

is not subject to an admission or denial. To the extent a response is possible, Defendants deny

the allegations in Paragraph 12.

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Defendants admit that Plaintiffs Brian P. Menezes and FURSA Master Global Event Driven

Fund, LP were minority shareholders of SCI before the merger and NITG after the merger.

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Defendants are without knowledge or information to form a belief as to the truth of whether the

other Plaintiffs are shareholders of SCI or NITG. Except as expressly admitted, Defendants deny

any remaining allegations in Paragraph 21.


Defendants admit that Wilbur Ross and W.L. Ross & Co., LLC (“WLR”) are defendants in this

matter. Defendants further admit that affiliates of WLR held the majority of shares of SCI and

FITG, and the majority of shares of NITG. Except as expressly admitted, Defendants deny any



Defendants admit that Michael Gibbons and David Storper were directors of SCI at the time of

the merger with FITG. Defendants further admit that David Wax and Messrs. Gibbons and

Storper are employed by WLR and are defendants in this matter, and that affiliates of WLR

owned shares in SCI and FITG. Except as expressly admitted, Defendants deny any remaining

allegations in Paragraph 23.


Defendants admit that Dr. Daniel Tessoni was the independent director of SCI and is a defendant

in this matter. Defendants further admit that RSM was the financial advisor for the SCI special

committee for the merger and is a defendant in this matter. Defendants further admit that Joe

Gorga was a director and the CEO of FITG, a director of SCI as of April 2006, and is a

defendant in this matter. Defendants further admit that Gary Smith was a director and the CFO

of FITG and is a defendant in this matter. Except as expressly admitted, Defendants deny any


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Defendants admit that NITG has been named as a nominal defendant in the derivative action.





47. Defendants admit the allegations in Paragraph 27.



Defendants admit that Menezes is an adult individual resident of South Carolina. Defendants

further admit that shortly before the merger, Menezes exercised options and purchased

approximately 102,000 shares of SCI stock, subsequently acquired approximately 11,000

additional shares of NITG, and still owned stock in NITG as of September 10, 2010. Except as

expressly admitted, Defendants are without knowledge or information to form a belief as to the

truth of the remaining allegations in Paragraph 29.


Defendants admit that funds affiliated with FURSA owned shares in SCI before the merger with

FITG, purchased tens of thousands of additional shares in anticipation of the merger and

thereafter, and still held stock in NITG as of 2010. Except as expressly admitted, Defendants are

without knowledge or information to form a belief as to the truth of the remaining allegations in

Paragraph 30.


Defendants admit that at the time of the merger, Ramius Capital Group, LLC; RCG Carpathia

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Master Fund (“Carpathia”); Ramius Securities, LLC; C4S & Co., LLC; Peter A. Cohen, Morgan

B. Stark, Thomas W. Strauss, and Jeffrey M. Solomon were beneficial owners of 350,671 shares

of SCI held by Carpathia and Ramius Securities, LLC. Except as expressly admitted,

Defendants are without knowledge or information to form a belief as to the truth of the


52. Defendants are without knowledge or information to form a belief as to the truth

of the allegations in Paragraph 32.






Defendants admit that NITG is a publicly traded Delaware company. Defendants further admit

that FITG became a subsidiary of SCI and SCI was renamed NITG. Defendants further admit

that before the merger SCI had its headquarters and principal place of business in South

Carolina. Except as expressly admitted, Defendants deny any remaining allegations in Paragraph

35.


Defendants admit that on the day of the merger, NITG consolidated its headquarters in

Greensboro, North Carolina. Defendants further admit that a subsidiary of NITG has operations

located in Greenville, South Carolina. Except as expressly admitted, Defendants deny any


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Defendants admit that Dr. Tessoni became a director of SCI in July 2005, Messrs. Ross, Storper,

and Gibbons were SCI directors beginning in December 2005, and Mr. Gorga was a SCI director

beginning in April 2006. Except as expressly admitted, Defendants deny any remaining



Defendants admit that Plaintiffs purport to paraphrase and quote from the Joint Proxy

Statement/Prospectus of SCI and FITG, dated September 22, 2006 (“Prospectus”), that the

Prospectus speaks for itself, and Defendants deny any allegations inconsistent with the content of

the Prospectus. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that FITG merged with a subsidiary of SCI and that SCI was renamed

International Textile Group, Inc. Defendants further admit that FITG was a private company

located in Greensboro, North Carolina. Except as expressly admitted, Defendants deny any



Defendants admit that Plaintiffs purport to paraphrase and quote from the Prospectus, that the





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Defendants admit that Wilbur L. Ross, Jr. is a Florida resident and Chairman and CEO of WLR,

which he founded in 2000. Defendants further admit that Mr. Ross sold his 99% ownership

interest in WLR to Invesco and that he has a financial stake in Funds II and III. Except as

expressly admitted, Defendants deny any remaining allegations in Paragraph 42.



Defendants admit that Mr. Ross serves or has served on the boards of Nano-Tex, LLC,

International Coal Group, Inc., Clarent Hospital Corp., and Phoenix International Holding Co. of

the United States; Mittal Steel Company, N.V. of the Netherlands; Insuratex, Ltd. of Bermuda;

Nikko Electric Industry Co. Ltd. and Ohizumi Manufacturing Company of Japan; Blue Ocean Re

Holdings Ltd. and Montpelier Re Holdings Ltd. in Bermuda; International Auto Components

Group SL in Europe and Brazil; and Wagon PLC in Europe. Except as expressly admitted,



Defendants admit that Mr. Ross has appeared on Forbes magazine’s various lists of wealthy

individuals, that he has been labeled a “billionaire” in the media, and that such estimates of his

wealth are inflated and not based on any earnings information provided by him. Defendants

further admit that some media outlets have referred to Mr. Ross by the nickname the “King of

Bankruptcy,” but that Mr. Ross does not refer to himself by this name. Except as expressly

admitted, Defendants deny any remaining allegations in Paragraph 45.


Defendants admit that Mr. Ross has appeared on Forbes magazine’s various lists of wealthy

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individuals and that such estimates of his wealth are inflated and not based on any earnings

information provided by him. Except as expressly admitted, Defendants deny any remaining



Defendants admit that Fund III owned approximately 72% of SCI and Fund II owned 74% of

International Textile Holdings (“ITH”), which owned 85.4% of FITG. Since the merger, Fund

II, through ITH, and Fund III own more than 85% of NITG. Except as expressly admitted,



Defendants admit that affiliates of WLR held four of the five seats on the SCI Board, five of the

six seats on the FITG Board, and six of the eight seats on the NITG Board. Except as expressly



Defendants admit that in July 2006, Invesco agreed to acquire WLR for an initial payment of

$100 million with additional payments between $30 to $55 million, the payable amount

depending on the achievement of annual fund raising targets over the five years after the

transaction’s completion. Except as expressly admitted, Defendants deny any remaining



Defendants admit that the performance and value of portfolio companies in existing WLR

affiliated funds—including FITG and SCI—played no role in the amount paid by Invesco for

WLR because the deal was forward looking and Invesco did not purchase an interest in FITG’s,

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SCI’s, or any other portfolio company’s performance. Except as expressly admitted, Defendants

deny any remaining allegations in Paragraph 50.





Defendants admit that the performance and value of portfolio companies in existing WLR

affiliated funds—including FITG and SCI—played no role in the amount paid by Invesco for

WLR because the deal was forward looking and Invesco did not purchase an interest in FITG’s,

SCI’s, or any other portfolio company’s performance. Except as expressly admitted, Defendants



Defendants admit that Mr. Ross is Chairman and CEO of WLR and that WLR does not invest in

any funds or portfolio companies. Except as expressly admitted, Defendants deny any remaining



Defendants admit that WLR Recovery Fund IV, L.P. (“Fund IV”) closed in September 2007.




Defendants admit that Fund IV has approximately $4 billion in committed capital. Except as


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Defendants admit that during WLR Recovery Funds’s investment periods, which generally run

four years or until a new fund is launched, they pay an annual management fee totaling 1.5% of

the size of the Fund. Defendants further admit that since Invesco purchased WLR, Invesco has

received all management fees paid by the Funds managed by WLR. Except as expressly



Defendants admit that WLR Recovery Fund V, L.P. (“Fund V”) was recently launched to make

investments in distressed companies. Except as expressly admitted, Defendants deny any



Defendants admit that WLR Recovery Funds typically pay an annual management fee totaling

1.5% of the size of the Fund during their investment periods, which generally run four years or

until a new fund is launched. Defendants further admit that Invesco will receive all management

fees paid by Fund V when it begins paying management fees, but that the amount of the

management fees to be paid by Fund V has not been determined yet. Except as expressly



Defendants admit that Mr. Ross has received payments called for in the WLR purchase

agreement. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 62.


Defendants admit the FITG’s business plan in 2006 was to build Greenfield plants located in

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lower cost countries closer to its customers. Except as expressly admitted, Defendants deny any




Defendants admit that Mr. Ross raised billions of dollars even though FITG, SCI, and NITG

have struggled to perform. Except as expressly admitted, Defendants deny any remaining


86. Defendants state that the allegations in Paragraph 66 and its subparts A-E—

“Ross’s actions at issue in this case”—are so vague and unspecified that they are not subject to

admission or denial. Indeed, Defendants do not know what alleged actions Plaintiffs intend to

encompass with these allegations and cannot meaningfully state the capacity in which Mr. Ross

undertook these unknown alleged actions. Accordingly, Defendants are without knowledge or

information to form a belief as to the truth of any allegations in Paragraph 66 and its subparts A-

E.


Defendants admit that WLR is an investment firm based in New York that invests in financially

distressed companies in various ways, including leveraged buyouts and restructurings.

Defendants further admit that Mr. Ross founded WLR in April 2000. Defendants further admit

that none of them are citizens of South Carolina. Except as expressly admitted, Defendants deny

any remaining allegations in Paragraph 67 and footnote 2.1

1 As set forth in the General Denial, Defendants object to Plaintiffs definition of WLR in the First Amended

Consolidated Complaint (“Complaint”) on the grounds that it is so broad that it makes an already prolix pleading even more burdensome, and renders many allegations vague and ambiguous. Accordingly, Defendants interpret every references to WLR in the Complaint as solely meaning the entity WL Ross & Co., LLC, and Defendants deny each and every allegation in the Complaint in which Plaintiffs interpret WLR to include any Defendant other than the entity WL Ross & Co., LLC. Defendants further state that all references to WLR in this Answer strictly mean the entity WL Ross & Co., LLC and do not encompass any WLR affiliates, including but not limited to Associates II and III, Funds II and III, or Messrs. Ross, Storper, Gibbons, or Wax.

- 23 - Greenville: 819718 v.1


Defendants admit that, at the time of the merger, Fund II owned 241,419 shares of SCI and Fund

III owned 3,920,975 shares of SCI, which constituted approximately 75.6% ownership. Except



Defendants admit that four of the five SCI directors were interested in the merger and that

Messrs. Ross, Gibbons, Storper and Gorga sat on SCI’s Board. Except as expressly admitted,



Defendants admit that, at the time of the merger, Fund II owned 74% of ITH, which owned

14,310,497 shares of FITG, constituting approximately 85.4% ownership. Except as expressly



Defendants admit that five of the six FITG directors were interested in the merger and that Mr.

Ross was Chairman and Messrs. Wax, Smith, Gorga and Ms. Wilson sat on FITG’s Board.



Defendants admit that Fund II, through ITH, and Fund III own approximately 22,902,280 shares

of common and preferred NITG stock. Except as expressly admitted, Defendants deny any



Defendants admit that affiliates of WLR hold six of the eight seats on NITG’s Board of Directors

and that Mr. Ross is Chairman and Messrs. Gibbons, Storper, Wax, Gorga and Ms. Wilson sit on

- 24 - Greenville: 819718 v.1

NITG’s Board. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 73.


Defendants admit that Fund II owned 241,419 shares of SCI and that WLR is its management

company. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 74.


Defendants admit that Fund II valued its stockholdings in SCI at approximately $3 million and

that value was calculated on Fund II’s original cost to purchase those shares. Defendants further

admit that the $3 million value of those shares remained the same after the merger and did not

change until mid-2008. Except as expressly admitted, Defendants deny any remaining



Defendants admit that, at the time of the merger, Fund II owned 74% of ITH, which owned

14,310,497 shares of FITG. Defendants further admit that 14,310,497 shares were valued at

approximately $111.7 million and that value was calculated based on the last equity transaction

for these shares—a sale to the Pension Benefit Guaranty Corporation in 2005. Defendants

further admit that the $111.7 million value remained the same after the merger and did not

change until mid-2008. Defendants further admit that Fund II’s cost basis for FITG was

approximately $53.1 million based on the purchase of Burlington Industries and Cone Mills in

November 2003 and March 2004. Defendants further admit that as of September 30, 2006, Fund

II had made four separate loans to FITG totaling approximately $56.2 million to fund FITG’s

- 25 - Greenville: 819718 v.1

building facilities located in low cost markets that were closer to its customers. Except as



Defendants admit that Associates II is the general partner of Fund II and that Associates II’s

investment advisor is WLR. Defendants further admit that Mr. Ross was and is general manager

of Associates II, which had and has voting power over shares owned by Fund II. Except as



Defendants admit that Associates II’s capital balance in Fund II for the nine months ended

September 30, 2006 was approximately 11.3% of the total partner capital for Fund II. Except as



Defendants admit that WLR employees were members of Associates II and that Mr. Ross had an

approximately 54% interest, Mr. Storper had a 12.5% interest, Mr. Wax had a 7.5% interest, and

Mr. Gibbons had a 2% interest in Associates II. Except as expressly admitted, Defendants deny



Defendants admit that Fund III owned 3,920,975 shares of SCI and that WLR is its management

company. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 80.


Defendants admit that Fund III valued its holdings in SCI at approximately $48.7 million and

that value was calculated on Fund III’s original cost to purchase those shares. Defendants further

- 26 - Greenville: 819718 v.1

admit that the $48.7 million value of those shares and the basis for that value remained the same

after the merger until mid-2008. Except as expressly admitted, Defendants deny any remaining




Defendants admit that Associates III is the general partner of Fund III and that Associates III’s

investment advisor is WLR. Defendants further admit that Mr. Ross was and is general manager

of Associates III which had and has voting power over shares owned by Fund III. Except as


104. Defendants deny the allegations in the unnumbered paragraph following

Paragraph 83 of the Complaint except Defendants admit that Associates III’s capital balance in

Fund III for the nine months ended September 30, 2006 was approximately 6.75% of the total

partner capital for Fund III. Except as expressly admitted, Defendants deny any remaining

allegations in the unnumbered paragraph following Paragraph 83.


Defendants admit that WLR employees were members of Associates III and that Mr. Ross had

an approximately 56% interest, Mr. Storper had a 12.5% interest, Mr. Wax had a 7.5% interest,

and Mr. Gibbons had a 2% interest in Associates III. Except as expressly admitted, Defendants



Defendants admit that Michael J. Gibbons has been the Chief Financial Officer of WLR since

July 2002 and is a resident of New York. Except as expressly admitted, Defendants deny any


- 27 - Greenville: 819718 v.1


Defendants admit that Mr. Gibbons has a financial interest in the performance of WLR and

certain of its affiliates. Except as expressly admitted, Defendants deny any remaining allegations

in Paragraph 86.

108. Defendants admit allegations in Paragraph 87.


110. Defendants state that the allegations in Paragraph 89 and its subparts A-D—

“Gibbons’s actions at issue in this case”—are so vague and unspecified that they are not subject

to admission or denial. Indeed, Defendants do not know what alleged actions Plaintiffs intend to

encompass with these allegations and cannot meaningfully state the capacity in which Mr.

Gibbons undertook these unknown alleged actions. Accordingly, Defendants are without

knowledge or information to form a belief as to the truth of any allegations in Paragraph 89 and

its subparts A-D.


Defendants admit that David H. Storper has been a Senior Managing Director of WLR since

April 2000 and is a resident of New York. Except as expressly admitted, Defendants deny any



Defendants admit that Mr. Storper has a financial interest in the performance of WLR and certain

of its affiliates. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 91.


- 28 - Greenville: 819718 v.1


Defendants admit that Mr. Storper, before joining WLR, had been a Managing Director in the

Restructuring Group at Rothschild Inc. since 1996 and holds a B.S. from Columbia University’s

School of Engineering and Applied Science and an M.B.A. from Columbia University. Except



“Storper’s actions at issue in this case”—are so vague and unspecified that they are not subject to


encompass with these allegations and cannot meaningfully state the capacity in which Mr.

Storper undertook these unknown alleged actions. Accordingly, Defendants are without


its subparts A-D.


Defendants admit that David L. Wax has been Managing Director of WLR since 2000 and is a

resident of Connecticut. Except as expressly admitted, Defendants deny any remaining



Defendants admit that Mr. Wax has a financial interest in the performance of WLR and certain

of its affiliates. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 96.


Defendants admit that Mr. Wax was the portfolio manager for FITG and SCI beginning in

approximately February 2006, and, as part of that role, was the contact or “point” person for

- 29 - Greenville: 819718 v.1

inquiries concerning those portfolio companies. Defendants further admit that, as portfolio

manager for FITG and SCI, Mr. Wax was responsible for monitoring the combination of those

companies. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 97.



Defendants admit that Mr. Wax, before joining WLR in 2000, was a Managing Director at

Rothschild, Inc., an investment banking firm, where he was active in restructuring and workouts

for over 10 years, and, before joining Rothschild, had been with Bankers Trust for 15 years.



“Wax’s actions at issue in this case”—are so vague and unspecified that they are not subject to


encompass with these allegations and cannot meaningfully state the capacity in which Mr. Wax


information to form a belief as to the truth of any allegations in Paragraph 100 and its subparts

A-D.







- 30 - Greenville: 819718 v.1






Defendants admit that in 2010 Mr. Gorga’s compensation totaled $688,011, and that his base

salary was $660,000 for the year. Except as expressly admitted, Defendants deny any remaining



134. Defendants state that the allegations in Paragraph 113 and its subparts A-E—

“Gorga’s actions at issue in this case”—are so vague and unspecified that they are not subject to


encompass with these allegations and cannot meaningfully state the capacity in which Mr. Gorga



A-E.


Defendants admit that Dr. Tessoni was the independent director on SCI’s Board of Directors.



137. Defendants state that the allegations in Paragraph 116 and its subparts A-C—

“Tessoni’s actions at issue in this case”—are so vague and unspecified that they are not subject

to admission or denial. Indeed, Defendants do not know what alleged actions Plaintiffs intend to

- 31 - Greenville: 819718 v.1

encompass with these allegations and cannot meaningfully state the capacity in which Dr.

Tessoni undertook these unknown alleged actions. Accordingly, Defendants are without


its subparts A-C.


Defendants admit that Mr. Duerk is a resident of Greenville County, South Carolina, was

President of SCI before the Merger, and was President of the Automotive Safety Group of the

combined company. Defendants further admit that Mr. Duerk executed the Merger agreement at

the direction of SCI’s Board of Directors and retired from SCI effective December 31, 2007.


139. Defendants state that the allegations in Paragraph 118 and its subparts A-C—

“Duerk’s actions at issue in this case”—are so vague and unspecified that they are not subject to


encompass with these allegations and cannot meaningfully state the capacity in which Mr. Duerk



A-C.







- 32 - Greenville: 819718 v.1




“Smith’s actions at issue in this case”—are so vague and unspecified that they are not subject to


encompass with these allegations and cannot meaningfully state the capacity in which Mr. Smith



A-D.

149. Defendants admit that RSM is an investment banking firm that provides financial

consulting services for, among other things, mergers and acquisitions, and has multiple offices,

including offices in New York and California. Except as expressly admitted, Defendants are

without knowledge or information to form a belief as to the truth of any remaining allegations in

Paragraph 128.

150. Defendants admit that RSM was retained by SCI’s Independent Special

Committee of the Board of Directors in July 2006 to offer an opinion as to the fairness, from a

financial point of view, to the stockholders of SCI other than Fund II and Fund III of the

exchange ratio in the proposed business combination of FITG and SCI’s merger subsidiary.

Except as expressly admitted, Defendants are without knowledge or information to form a belief

as to the truth of the allegations in Paragraph 129.



- 33 - Greenville: 819718 v.1

152. Defendants state that the allegation “THE MERGER – Overview and

Consideration” preceding Paragraph 131 is so vague that Defendants are without knowledge or

information to form a belief as to the truth of that allegation.



Defendants admit that Plaintiff purports to quote from the Prospectus, that the Prospectus speaks

for itself, and Defendants deny any allegations inconsistent with the content of the Prospectus.

Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 132.


Defendants admit that Plaintiff purports to quote from the Prospectus, that the Prospectus speaks

for itself, and Defendants deny any allegations inconsistent with the content of the Prospectus.


Paragraph 133.



Defendants admit that Fund III owned approximately 72% of SCI and Fund II owned 74% of

ITH, which owned 85.4% of FITG. Defendants further admit that at the time of the merger five

of the six directors of FITG and four of the five directors of SCI were interested in the merger.



Defendants admit that the nature of the merger was such that only a super majority of SCI’s

minority shareholders or the Continuing Director, as that term was defined in SCI’s Charter,

- 34 - Greenville: 819718 v.1

could legally cause the merger to occur. Except as expressly admitted, Defendants deny any




Defendants admit that the exchange ratio set the conversion ratio for FITG stock into SCI stock.



Defendants admit that the exchange ratio was set through independent negotiations between

FITG’s and SCI’s special committees and that the exchange ratio yielded a split where SCI

shareholders owned 35% of the combined company and FITG shareholders owned the remaining

amount of shares. Except as expressly admitted, Defendants deny any remaining allegations in

Paragraph 139.


Defendants admit that Plaintiffs purports to quote and paraphrase from the Prospectus, that the





Defendants admit that on August 29, 2006, SCI’s and FITG’s Boards approved the merger.

Defendants further admit that the asked for price of SCI’s stock on August 29, 2006 ranged

between $14.00 and $14.65 per share on the Over the Counter Bulletin Board (“OTCBB”), and

that SCI’s stock was thinly traded and that OTCBB bid prices do not represent SCI’s actual

- 35 - Greenville: 819718 v.1

value. Except as expressly admitted, Defendants deny any remaining allegations in Paragraph

141.



Defendants admit that the merger was announced on August 30, 2006 and that on September 22,

2006 the asked for price of SCI’s stock was $14.30 a share on the OTCBB, and that, on October

20, 2006, the asked for price of SCI’s stock was $13.25 a share on the OTCBB. Except as




Defendants admit that, at the time of the merger, affiliates of WLR owned 14,310,497 shares of

FITG constituting approximately 85.4% ownership. Except as expressly admitted, Defendants



Defendants admit that Fund II owned 74% of ITH, which owned 14,310,497 shares of FITG

constituting approximately 85.4% ownership. Defendants further admit that Absolute Recovery

Hedge Fund, Ltd. owned 17% of ITH and Absolute Recovery Hedge Fund, L.P. owned 9% of

ITH. Except as expressly admitted, Defendants deny any remaining allegations in Paragraph

146.


Defendants admit that ITH owned 14,310,497 shares of ITG and ITH received 9,709,273 shares

of SCI stock pursuant to the exchange ratio. Except as expressly admitted, Defendants deny any


- 36 - Greenville: 819718 v.1




Defendants admit that, based on the exchange ratio, 213,750 shares of FITG stock converts into

145,023 shares of SCI stock. Except as expressly admitted, Defendants deny any remaining





Defendants admit that, based on the exchange ratio, 74,375 shares of FITG stock converts into

50,461 shares of NITG stock. Except as expressly admitted, Defendants deny any remaining







181. Defendants incorporate by this reference their responses to Paragraphs 195-197 as

though fully set forth herein in response to Paragraph 159 of the Complaint. Defendants further

state that the allegations in Paragraph 159 are so speculative and vague, particularly as to what

“it” refers to, that Defendants are without knowledge or information to form a belief as to the

truth of the allegations in Paragraph 159.

- 37 - Greenville: 819718 v.1

182. Defendants state that the allegation “The Real Reasons for the Merger” preceding

Paragraph 160 is so vague that Defendants are without knowledge or information to form a belief

as to the truth of that allegation.

183. Defendants deny the allegations preceding Paragraph 160 of the Complaint except

Defendants admit that SCI’s liquidity was insufficient to cover FITG’s Greenfield projects and

that SCI’s earnings and net income plummeted from 2004 through 2007. Except as expressly

admitted and stated, Defendants deny the allegation “FITG was Failing and Needed SCI’s

Liquidity” preceding Paragraph 160.


Defendants admit that Plaintiffs purport to quote and paraphrase from Gary Smith Deposition

Exhibit 17 and a document produced by Bank of America pursuant to a subpoena, those

documents speak for themselves, and Defendants deny any allegations inconsistent with their

contents. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 160.


Defendants admit that FITG’s business and business plan changed dramatically from 2004 to

2006, and that FITG expected and publically disclosed it could have losses in 2006 while

implementing its new business plan. Defendants further admit that, far from failing, FITG was

investing in its future by rationalizing domestic production plants and building new facilities in

low cost countries closer to its customers. Defendants further admit that Plaintiffs purport to

quote and paraphrase from Gary Smith Deposition Exhibit 17 and documents produced by Bank

of America pursuant to a subpoena, those documents speak for themselves, and Defendants deny

- 38 - Greenville: 819718 v.1

any allegations inconsistent with their contents. Except as expressly admitted and stated,



Defendants admit that Plaintiffs purport to quote and paraphrase from a spreadsheet contained in

Gary Smith Deposition Exhibit 46. Defendants further admit that the spreadsheet contained in

Gary Smith Deposition Exhibit 46 is a duplicate of the spreadsheet contained in Gary Smith

Deposition Exhibit 39. Defendants deny any allegations inconsistent with the contents of these

spreadsheets and Gary Smith’s explanatory testimony about these spreadsheets. Except as

expressly admitted and stated, Defendants deny any remaining allegations in Paragraph 162.


Defendants admit that Fund II issued promissory notes to FITG in May 2006 for $15.71 million,

in June 2006 for $20.5 million, in September 2006 for $20 million, and in December 2006 for

$10 million to fund international Greenfield projects consistent with FITG’s business plan that

was publicly disclosed in the Prospectus. Except as expressly admitted, Defendants deny any



Defendants admit that Fund II issued promissory notes to FITG in May 2006 for $15.71 million,

in June 2006 for $20.5 million, in September 2006 for $20 million, and in December 2006 for

$10 million to fund international Greenfield projects located in Nicaragua, China, and Viet Nam.

Defendants admit FITG’s business plan, like virtually every business plan, contained risk, and

that those risks were publicly disclosed in the Prospectus. Except as expressly admitted,



- 39 - Greenville: 819718 v.1


Defendants deny SCI was generating cash as of September 30, 2006, having lost nearly $2.5

million in cash and cash equivalents since January 2006. Defendants further admit that SCI’s

cash flows from operations had plummeted, going from $13.4 million in 2004, to $6.9 million

for 2005, to a net loss for the first three quarters of 2006. Defendants further state that SCI’s

cash on hand and the balance on its credit facility are not examples of SCI generating cash.



Defendants admit that SCI had excess borrowing capacity before the merger and that Messrs.

Ross and Wax did not wish to use this debt to buy out the minority shareholders of SCI.

Defendants further admit that SCI’s available debt was better used for acquisitions or other

business purposes to build company value rather than buy out its minority shareholders, which

provided no benefit to SCI. Defendants further admit that FITG and SCI and, later, BST, were

more valuable combined than separate, and that such a combination would increase shareholder

value and enable the combined company to be traded on an efficient, liquid market. Except as



Defendants admit that, far from failing, FITG was investing in its future by going through a

significant reorganization in 2006 that included rationalizing domestic plants and building

international Greenfield projects. Defendants further admit that this plan was designed to lower

FITG’s costs, move it closer to its existing customers, and to expand into new international

markets. Defendants further admit that this quasi-start-up period was publicly disclosed before

the merger as was that FITG could operate at a loss to preserve market share and technical

- 40 - Greenville: 819718 v.1

capabilities until the Greenfield projects were completed and began producing. Except as

expressly admitted and stated, Defendants deny the allegation “The FITG and WLR Defendants

Were Acutely Aware That FITG Was Failing” preceding Paragraph 168.


Defendants admit that they, in varying levels of specificity and detail depending on the

Defendant in question, were aware of FITG’s financial performance during 2006, and that Fund

II had loaned money to FITG for Greenfield projects. Except as expressly admitted, Defendants



Defendants admit that Plaintiffs purport to quote and paraphrase from Storper Deposition Exhibit

525. Defendants further admit that Storper Deposition Exhibit 525 is a duplicate of Wax

Deposition Exhibit 438 and Ross Deposition Exhibit 755. Defendants deny any allegations

inconsistent with the contents of these deposition exhibits and the explanatory testimony about

these exhibits. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that Plaintiffs purport to quote and paraphrase from Wax Deposition Exhibit

461. Defendants further admit that Wax Deposition Exhibit 461 is a duplicate of Gorga

Deposition Exhibit 216, Smith Deposition Exhibit 125, Storper Deposition Exhibit 532, and Ross


deposition exhibits and the explanatory testimony about these exhibits, including the significant

testimony that the math calculation discussed in these exhibits was in error. Except as expressly

admitted and stated, Defendants deny any remaining allegations in Paragraph 170.

- 41 - Greenville: 819718 v.1




Deposition Exhibit 254, Gibbons Deposition Exhibit 572, and Ross Deposition Exhibit 778.

Defendants deny any allegations inconsistent with the contents of these deposition exhibits and

the explanatory testimony about these exhibits, including Ross’s comments in this exhibit that it

would be a shame for people to misperceive FITG as a money losing business and that the

Prospectus should explain FITG’s business strategy. Except as expressly admitted and stated,





Deposition Exhibit 254, Gibbons Deposition Exhibit 572, and Ross Deposition Exhibit 778.

Defendants deny any allegations inconsistent with the contents of these deposition exhibits and

the explanatory testimony about these exhibits. Except as expressly admitted and stated,



Defendants admit that Plaintiffs purport to quote and paraphrase from Smith Deposition Exhibit

58. Defendants further admit that Smith Deposition Exhibit 58 is a duplicate of Gorga

Deposition Exhibit 266 and Spradling Deposition Exhibit 365. Defendants deny any allegations


these exhibits, including Mr. Gorga’s testimony rejecting that FITG lost business. Except as


- 42 - Greenville: 819718 v.1


Defendants admit that Plaintiffs purport to quote and paraphrase from Gorga Deposition Exhibit

232. Defendants further admit that Gorga Deposition Exhibit 232 is a duplicate of Gorga

Deposition Exhibit 269 and Ross Deposition Exhibit 785. Defendants deny any allegations


these exhibits. Defendants deny that Ross stated in his email that FITG “consistently reduced

their budget and … failed to met the reduced budgets,” as his email refers to two small

acquisitions and not to FITG as a whole. Except as expressly admitted and stated, Defendants




271. Defendants further admit that Gorga Deposition Exhibit 271 is a duplicate of Wax



deposition exhibits and the explanatory testimony about these exhibits, including that the

discouraging weekly report was based on an error, that numbers were affected by increases in

inventory due to plant rationalization, and that FITG’s 2006 budget was impacted by unexpected

events. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 175.



271. Defendants further admit that Gorga Deposition Exhibit 271 is a duplicate of Wax


- 43 - Greenville: 819718 v.1



discouraging weekly report was based on an error, that numbers were affected by increases in

inventory due to plant rationalization, and that FITG’s 2006 budget was impacted by unexpected

events. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 176.




157. Defendants further admit that Smith Deposition Exhibit 157 is a duplicate of Spradling



numbers discussed in this email solely pertain to the Carlisle Division, one of the smaller

divisions at FITG, and that cost reductions were made at that division to address losses. Except

as expressly admitted and stated, Defendants deny any remaining allegations in Paragraph 178.



157. Defendants further admit that Smith Deposition Exhibit 157 is a duplicate of Spradling



numbers discussed in this email solely pertain to the Carlisle Division and that cost reductions

were made at that division to address losses. Except as expressly admitted and stated,


- 44 - Greenville: 819718 v.1



Defendants admit that SCI was a very troubled company before the merger, lacking senior

management and suffering market share loss, customer relationship problems, technical

problems, and falling earnings. Defendants further admit that not merging SCI with FITG would

have exposed SCI to extreme risk of further declines and even failure. Except as expressly

admitted and stated, Defendants deny the allegation “The WLR and FITG Defendants Were

Aware of and Disregarded the Risk to SCI” preceding Paragraph 181.


Defendants admit that FITG and SCI were both distressed companies in challenging industries

and were high risk investments. Defendants further admit that the risks associated with these

companies were disclosed in public filings, and the risks of investing in FITG, SCI, and NITG

were apparent to the minority shareholders of these companies. Except as expressly admitted,



Defendants admit that Plaintiffs purport to quote and paraphrase from Ross Deposition Exhibit

783. Defendants further admit that Ross Deposition Exhibit 783 is largely a duplicate of Ross


deposition exhibits and the explanatory testimony about these exhibits. Except as expressly



Defendants admit that Plaintiffs purport to quote and paraphrase from Ross Deposition Exhibit

784. Defendants further admit that Ross Deposition Exhibit 784 is largely a duplicate of Ross

- 45 - Greenville: 819718 v.1


deposition exhibits and the explanatory testimony about these exhibits. Except as expressly



Defendants admit that Plaintiffs accurately quote Wilbur Ross’s deposition testimony responding

to the following question: “Did you have any -- did you have any conversations or

communications with Mr. Tessoni regarding your belief that ITG faced tremendous execution

risk?” Defendants further admit that the risks associated with FITG were clear and disclosed

before the merger. Except as expressly admitted and stated, Defendants deny any remaining




Defendants admit that Plaintiffs purport to quote and paraphrase from Wax Deposition Exhibits

472 and 473. Defendants further admit that Wax Deposition Exhibits 472 and 473 are duplicates

of Gorga Deposition Exhibit 258, Storper Deposition Exhibit 538, Gibbons Deposition Exhibit

574, Ross Deposition Exhibit 779, Smith Deposition Exhibit 40, and Spradling Deposition

Exhibits 309-310. Defendants deny any allegations inconsistent with the contents of these

deposition exhibits and the explanatory testimony about these exhibits, including that Wax

Deposition Exhibit 473 was a draft bank model for securing credit facilities for SCI, FITG, and

BST; that Wax Deposition Exhibit 473 is not the business plan for the combined company, and

that Mr. Ross became satisfied that merging SCI and FITG was a good plan before he voted to

approve the merger. Except as expressly admitted and stated, Defendants deny any remaining


- 46 - Greenville: 819718 v.1

213. Defendants deny the allegations in Paragraph 187 of the Complaint. Defendants

further state that the allegations in Paragraph 187 grossly misstate Mr. Wax’s testimony, which

was as follows:

Well, I would -- I don't remember what my response was to Wilbur. If I was simply reading this today, I would have said to him that this is kind of a rhetorical question because, of course, we did due diligence both on each component of ITG as we made commitments to fund that component, as well as on SCI, as well as on BST. My senior partner does have a habit of sometimes asking rhetorical questions. I view that this is one of those. (Wax Depo at 615:5-15.)

Between the time that we bought SCI in … August 2006, we'd done significant work both on ITG as a company and on SCI as a company. The decision to put the companies together was because of the significant deficit in the business of SCI. And the fact of the matter is that we didn't view SCI to have sustainability as a standalone business. And, you know, the decision to acquire BST was, in fact … part and parcel of the fact that we didn't believe that a number of SCI standalone businesses were sustainable. So this was an effort to create greater value out of the parts, you know. If -- so asking what due diligence did I do … over the prior six months, there had been … significant analysis, you know, resulting in the business model that is Exhibit 473 that related to what are the components for SCI, what are the components for ITG. You know, from my standpoint, I do not agree with Mr. Ross' characterization about risking SCI by putting it with ITG. The fact of the matter is that I believed that SCI was not a long-term sustainable business because it was in so many little market niches. You know, it had a number of identifiable problems in terms of how some of those businesses were run. We learned, during the course of the first nine months, and certainly by the time that we were here in August, that SCI was underperforming its budget significantly. So, you know, I don't know what else to tell you other than to say that this was just not pulled out of thin air in terms of answering your question, what due diligence had I done. (Wax Depo at 616:17-618:8.)


Defendants admit that Mr. Ross did not have concerns about the Merger and did not mention

them to Messrs. Storper or Gibbons because Mr. Wax provided satisfactory explanations and

- 47 - Greenville: 819718 v.1

details to justify the merger: “I asked him what due diligence had he -- you see the questions

that I have asked. I have testified now quite a few times that he ultimately satisfied me. It was

my satisfaction that was needed, not some third party's satisfaction. He satisfied me.” (Ross

Depo. at 576:17-22.) Defendants further admit that Messrs. Storper and Gibbons personally

analyzed FITG’s execution risks as they both listened to the SCI special committee’s report

concerning the merger and relied on its recommendation to approve the merger. Defendants

further admit that Mr. Gibbons was informed about the written materials concerning the merger

as he listened to the SCI special committee’s report concerning the merger and relied on its

recommendation to approve the merger. Except as expressly admitted and stated, Defendants



Defendants admit that Mr. Ross’s questions about the merger were answered, that he was

satisfied by the due diligence performed before approving the merger, and that a written record

of his conversation with Mr. Wax was unnecessary:

Q: Do you have, or is there any written evidence of any communication from Mr. Wax or anyone else addressing that question raised by you?

A: No. Nor did I care that it was in writing. What I cared was to be satisfied that it made sense, and he ultimately satisfied me both in the case of the SCI and in the case of the BST. (Ross Depo at 574:16-23)

Defendants further admit that Plaintiffs accurately quote Mr. Ross’s deposition testimony.


Paragraph 189.


Defendants admit that SCI’s Board approved the merger on August 29, 2006 in reliance on the

- 48 - Greenville: 819718 v.1

recommendation of the SCI Special Committee. Except as expressly admitted and stated,


217. Defendants state that the allegation “The WLR and FITG Defendants’ Real

Agenda” preceding Paragraph 191 is so vague that Defendants are without knowledge or



Defendants admit that, in general, domestic textile manufacturers were not cost competitive with

their internationally based counterparts, largely due to cheaper labor and shipping costs.

Defendants further admit that FITG planned Greenfield projects in China, Vietnam, and

Nicaragua to be closer to its customers and become more cost competitive in its market.

Defendants further admit that FITG planned to rationalize domestic plants to save money and to

transfer that production to newer, cheaper international plants. Except as expressly admitted and

stated, Defendants deny any remaining allegations in Paragraph 191.





Defendants admit that combining FITG, SCI, and BST into one company made the combined

company more diversified, larger, and more attractive to the public markets for an IPO. Except



Defendants admit that, among other methods, selling shares on an open market is one way in

- 49 - Greenville: 819718 v.1

which shareholders realize value from their investments. Except as expressly admitted and



Defendants admit that a standalone FITG had revenues greater than the other comparable apparel

company IPOs, and could have achieved a necessary scale for a public offering. (Stroper Ex.

527 at 10; Gorga Ex. 208 at 10; Wax Ex. 418 at 10.) Defendants further admit that an IPO of the

combined company would have benefited all shareholders, including the legacy minority

shareholders of SCI. Defendants further admit that Plaintiffs paraphrase and quote from a Bank

of America document, that document speaks for itself, and Defendants deny any allegations

inconsistent with that document. Except as expressly admitted and stated, Defendants deny any



Defendants admit that FITG was a private company before the merger, its financial performance

was only disclosed as part of the merger process, and any notion that the merger helped hide

FITG’s financial performance is incorrect. Except as expressly admitted and stated, Defendants



Defendants admit that WLR specializes in distressed investments that are risky and may take

time to realize value. Defendants further admit that Mr. Ross and WLR have raised billions of

dollars for newly established Funds since NITG’s common stock began being offered at a low

price on the OTCBB. Except as expressly admitted and stated, Defendants deny any remaining


- 50 - Greenville: 819718 v.1


Defendants admit that Amvescap, PLC’s purchase of WLR was agreed to long before the merger

was disclosed and played no role in that transaction. Defendants further admit that the merger

had no effect on the amount of money received by Amvescap, PLC or Mr. Ross as part of that

transaction. Except as expressly admitted and stated, Defendants deny any remaining allegations

in Paragraph 200.


Defendants admit that SCI’s Board of Directors approved the merger in reliance on the

recommendation of the SCI Special Committee because the merger made good business sense

and addressed SCI’s significant needs. Defendants further admit that, at the time of the merger,

SCI was exposed to significant performance risks as a standalone entity, and that risk would only

have grown from that point forward due to the later implosion of the automotive market that saw

SCI’s market cut in half. Defendants further admit that SCI’s minority shareholders did not have

an interest in FITG and that FITG’s minority shareholders did not have an interest in SCI, which

is why both sets of minority shareholders were represented by independent special committees

that negotiated the exchange ratio and recommended that the merger be approved. Except as



Defendants admit that FITG never received a “going concern” opinion and was never advised it

was in danger of insolvency. Except as expressly admitted and stated, Defendants deny any


- 51 - Greenville: 819718 v.1

230. Defendants state that the allegations “THE MERGER – Background Facts” and

“The First Standstill Waiver by Tessoni” preceding Paragraph 203 are so vague that Defendants

are without knowledge or information to form a belief as to the truth of those allegations.


Defendants admit that FITG was formed in 2004 when certain assets of Burlington Industries

and Cone Mills were combined. Defendants further admit that WLR is a management company

and owns no shares in FITG, SCI, or NITG. Except as expressly admitted and stated,



Defendants admit that Fund III purchased its controlling interest in SCI in December 2005 from

the Zapata Corporation (“Zapata”). Defendants further admit that, in the Menezes deposition

testimony cited in Paragraph 204, Menezes admits that he is speculating about Zapata’s

motivations for selling to WLR. Defendants further state that Zapata sold its controlling interest

in SCI because it was unable to sell the entire company because there were no interested sellers

and Zapata wanted to capitalize its investment in SCI before the company lost even more value

or went bankrupt as a standalone. (See Freeman Ex. 29 (Zapata Corporation Schedule 14C at 6-9

[explaining reasons for sale])). Except as expressly admitted and stated, Defendants deny any



Defendants admit that Fund III made the far superior offer for the controlling interest of SCI,

offering more than $1.00 per share than D.E. Shaw and made many fewer demands and revisions

to the purchase agreement than D.E. Shaw. (See Freeman Ex. 29 (Zapata Corporation Schedule

14C at 6-9)). Defendants further state that there were no bidders for Zapata’s SCI shares other

- 52 - Greenville: 819718 v.1

than Fund III, Fund II, and D.E. Shaw. (Id.) Except as expressly admitted and stated,



Defendants admit that WLR entered into a confidentiality agreement with SCI before Fund III

purchased its controlling interest in SCI. Defendants further admit that the confidentiality

agreement contained a “standstill provision” that, among other things, precluded WLR or any of

its affiliates from purchasing stock in SCI without its consent. Except as expressly admitted and



Defendants admit that Dr. Tessoni, the lone independent director on SCI’s Board and the lone

Continuing Director as defined by SCI’s articles of incorporation, was named to a single person

special committee by the Zapata controlled SCI Board to consider the request to waive the

standstill provision (i.e., provide the required company consent) so that Fund III could purchase

its controlling interest in SCI. Except as expressly admitted and stated, Defendants deny any




Defendants admit that Zapata sold 3,920,975 shares of SCI to Fund III and 241,419 shares of

SCI to Fund II. Defendants further admit that Fund II and Fund III purchased these shares for

$12.30 per share. Defendants further admit that on the day of the sale, December 2, 2005, SCI’s

asked for price on the OTCBB was $15.00 per share. Except as expressly admitted and stated,



- 53 - Greenville: 819718 v.1


Defendants admit that Dr. Tessoni was independent and adversarial while serving on the SCI

special committee, and was not improperly influenced by any of the interested directors, officers,

or managers of FITG or SCI. Defendants further admit that Dr. Tessoni testified that he was not

pressured whatsoever by an interested director, officer, or manager of FITG or SCI. (Tessoni

Depo at 815.) Except as expressly admitted and stated, Defendants deny the allegation “The

Second Standstill Waiver – The Co-Opting of Tessoni” preceding Paragraph 211.



Defendants admit that, on December 2, 2005, WLR requested an unlimited waiver of the

standstill provision in the confidentiality agreement. Defendants further admit that, on that same

date, the SCI Board created a special committee consisting of Dr. Tessoni, the lone independent

director on SCI’s Board and the lone Continuing Director as defined by SCI’s articles of

incorporation, to consider that request. Except as expressly admitted and stated, Defendants




Defendants admit that, in January and February 2006, management of FITG and SCI continued

meetings that had begun in the Fall of 2005 to discuss potential synergies between the two

companies. Defendants further admit that, in February 2006, management of FITG and SCI

discussed combining the two textile companies to capitalize on synergies and other cost savings.


Paragraph 214.

- 54 - Greenville: 819718 v.1


Defendants admit that SCI corporate counsel advised Menezes, SCI’s CFO and interim CEO, to

have the SCI Board of Directors appoint an independent special committee to oversee any

transaction between SCI and a WLR affiliate. Defendants further admit that all interested parties

were made aware of this fact, including Messrs. Gorga, Gibbons, and Ross. Defendants further

admit that Mr. Ross promptly agreed with SCI’s corporate counsel and directed that the process

be overseen by the independent special committee created by SCI’s Board on December 2, 2005.


Paragraph 215.


Defendants admit that the email partially quoted in Paragraph 216 reads as follows:

I believe we need to reach out and co-opt Tessoni as we discussed. Mike, have you and WLR spoken to him? Separately, as Joe and I have discussed, our position is that we will address compensation issues as part of the integration, or if the decision is made to keep the companies separate, at that time. At the appropriate time, someone needs to have a heart to heart with Tamme. (Wax Ex. 410; emphasis added).

Defendants further admit that Mr. Gibbons responded to this email as follows:

I spoke to Dan Tessoni on Monday and he indicated that he appreciated the conversation, was expecting something of this nature since we became involved, and did not see a need to become involved in the details until something more solid was proposed that would affect the minority shareholders. He had no issues. The conversation with him did not indicate to me that he would have wanted to be kept in this inner loop of the discussions. (Wax Ex. 410; emphasis added).

Defendants further admit that Mr. Wax testified that this email chain does not appear to be

talking about the standstill waiver issue. (Wax Dep. at 214:4-11). Defendants further admit that

Mr. Gibbons testified that he recalled no discussions of “co-opting” Tessoni, and that this email

- 55 - Greenville: 819718 v.1

chain referred to compensation issues. (Gibbons Dep. at 298:11–22.) Except as expressly



Defendants admit that Dr. Tessoni testified about Tessoni Ex. 35, which is partially quoted in

Paragraph 217, as follows:

Q [Reading from Tessoni Ex. 35] "I know you mentioned in your voicemail message the other day that things were 'getting ugly.' I assume you have more detailed information than I do at this point." What was that all about?

A Well, to the best of my recollection, it was about the fact that communications were very, very difficult. And my ability to respond on a timely basis to everybody's inquiries was inconsistent. So to me, that would have caused me to say, you know, I'm traveling here, I can't get emails very consistently. The telephones, my work schedule, and everybody else's availability is making things difficult. So I would -- if I recall -- I just know it was a frustrating scenario at that time. So I may have described it as "getting ugly." It was difficult.

Q Well, did you -- in terms of getting ugly, did you -- did you feel that you were under pressure from Ross?

A Absolutely not. (Tessoni Dep at 815:7-25; emphasis added)


Paragraph 217.


Defendants admit that the “principal purpose of Dave [Phillip’s] phone call was to ask whether

Dan had formally acted on the request to waive the standstill provision of the Confidentiality

Agreement.” (Tessoni Ex. 35.) Defendants further admit that the SCI Special Committee did

not conditionally waive the standstill provision until more than two weeks after Mr. Phillips

made the phone call referred to in Tessoni Ex. 35. Defendants further admit that Tessoni Ex. 35,

partially quoted in Paragraph 218, speaks for itself and Defendants deny any allegations

- 56 - Greenville: 819718 v.1

inconsistent with the content of that document. Except as expressly admitted and stated,



Defendants admit that Dr. Tessoni testified about Tessoni Ex. 38, which is partially quoted in

Paragraph 219, as follows:

Q That I -- if I can recall it, Counsel, and I can't tell you exactly, but I was concerned about the fact that I wasn't available to address the issues in a more timely manner, and it would be reasonable for me, given what I see here, to think that they were like, "Can we -- can we get this matter addressed." And when it says "double teamed," all it means to me is there was more than one person on the call. (Tessoni Dep. at 824:18-25; emphasis added.)


Paragraph 219.



Defendants admit that Dr. Tessoni, in his role as the member of the SCI Special Committee,

required FITG to sign a confidentiality agreement before reviewing any non-public SCI

information. Defendants further admit that the SCI Special Committee, as consideration for

conditionally waiving the standstill provision, imposed a 30-day time limit in which FITG was to

investigate a possible transaction with SCI and, if a transaction was to be pursued, required that

the SCI Board of Directors create a new special committee to review, evaluate, investigate,

negotiate, and approve that transaction. Except as expressly admitted and stated, Defendants



Defendants admit that the SCI Special Committee, as consideration for conditionally waiving the

standstill provision, imposed a 30-day time limit in which FITG was to investigate a possible

- 57 - Greenville: 819718 v.1

transaction with SCI and, if a transaction was to be pursued, required that the SCI Board of

Directors create a new special committee to review, evaluate, investigate, negotiate, and approve

that transaction. Except as expressly admitted and stated, Defendants deny the allegation “The

Problematic Basis for the Second Standstill Waiver” preceding Paragraph 222.


Defendants admit that the SCI Special Committee, as consideration for conditionally waiving the

standstill provision, imposed a 30-day time limit in which FITG was to investigate a possible

transaction with SCI and, if a transaction was to be pursued, required that the SCI Board of

Directors create a new special committee to review, evaluate, investigate, negotiate, and approve

that transaction. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that Dr. Tessoni served on a single person special committee for SCI before

the independent special committee created by SCI’s Board on December 2, 2005. Defendants

further state that before Fund III purchased a controlling interest in SCI, Dr. Tessoni served on a

single person special committee after having been appointed by Zapata affiliated directors.

Defendants further admit that Mr. Menezes found Dr. Tessoni’s work on that prior special

committee acceptable when Mr. Menezes received $620,000 in bonuses as a result of that special

committee’s work. Defendants further incorporate their responses to Paragraphs 273-276 as

though fully set forth herein. Except as expressly admitted and stated, Defendants deny any



Defendants admit that Plaintiffs attempt to quote and paraphrase from certain resolutions of the

- 58 - Greenville: 819718 v.1

SCI Special Committee, that the term “Potential Transaction” is defined in those resolutions and

those resolutions speak for themselves, and Defendants deny any allegations inconsistent with

those resolutions. Defendants further admit that SCI had gone through a prolonged two year sale

process in which it could not sell the entire company, but could only peddle the majority interest

to distressed investors. Defendants further admit that SCI’s prior Board, when selling control to

Fund III, stated that SCI would benefit from vertical integration and WLR’s experience with

building businesses, and the Potential Transaction was designed toward that end. Except as


255. Defendants respond to Paragraph 225 of the Complaint by incorporating their

responses to Paragraphs 298-302 as though fully set forth herein, and otherwise deny any



Defendants admit that Plaintiffs attempt to paraphrase and quote Tessoni Deposition Ex. 49,

which are resolutions from a September 23, 2005 meeting of a SCI special committee in which

Dr. Tessoni reported on his meeting with Mr. Ross that led to Dr. Tessoni approving the sale of

the Zapata majority of SCI. Defendants further state that Mr. Ross’s earlier statements were

consistent with waiving the standstill provision, as no vertical integration or restructuring could

take place without the standstill provision first being waived. Except as expressly admitted and


257. Defendants state that the allegation “FITG Conducts Diligence on SCI and

Recommends Buying SCI” preceding Paragraph 227 is so vague that Defendants are without

knowledge or information to form a belief as to the truth of that allegation.

- 59 - Greenville: 819718 v.1


Defendants admit that FITG executed the confidentiality agreement on March 15, 2006, the day

before the standstill provision was waived, on March 16, 2006. Compare Smith Dep. Ex. 168

and Tessoni Dep. Ex. 40 [March 15, 2006 Confidentiality Agreement] with Tessoni Dep. Ex. 41

[Resolutions waiving standstill provision]. Defendants further admit that a prerequisite

demanded by the SCI special committee for waiving the standstill provision was that FITG

execute and agree to be bound by the confidentiality agreement from September 2005.

Defendants further admit that as part of the thirty day review period imposed by the SCI special

committee, FITG performed a pre-transaction investigation of SCI to further explore a potential

transaction between FITG and SCI. Except as expressly admitted and stated, Defendants deny



Defendants admit that in 2005 and early 2006 FITG and SCI had undertaken a bilateral review to

identify synergies among the companies and so that FITG management, which had greater

technical knowhow, could assist SCI with production and other manufacturing problems.

Defendants further state that Mr. Menezes did not stop “diligence” on SCI because no

transaction had been defined or discussed, and merger related diligence could not begin until

April 13, 2006, when SCI established a special committee to review, evaluate, investigate,

negotiate, and approve that potential transaction. Defendants further admit that diligence was

performed by the special committees’ advisors for both companies beginning on April 13, 2006

through the end of August 2006. Except as expressly admitted and stated, Defendants deny any


- 60 - Greenville: 819718 v.1


Defendants admit that FITG personnel, pursuant to the demand made by the SCI special

committee and approved by SCI’s corporate counsel, conducted a pre-transaction investigation

of SCI that included meeting with SCI management on March 24 and 25, 2006. Except as



Defendants admit the Plaintiffs purport to paraphrase and quote from Wax Dep. Ex. 414 and

Smith Dep. Ex. 178, those documents speak for themselves, and Defendants deny any allegations

inconsistent with those documents. Defendants further admit that the results of the pre-

transaction investigation of SCI led FITG management to recommend that FITG and SCI move

forward with a possible merger. Except as expressly admitted and stated, Defendants deny any



Defendants admit that FITG’s Board agreed with management’s pre-transaction recommendation

that FITG and SCI move forward with a possible merger and that FITG took additional steps to

combine with SCI. Defendants further admit that as of April 6, 2006, neither SCI nor FITG had

conducted sufficient merger diligence, agreed to a merger structure, agreed to (or even drafted) a

merger agreement, or determined the consideration for the merger. As Mr. Ross testified:

Q. Do you recall that being the case, that you all, to use Mr. Wax's terminology, definitively decided to combine SCI and ITG at that board meeting?

A No, I don't think so. We decided to go ahead with the process. That's all.

Q You think Mr. Wax was overstating the case?

A I do.

- 61 - Greenville: 819718 v.1

Q To say definitively deciding?

A Sure. We didn't have a merger document. We didn't have anything. (Ross Depo. at 392-93.)


Paragraph 231.


Defendants admit that Mr. Wax was the “point person” at WLR concerning the merger and was

the WLR employee responsible for overseeing the merger and providing information about the

merger to other WLR personnel. Defendants admit the Plaintiffs purport to paraphrase and quote

from Wax Dep. Ex. 414, that document speaks for itself, and deny any allegations inconsistent

with its contents. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that SCI conducted detailed due diligence on FITG as part of the merger.

Except as expressly admitted and stated, Defendants deny the allegation “SCI Not Authorized to

Conduct Diligence on FITG” preceding Paragraph 233.


Defendants admit that SCI was authorized to and, in fact, did perform due diligence on FITG.

Defendants further state that FITG, as a privately held company with a common owner of SCI,

did not have the same confidentiality concerns as SCI, a publicly held company, that necessitated

a confidentiality agreement be signed during the pre-transaction investigative period.

Defendants further admit that the advisors to the SCI special committee signed confidentiality

agreements when accessing FITG’s information from the “due diligence room” that was set up

- 62 - Greenville: 819718 v.1

after April 13, 2006 when the merger diligence began. Except as expressly admitted and stated,



Defendants admit that Plaintiffs purport to paraphrase and quote Mr. Duerk’s deposition

testimony, that testimony speaks for itself, and deny any allegations inconsistent with it.

Defendants further admit that the SCI Board exclusively delegated responsibility for reviewing,

evaluating, investigating, negotiating, and approving any transaction with FITG to the SCI

special committee and its advisors. Except as expressly admitted and stated, Defendants deny



Defendants admit that Plaintiffs purport to paraphrase and quote Dr. Tessoni’s deposition


Defendants further admit that Dr. Tessoni, on behalf of the SCI special committee, engaged

advisors to perform due diligence and consult with him concerning the merger transaction.

Defendants further admit that the advisors to the SCI special committee presented their diligence

findings to Dr. Tessoni, answered his many questions, and discussed diligence items raised by

the merger. Except as expressly admitted and stated, Defendants deny any remaining allegations

in Paragraph 235.


Defendants admit that Plaintiffs purport to paraphrase and quote Mr. Choy’s deposition


Defendants further state that RSM performed due diligence on FITG, created models testing

- 63 - Greenville: 819718 v.1

FITG’s business plan and projections, and conducted valuations of FITG. Except as expressly



Defendants admit that Plaintiffs purport to paraphrase and quote Mr. Choy’s deposition


Defendants further state that RSM performed due diligence on FITG, created models testing

FITG’s business plan and projections, and conducted valuations of FITG. Except as expressly



Defendants admit that SCI and FITG management were not independent in the context of the

merger and could not conduct independent diligence like the independent advisors to the

respective special committees to whom the task of diligence was assigned. Except as expressly



Defendants admit that SCI and FITG were both textile weaving companies and had significant

overlap and synergies. Defendants further admit that many members of SCI management,

including Stephen Duerk, Bill Nelli, Vick Crowley, Bart Hanaway, and Uwe Zimmerman, were

in favor of the merger. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that FITG management had to make a presentation to its Board about going

forward with a potential transaction with SCI because the SCI special committee set forth a

review time period and demanded that FITG make a decision about a transaction with SCI within

- 64 - Greenville: 819718 v.1

thirty days. Defendants further admit that FITG made no such demands on SCI and that a

premerger investigation about a potential transaction was not necessary as SCI and FITG would

conduct further diligence on the companies as part of the merger process. Defendants further

state that Mr. Menezes was SCI’s interim CEO in April 2006 and could have either demanded an

opportunity to conduct a similar pre-transaction investigation of FITG or ask the SCI special

committee to demand one. Except as expressly admitted and stated, Defendants deny any



Defendants admit that SCI’s minority shareholders could have sold their stock in SCI or NITG at

any time before or after the merger. Defendants further admit that taking SCI private was not

worth the cost of buying out the minority shareholders and that capital outlays would be better

spent on improving the company. Except as expressly admitted and stated, Defendants deny the

allegation “Ross Directs That SCI Acquire FITG (Instead of FITG Acquiring SCI) To Avoid

Spending Cash to Buy Out Minority Shareholders” preceding Paragraph 241.


Defendants admit that Plaintiffs purport to paraphrase and quote from Wax Dep. Ex. 414, that

document speaks for itself, and deny any allegations inconsistent with it. Defendants further

admit that Wax Dep. Ex. 414 is management’s recommendation concerning the merger without

regard to merger structure or any legal or tax implications arising from merger structure. Except



Defendants admit that Plaintiffs purport to paraphrase and quote from Mr. Wax’s deposition, that

testimony speaks for itself, and deny any allegations inconsistent with it. Defendants further

- 65 - Greenville: 819718 v.1

admit that Mr. Wax’s testimony cited to in Paragraph 242 is Mr. Wax agreeing to a math formula

presented by Plaintiffs’ counsel mulitplying market cap by the number of minority shares:

Q. Well, if the stock was trading at about 14, $14.50 at the time and they [SCI minority shareholders] were 25 percent, I think the company's market cap was roughly $80 million. Does that sound about right?

A. No. Well, I can't -- you know, in the back of my mind, I thought the market cap was more like $50 million or -- no, no. We paid $55 million for it so it was probably $80 million, so yeah, it was probably $25 million plus.

Q. To buy out the minority shareholders?

A. At the current market price.

Q. At the then current market price?

A. At the then current market price. (Wax Dep. at 255-56.)


Paragraph 242.


Defendants admit that, as set forth in response to Paragraph 242 of the Complaint, Mr. Wax was

generally agreeing to a math formula presented by Plaintiffs’ counsel where he multiplies market

cap by the number of minority shares and was not providing an opinion on the value of SCI at

the time of the merger based on his “insider information about SCI” or his expertise as a

“sophisticated buy-out professional.” Except as expressly admitted and stated, Defendants deny



Defendants admit that no cash was paid out as part of the merger and that it was a stock for stock

transaction. Defendants further admit that a subsidiary of SCI acquired FITG and SCI was the

surviving company after the transaction, which allowed SCI’s minority shareholders to sell their

- 66 - Greenville: 819718 v.1

shares either before or after the closing of the merger. Except as expressly admitted and stated,





admit that Messrs. Ross and Wax did not want to use expensive capital to buy out minority

shareholders because it was not important for SCI to be a private company, Mr. Ross had told

Dr. Tessoni before SCI was purchased that he intended to keep SCI a publicly traded company,

and that capital could be better used to fund acquisitions or otherwise benefit the company’s

growth. (Wax Dep. at 259-61; Ross Dep. at 395-98; Tessoni Ex. 49.) Except as expressly



Defendants admit that Plaintiffs purport to paraphrase and quote from Gorga Dep. Ex. 205, that


admit that Messrs. Ross and Wax did not want to use expensive capital to buy out minority

shareholders because it was not important for SCI to be a private company, Mr. Ross had told

Dr. Tessoni before SCI was purchased that he intended to keep SCI a publicly traded company,

and that capital could be better used to fund acquisitions or otherwise benefit the company’s

growth. (Wax Dep. at 259-61; Ross Dep. at 395-98; Tessoni Ex. 49.) Except as expressly


280. Defendants state that the allegation “The WLR Proposal for Merging FITG into

SCI” preceding Paragraph 247 is so vague that Defendants are without knowledge or information

to form a belief as to the truth of that allegation.

- 67 - Greenville: 819718 v.1


Defendants admit that Plaintiffs purport to paraphrase and quote from Wax Dep. Ex. 440 and

Gorga Dep. Ex. 205, that those documents speak for themselves, and deny any allegations

inconsistent with them. Defendants admit that on May 30, 2006, WLR submitted a proposal

concerning the structure of the merger to FITG’s and SCI’s special committees. Except as



Defendants admit that the May 30, 2006 proposal from WLR to the FITG and SCI special

committees also included a proposed exchange ratio formula to serve as a reference point for the

special committees and that proposed exchange ratio formula was not used to calculate the

agreed upon exchange ratio for the merger. Except as expressly admitted and stated, Defendants



Defendants admit that FITG had significant assets that were not reflected on its books because

accounting rules required that certain assets be carried on FITG’s books at zero value due to

FITG’s constituent companies—Burlington Industries and Cone Mills—being purchased out of

bankruptcy. Defendants further admit that the May 30, 2006 proposal from WLR to the FITG

and SCI special committees also included a proposed exchange ratio formula to serve as a

reference point for the special committees and that proposed exchange ratio formula was not

used to calculate the agreed upon exchange ratio for the merger. Except as expressly admitted

and stated, Defendants deny any remaining allegations in Paragraph 249.



- 68 - Greenville: 819718 v.1


admit that the May 30, 2006 proposal from WLR to the FITG and SCI special committees also

included a proposed exchange ratio formula to serve as a reference point for the special

committees and that proposed exchange ratio formula was not used to calculate the agreed upon

exchange ratio for the merger. Except as expressly admitted and stated, Defendants deny any



Defendants admit that the proposed exchange ratio formula, at the time the Prospectus was filed

on September 1, 2006, would have yielded an exchange ratio of FITG shareholders owning

61.8% and SCI shareholders owning 38.2% of the combined company because FITG’s balance

sheet changed between March and September 2006. Defendants further admit that as of May 30,

2006, the proposed exchange ratio formula would have yielded an exchange ratio of FITG

shareholders owning approximately 63% and SCI shareholders owning approximately 37% of

the combined company. Except as expressly admitted and stated, Defendants deny any





admit that the May 30, 2006 proposal from WLR to the FITG and SCI special committees also


committees and that proposed exchange ratio formula was not used to calculate the agreed upon

exchange ratio for the merger. Defendants further admit that the May 30, 2006 proposal stated

that FITG shareholders “would own approximately 65% of the post-Merger entity,” was

- 69 - Greenville: 819718 v.1

included for example purposes only, and was not controlling on the special committees. Except



Defendants admit that the SCI special committee and its advisors conducted detailed due

diligence of FITG on behalf of SCI’s minority shareholders. Except as expressly admitted and



Defendants admit that before the merger Fund III held the majority of shares of SCI and after the

merger ITH held the majority of shares of NITG. Defendants further admit that the SCI special

committee and its advisors conducted detailed due diligence on FITG on behalf of SCI’s

minority shareholders. Defendants further admit that the May 30, 2006 proposal from WLR to

the FITG and SCI special committees also included a proposed exchange ratio formula to serve

as a reference point for the special committees and that proposed exchange ratio formula was not

used to calculate the agreed upon exchange ratio for the merger. Except as expressly admitted



Defendants admit that a dividend of 1/9 of all SCI shares was issued before the merger and that

those shares were escrowed for indemnification purposes and increased the number of SCI

shares issued to SCI’s legacy shareholders in NITG. Defendants further admit that these

additional escrowed shares were distributed and Plaintiffs waited for this distribution before

filing this lawsuit. Defendants further admit that SCI was the surviving company after the

merger and that SCI shareholders who did not agree with the merger or that combining FITG and

SCI was a good investment could have sold their shares at any time and received consideration

- 70 - Greenville: 819718 v.1

for their shares. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that SCI shareholders did not have appraisal rights because they were the

surviving shareholders in the corporation and could have sold their shares at any time, unlike

FITG shareholders who had no market for their shares until the merger closed. Except as



Defendants admit that all legacy SCI shareholders were diluted—including SCI’s majority

shareholder, Fund III—as a byproduct of additional shares in NITG being issued. Defendants

further admit that SCI’s public status was likely a negative factor for the merger because it

increased costs, audit fees, and the complexity of the deal. Defendants further admit that SCI’s

liquidity was insufficient for FITG’s long term needs, and SCI’s liquidity steadily shrank from

2004 through 2009 when the division representing legacy SCI went bankrupt during the historic

collapse of the automotive market that saw General Motors and Chrysler declare bankruptcy.


Paragraph 257.


Defendants admit that SCI was the surviving company after the merger and that SCI

shareholders who did not agree with the merger, FITG’s business plan, or that combining FITG

and SCI was a good investment could have sold their shares at any time and were not “forced” to

invest in NITG. Defendants further admit that investing in NITG was patently risky and that the

- 71 - Greenville: 819718 v.1

risks were publicly disclosed. Except as expressly admitted and stated, Defendants deny any



Defendants admit that as part of merger due diligence the SCI special committee had access to

FITG’s internal forecasts, projections, budgets, and business plans, as well as any other materials

it requested or believed necessary to evaluate the merger and exchange ratio. Except as



Defendants admit that as part of merger due diligence the SCI special committee had access to

FITG’s internal forecasts, projections, budgets, and business plans, as well as any other materials

it requested or believed necessary to evaluate the merger and accompanying exchange ratio.

Defendants further admit that with the exception of the independent directors named to the FITG

and SCI special committees, SCI’s and FITG’s directors, officers, and management were

interested in the transaction and could not have independently reviewed the transaction or

negotiated the exchange ratio. Defendants further admit that SCI’s interested directors approved

the merger in reliance on the recommendation of the SCI special committee, as they are entitled

to do under Delaware law. Defendants further admit that the SCI directors were familiar with

FITG and, in their respective business judgment, believed in the merger made sense for FITG

and SCI. Defendants further incorporate their responses to Paragraphs 233 through 240 as

though fully set forth herein. Except as expressly admitted and stated, Defendants deny any




- 72 - Greenville: 819718 v.1


and SCI was a good investment could have sold their shares at any time. Except as expressly



Defendants admit that Article Sixth of SCI’s charter expressly authorized a Continuing Director,

like Dr. Tessoni, to approve transactions like the merger. Defendants further admit that if the

merger had been put to a super majority, minority shareholder vote, it still would have had to

have been negotiated by Dr. Tessoni. Defendants further admit that institutional investors, like

FURSA and Ramius, constituted a majority of the minority and, unlike Dr. Tessoni, owed no

fiduciary duties to the other minority shareholders and could have used that leverage to broker

special deals or vote down appropriate transactions that other minority shareholders would have

approved. Defendants further admit that FURSA and Ramius contemplated filing a lawsuit to

enjoin the merger, but opted not to do so, implicitly voting in favor of the transaction.

Defendants further incorporate their responses to Paragraphs 211-221 that show Dr. Tessoni was

not co-opted or otherwise induced to approve the merger, waive the standstill provision, or to

undertake any improper act. Except as expressly admitted and stated, Defendants deny any





and SCI was a good investment could have protected their interests by selling their shares.


Paragraph 263.

- 73 - Greenville: 819718 v.1


Defendants admit that the SCI special committee was expressly authorized by SCI’s Articles of

Incorporation to consider transactions like the merger. Except as expressly admitted and stated,

Defendants deny the allegation “SCI Board Creates a Special Committee to Consider the Merger

but it is Fatally Flawed” preceding Paragraph 264.


Defendants admit that SCI formed the merger special committee on April 13, 2006, that WLR

provided that committee with a proposal for the merger on May 30, 2006, and thus it was

impossible for the SCI special committee to be formed “in response” to WLR’s proposal as

alleged in Paragraph 264. Defendants further admit that the SCI special committee formed to

decide on the waiver of the standstill provision in the confidentiality agreement demanded that a

merger special committee be formed if a potential transaction was sought between FITG and

SCI. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 264.


Defendants admit that the SCI special committee for the merger was formed because the prior

special committee formed to review the request to waive the standstill provision required that a

merger special committee be formed if a potential transaction was pursued by FITG and SCI.

Defendants further admit that the SCI special committee for the merger was expressly authorized

by SCI’s charter to approve transactions like the merger, and would have had to negotiate the

terms of the deal and the exchange ratio even if the merger was put to a super majority vote of

minority shareholders who owed no fiduciary duties to the other minority shareholders.

Defendants further state that the business judgment standard of review applies to this matter and,

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in the unlikely event that it does not, Plaintiffs bear burden to show that the transaction was not

entirely fair. Except as expressly admitted and stated, Defendants deny any remaining



Defendants state that this is a legal conclusion that is not subject to admission or denial.

Defendants further state that the business judgment standard of review applies to this matter and,

in the unlikely event that it does not, Plaintiffs bear burden to show that the transaction was not

entirely fair. To the extent a response is possible, and except as expressly admitted and stated,

Defendants deny the allegations in Paragraph 266.

302. Defendants state that the allegation “Single Member Special Committee Is

Inherently Suspect Under Delaware Law” preceding Paragraph 267 is a legal conclusion not

subject to admission or denial. To the extent a response is possible, Defendants deny this

allegation. See, e.g. In re Energy, L.P. Unitholder Litig., No. 5816-VCP, 2010 WL 4273197, at

*14 (Del. Ch. Oct. 29, 2010) (approving one-person committee where only one director was

independent: “This Court’s entire fairness cases in the corporate context have recognized that it

is often preferable to create a special committee with more than one director, but that doing so is

not required to find that the special committee properly carried out its duties.”).



special committee formed to review the request to waive the standstill waiver required that a new

special committee be formed if a potential transaction was pursued by FITG and SCI.

Defendants further admit that the SCI merger special committee was expressly authorized by

SCI’s charter to approve transactions like the merger, and would have had to negotiate the terms

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of the deal and the exchange ratio even if the merger was put to a super majority vote of minority

shareholders, shareholders who owed no fiduciary duties to the other minority shareholders.


Paragraph 267.



special committee formed to review the request to waive the standstill waiver required that a new

special committee be formed if a potential transaction was pursued by FITG and SCI.

Defendants further admit that WLR had no control or influence over the demand made by the

SCI special committee reviewing the request to waive the standstill waiver. Defendants further

admit that the SCI merger special committee was expressly authorized by SCI’s charter to

approve transactions like the merger, and would have had to negotiate the terms of the deal and

the exchange ratio even if the merger was put to a super majority vote of minority shareholders,

shareholders who owed no fiduciary duties to the other minority shareholders. Except as



Defendants incorporate their responses to Paragraphs 267-268 that show WLR and Tessoni did

not “engineer” an illicit SCI special committee, but that SCI’s special committee for the merger

was expressly provided for in SCI’s Articles of Incorporation. Defendants further incorporate

their responses to Paragraphs 211-221 that show Dr. Tessoni was not co-opted or otherwise

induced to approve the merger, waive the standstill provision, or to undertake any improper act.


Paragraph 269.

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Defendants admit that FITG’s charter differed from SCI’s charter in several respects, including a

provision that special committees be made up of two independent directors. Defendants further

admit that FITG’s charter did not have anti-takeover provisions like SCI’s charter—including

requiring a supermajority of minority shareholders to approve a merger and/or limiting approvals

of mergers to the Continuing Directors—provisions which had been added by the bondholders

who acquired SCI out of bankruptcy. Defendants further state that FITG waived its requirements

concerning the number of directors of its merger special committee because it only had one

independent director and, as SCI only had one independent director, believed that the transaction

would be fairer if two single member special committees negotiated the transaction as compared

to a multi-member special committee negotiating with a single member. Defendants further state

that both special committee’s single members were advised by independent legal and financial

advisors, thereby muting the concerns of single person special committees. Except as expressly



Defendants incorporate their response to Paragraph 270 that shows that any concerns about

single person special committees were addressed in the transaction here. Defendants further

admit that adding additional independent directors to FITG’s and SCI’s board of directors was

not a viable option because of the timing of the transaction, the cumbersome search required to

find suitable candidates, and the likely unwillingness of suitable candidates to serve as an

independent director under the circumstances. Except as expressly admitted and stated,


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Defendants admit that adding additional independent directors to FITG’s and SCI’s board of

directors was not a viable option because of the timing of the transaction, the cumbersome search

required to find suitable candidates, and the likely unwillingness of suitable candidates to serve

as an independent director under the circumstances; as Dr. Tessoni explained:

A. Well, to bring somebody in at that point would have taken some diligence, I believe. We would have had to vet the person, and I was comfortable that given my advisors and the empowerment given to the committee, that could move forward, apparently, since I did.

Q. Do you recall being advised by your legal counsel that there were – I don’t know how to put it, that there were issues or challenges with a single-member special committee?

A. I didn’t need to be advised by anybody, Counsel. I was quite aware of it. (Tessoni Dep at 1092-93.)

Defendants further admit that SCI’s charter bestowed all power in approving additional

Continuing Directors to the existing Continuing Director, Dr. Tessoni, so that if he believed

additional Continuing Directors were needed to examine the merger transaction, he could have

independently taken steps to pursue that option. Except as expressly admitted and stated,


309. In response to Paragraph 273 of the Complaint Defendants incorporate their

response to Paragraph 270 that shows that the concerns about single person special committees

were addressed in the transaction here. Defendants further state that this is a legal conclusion

that is not subject to admission or denial. Defendants further state that single person special

committees are permitted under Delaware law. See, e.g., In re Energy, L.P. Unitholder Litig.,

No. 5816-VCP, 2010 WL 4273197, at *14 (Del. Ch. Oct. 29, 2010) (approving one-person

committee where only one director was independent: “This Court’s entire fairness cases in the

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corporate context have recognized that it is often preferable to create a special committee with

more than one director, but that doing so is not required to find that the special committee

properly carried out its duties.”). To the extent a response is possible, and except as expressly

admitted and stated, Defendants deny the allegations in Paragraph 273.


response to Paragraph 273 as though fully set forth herein. Defendants further state that this is a

legal conclusion that is not subject to admission or denial and, to the extent a response is

possible, deny the allegations in Paragraph 274.










Defendants admit that Dr. Tessoni served on multiple special committees before the merger, was

the chairman of SCI’s audit committee, and had served on other Boards before SCI. Except as

expressly admitted and stated, Defendants deny the allegation “Tessoni had Inadequate

Experience and Expertise to Handle Such a Role by Himself” preceding Paragraph 277.

314. In response to Paragraph 278 of the Complaint Defendants state that this is a legal

conclusion that is not subject to admission or denial. Defendants further state that Delaware law

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does not set forth requirements of expertise to serve as a special committee member, and that

single person special committees are permitted under Delaware law. See, e.g., In re Energy, L.P.

Unitholder Litig., No. 5816-VCP, 2010 WL 4273197, at *14 (Del. Ch. Oct. 29, 2010) (approving

one-person committee where only one director was independent: “This Court’s entire fairness

cases in the corporate context have recognized that it is often preferable to create a special

committee with more than one director, but that doing so is not required to find that the special

committee properly carried out its duties.”). To the extent a response is possible, and except as

expressly admitted and stated, Defendants deny the allegations in Paragraph 277.


Defendants admit that Dr. Tessoni is a professor of accounting, holds a Ph.D. in accounting, has

served on boards of public companies, and has headed audit committees for corporations,

including SCI and NITG. Defendants further admit that Dr. Tessoni served on special

committees for SCI, including a single person special committee, before Fund III purchased its

controlling interest in SCI. Defendants further admit that Dr. Tessoni was advised by and

consulted with experienced advisors during the merger process. Except as expressly admitted


316. In response to Paragraph 279 of the Complaint, Defendants incorporate their

responses to Paragraphs 277-278 as though fully set forth herein, and deny any remaining





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Defendants admit that the acquisition of BST by Fund III was a cash purchase, not a stock-for-

stock merger, of a privately held European company. Defendants further admit that the SCI

special committee’s advisors discounted FITG’s projections, found them to be aggressive, and,

unlike in the BST transaction, SCI’s advisors based their valuation of FITG on a method that

was, at leas in part, not dependent on FITG’s projections. Defendants further incorporate their

responses to Paragraphs 277-278, and 350 as though fully set forth herein. Except as expressly


322. Defendants deny the allegations in Paragraph 285 of the Complaint and state that

an “earn-out” provision is not a basic concept in mergers and acquisitions, and an “earn-out”

provision was wholly inapplicable under the terms of the transaction here. Defendants further

incorporate their responses to Paragraphs 277-278 as though fully set forth herein. Except as


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Defendants admit that Dr. Tessoni, a college professor, co-authored a case study based on the

facts of the merger years after it was completed to be used as a teaching tool for other academics

to educate their students. Defendants further state that the merger was unusual, particularly

employing the unique structure where two independent special committees were used to

segregate all interested directors, officers, and management from the transaction and negotiate

the exchange ratio without any input from the controlling shareholder. Defendants further state

that the merger was unusual in that it had such strong processes in place to protect the minority

shareholders. Defendants further admit that Plaintiffs purport to quote and paraphrase from

Tessoni Depo. Ex. 80, that document speaks for itself, and Defendants deny any allegations

inconsistent with it. Except as expressly admitted and stated, Defendants deny any remaining


324. Defendants deny the allegations in Paragraphs 287A-G of the Complaint except

Defendants admit that Plaintiffs purport to quote and paraphrase from Tessoni Depo. Ex. 80, that

document speaks for itself, and Defendants deny any allegations inconsistent with it. Defendants

further state that while the case study co-authored by Dr. Tessoni was based on the merger, he

exaggerated and emphasized certain features for teaching purposes. Except as expressly

admitted and stated, Defendants deny any remaining allegations in Paragraphs 287A-G.


Defendants admit that the SCI Special Committee was advised by independent legal and

financial advisors, and the FITG Special Committee did not use or seek additional experts of a

more specific nature. Defendants further state that the SCI Special Committee advisors

addressed Dr. Tessoni’s questions and concerns about the merger, and that Dr. Tessoni had no

- 82 - Greenville: 819718 v.1

reason to seek additional advisors for the merger. Except as expressly admitted and stated,



Defendants admit that SCI had been shopped aggressively by its prior controlling shareholder,

Zapata, from 2004 to 2006 and, even with the help of a strategic marketing expert (Wachovia),

Zapata could not sell all of SCI and ultimately had to sell the controlling interest in SCI at a

discounted rate to a distressed investor. Defendants further state that they do not understand how

Dr. Tessoni could shop the minority block in SCI, but Defendants admit that the minority

shareholders were free to sell their shares at anytime. Defendants further admit that Dr. Tessoni

was aware of the previous sales efforts concerning SCI, and that those sales efforts had been

completed only a few months before the merger process began. Defendants further state that the

SCI Special Committee advisors addressed Dr. Tessoni’s questions and concerns about the

merger, and that Dr. Tessoni had no reason to seek additional advisors for the merger. Except as


327. Defendants deny the allegation “Tessoni was not Independent or Disinterested as

to the Merger” preceding Paragraph 290.


Defendants admit that Dr. Tessoni was independent and insulated from influence from the

interested parties. Defendants further incorporate their responses to Paragraph 270 and 273

which show that single person special committees are permitted under Delaware law and that the

concerns about single person special committees were addressed in the transaction here. Except


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Defendants admit that Dr. Tessoni was paid a flat fee of $40,000 for his work on the SCI Special

Committee, he would have received that payment whether or not he approved the merger, and he

was not offered or paid any additional money contingent upon the merger’s approval.

Defendants further admit that Dr. Tessoni had no financial interest to approve the merger.

Defendants further incorporate their responses set forth in Paragraphs 211-221 that evidence Dr.

Tessoni was not co-opted or otherwise induced to approve the merger, waive the standstill

provision, or to undertake any improper act. Except as expressly admitted and stated,



Defendants admit that Plaintiffs purport to quote and paraphrase from Tessoni Depo. Ex. 1 and

Groga Depo. Exs. 291-292, that those document speaks for themselves, and Defendants deny any

allegations inconsistent with them. Defendants further admit that Dr. Tessoni was paid a flat fee

of $40,000 for his work on the SCI Special Committee, he would have received that payment

whether or not he approved the merger, and he was not offered or paid any additional money

contingent upon the merger’s approval. Defendants further admit that Dr. Tessoni had no

financial interest to approve the merger, and was paid no money by WLR, Fund II, Fund III,

Associates II, Associates III, or any individual defendant in this matter. Defendants further state

that Dr. Tessoni did not expect to be retained on the combined company’s board and that no

communications were made to Dr. Tessoni about his future on NITG’s board until after the

merger was approved. (Tessoni Dep at 238-239.) Defendants further state that income earned

by Dr. Tessoni as a director, head of the audit committee, and member of later special

committees for NITG does not make him interested under Delaware law. In re Walt Disney Co.

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Derivative Litig., 731 A.2d 342, 360 (Del. Ch. 1998), rev’d on other grounds, Brehm v. Eisner,

746 A.2d 244 (Del. 2000) (fact that the salary a director defendant receives from her primary

occupation is low compared to her director’s fees and stock options is insufficient to demonstrate

that a director lacks independence; holding otherwise would expressly overrule Delaware

Supreme Court and preclude “regular folks’” membership on corporate boards). Except as



Defendants admit that Dr. Tessoni was paid director fees for his work at SCI in 2006 that paid

him approximately $114,000, which was approximately the amount he earned as a college

professor. Defendants further admit that 2006 was a very active year for SCI’s Board and for Dr.

Tessoni in particular because he served on the special committee concerning the merger, chaired

many additional audit committee meetings because of late public filings and successor auditor

issues exacerbated by Mr. Menezes while was interim CEO and CFO, and attended additional

Board meetings resulting from the organizational changes in SCI. Defendants further admit that

Dr. Tessoni was paid director fees for his service on NITG’s Board after the merger closed,

including work on additional special committees and as head of the audit committee. Defendants

further state that Dr. Tessoni did not know about the fees that would be paid to him in 2007 and

after at the time he approved the merger, and that these unknown fees were not why he approved

the merger. Defendants further incorporate their response to Paragraph 292 as though fully set

forth herein. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that Mr. Ross had not made any decision about retaining Dr. Tessoni until

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after the merger had been reviewed and the exchange ratio was negotiated. (Gorga Depo. Ex.

254.) Defendants state that Dr. Tessoni did not expect to be retained on the combined

company’s board and that no communications were made to Dr. Tessoni about his future on

NITG’s board until after the merger was approved. (Tessoni Dep at 238-239.) Defendants

further incorporate their responses to Paragraphs 292-293 as though fully set forth herein.


Paragraph 294.


Defendants admit that Dr. Tessoni, like Mr. Gibbons, was a Class I Director and that his term

was due to expire at SCI’s 2007 annual meeting, more than a year after the merger would have

closed. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 295.





Defendants state that income earned by Dr. Tessoni as a director, head of the audit committee,

and member of later special committees for NITG does not make him interested under Delaware

law. In re Walt Disney Co. Derivative Litig., 731 A.2d 342, 360 (Del. Ch. 1998), rev’d on other

grounds, Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (fact that the salary a director defendant

receives from her primary occupation is low compared to her director’s fees and stock options is

insufficient to demonstrate that a director lacks independence; holding otherwise would

expressly overrule Delaware Supreme Court and preclude “regular folks’” membership on

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corporate boards). Except as expressly admitted and stated, Defendants deny any remaining


336. Defendants state that the allegation “The SCI Special Committee was not

Allowed to Consider Other Transactions” preceding Paragraph 298 is so vague that Defendants

are without knowledge or information to form a belief as to the truth of that allegation.


Defendants admit that Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex. 44, that


further admit that, in response to a request from WLR to waive the standstill provision, the SCI

special committee demanded that a new merger special committee be formed to “review,

evaluate, investigate, negotiate, and approve the terms of any Potential Transaction.” Defendants

further state that the SCI special committee independently made this demand knowing that (1)

SCI could not be sold after two years of aggressive marketing, (2) SCI’s controlling interest was

sold at a discounted market rate to distressed investors, (3) the SCI special committee did not

have the power to shop the entire company three months after its controlling interest was

purchased by Fund III, (4) the costs of marketing SCI yet again would have been significant, and

(5) the minority shareholders were free to sell their stock at anytime on the open market. Except



response to Paragraph 298 showing that additional marketing of SCI would have been a costly

and pointless endeavor in light of the preceding two year sales effort. Defendants further state

that it is unclear how or what offers the SCI special committee was supposed to solicit or

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consider in the context of the merger or outside the controlling shareholder’s purview. Except as



response to Paragraph 298 showing that additional marketing of SCI would have been a costly

and pointless endeavor in light of the preceding two year sales effort. Defendants further state

that it is unclear how or what offers the SCI special committee was supposed to solicit or

consider in the context of the merger or outside the controlling shareholder’s purview. Except as



Defendants admit that the SCI special committee conducted an arm’s length negotiation during

the merger, was not captive or beholden to the controlling shareholder during price negotiations,

and that SCI’s Charter gave the SCI special committee powerful leverage over the controlling

shareholder. Defendants further admit that the interested directors, officers, and management

were segregated from the exchange ratio negotiations and that the FITG and SCI special

committees engaged in independent, arm’s length negotiations. Defendants further state that

during the merger SCI was valued at a higher price than what Fund III paid for it in December

2005, and that an unaffiliated third party would have valued SCI at an even lower level than

Fund III had since SCI’s earnings had eroded by approximately 70% in the time between Fund

III’s purchase and the merger. Except as expressly admitted and stated, Defendants deny any



Defendants admit that Dr. Tessoni testified that an alternative to the Ross transaction also “could

be discouraging” in that the open market could have yielded a lower price for SCI. (Tessoni

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Depo. at 840.) Defendants further admit that marketing SCI was an expensive proposition, and

that the first sales efforts cost more than $500,000 in fees and resulted in no serious offers.

Defendants further admit that the combined company continued to pursue additional

transactions, including purchasing BST, a European based airbag manufacturer, that provided

vertical integration and other synergies for SCI. Defendants further incorporate their response to

Paragraph 298 showing that additional marketing of SCI would have been a costly and pointless

endeavor in light of the preceding two year sales effort. Except as expressly admitted and stated,


342. Defendants state that the allegation “The SCI Special Committee was not Fully

Informed” preceding Paragraph 303 is so vague that Defendants are without knowledge or



Defendants admit that FITG’s August 17, 2006 strategic plan (“Strategic Plan”) was provided by

FITG management to the advisors to the special committees. Defendants further admit that the

Strategic Plan was FITG’s management’s best good faith belief and projection of FITG’s future

business outlook. Defendants further admit that this Strategic Plan included certain synergistic

acquisitions that management believed were very likely and had been previously disclosed to and

discussed with the financial advisors for the special committees. Defendants further admit that

Mr. Ross testified that including potential acquisitions in a strategic plan is not unusual. (Ross

Dep. at 259-61.) Defendants further admit that SCI’s projections provided to the special

committees’ advisors also contained business that had neither been obtained nor contractualized.

Defendants further incorporate their responses to Paragraphs 464-478 as though fully set forth

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herein. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 303.


Defendants admit that on or about August 28, 2006, FITG management prepared a projection to

obtain short term bank financing (“Bank Model”), and that the Bank Model was not intended to

be, and never was, FITG’s strategic plan. Except as expressly admitted and stated, Defendants



Defendants admit that the Bank Model was different from the Strategic Plan in content and

purpose, and that the Bank Model had lower projected earnings with less debt whereas the

Strategic Plan had higher projected earnings with greater debt. Defendants further state that

Plaintiffs purport to paraphrase and quote from Spradling Depo. Ex. 338, that document speaks

for itself, and Defendants deny any allegations inconsistent with it. Except as expressly admitted



Defendants admit that the Bank Model was different from the Strategic Plan in content and

purpose, and that the Bank Model was an not an appropriate model to use to value FITG for the

merger. Defendants further incorporate their responses to Paragraphs 433-486 as though fully

set forth herein. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that the Strategic Plan included certain synergistic acquisitions that

management believed were likely and those potential acquisitions were disclosed to and

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discussed with the financial advisors for the special committees. (Choy Depo. at 693-94; 753-

767.) Defendants further admit that SCI’s projections provided to the special committees’

advisors also contained business that had neither been obtained nor contractualized. Except as


348. Defendants state that the allegation “The Special Committee’s Financial Advisor

was Inadequate” preceding Paragraph 308 is so vague that Defendants are without knowledge or



Defendants deny that a “sister company” of RSM (whatever Plaintiffs mean by that term) had

“deep relationships with FITG.” Except as expressly denied, Defendants are without knowledge

to admit or deny the remaining allegations in Paragraph 308.

350. Defendants state that the allegations in Paragraph 309 of the Complaint state a

legal conclusion that is not subject to admission or denial. To the extent a response is possible,



Defendants admit that Dr. Tessoni testified that he did not feel any pressure from WLR.

(Tessoni Depo. at 285.) Except as expressly admitted and stated, Defendants deny the allegation

“The Pressure on Tessoni – The Selection of RSM” preceding Paragraph 310.



Defendants admit that Wachovia, believing it had a conflict, declined to serve as an advisor to

the SCI special committee. Defendants further admit that Raymond James was suggested as a

potential financial advisor for the SCI special committee, but that the SCI special committee

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instead selected RSM. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that Dr. Tessoni testified that he did not feel any pressure from WLR.

(Tessoni Depo. at 285 (“[D]id you feel that you were under pressure from Ross? A Absolutely

not.”).) Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 312.


Defendants admit that Dr. Tessoni testified that he was not getting daily calls and that the

remarks made in Tessoni Depo. Ex. 84 were “probably an exaggeration.” (Tessoni Depo. at

1012-13.) Defendants further admit that the merger could not move forward until the SCI

special committee had a financial advisor in place, and that delays to the merger could

potentially harm SCI’s business. Except as expressly admitted and stated, Defendants deny any



Defendants admit that Dr. Tessoni testified about Tessoni Depo. Ex. 85 as follows:

Q. Dr. Tessoni, had you been, quote, pounded upon relentlessly by a Mr. Wax?

A Maybe, not to the extent where I felt like I needed medical assistance. So he was very outspoken about his view of how the transaction was proceeding per prior discussions in this deposition.

Q And did --

A So when I moved from discussing it with him to discussing it with counsel, I may have been prone to a bit of enhancement.


Paragraph 314.

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Defendants admit that Mr. Wax testified about Wax Depo. Ex. 455 as follows:

Dan, I hate to plead, but you must get Nixon Peabody to start being responsive to someone other than themselves. I should not have to -- it should not have taken almost a month to replace Wachovia. I am under tremendous pressure to get the S-4 filed after the debacle with the Q. Please persuade or order Nixon Peabody to be responsive and timely. (Wax Depo. at 532, reading from Ex. 455.)

Defendants further admit that this email was sent after multiple requests for Nixon Peabody to

provide a revised draft of the merger agreement. Defendants further admit that the “debacle with

the Q” concerned SCI’s late filing of its 10-Q while Mr. Menezes was interim CEO and CFO.

Defendants further admit that completing the merger was important to both FITG’s and SCI’s

businesses. Except as expressly admitted and stated, Defendants deny any remaining allegations

in Paragraph 315.

358. In response to Paragraph 316 of the Complaint, Defendants admit that RSM was

engaged by the SCI special committee. Defendants further admit that Dr. Tessoni testified that

he did not feel any pressure from WLR. Except as expressly admitted and stated, Defendants are

without knowledge or information to form a belief as to the truth about why RSM was engaged

by the SCI special committee or the precise date of RSM’s engagement or any remaining


359. Defendants state that the allegation “RSM’s Lack of Experience and Potential

Conflict of Interest” preceding Paragraph 317 is so vague that Defendants are without knowledge

or information to form a belief as to the truth of that allegation.



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Defendants admit that Plaintiffs purport to quote and paraphrase from Choy Depo. Ex. 85, that

document speaks for itself, and Defendants deny any allegations inconsistent with it. Except as

expressly admitted and stated, Defendants are without knowledge or information to form a belief

as to the truth of the remaining allegations in Paragraph 320.


Defendants admit that Plaintiffs purport to quote and paraphrase from Choy Depo. Ex. 78, that





Defendants admit that RSM bid on additional fairness opinion work related to NITG’s

acquisition of BST, that RSM was not hired to do that work, and that hiring decision was made

by the NITG special committee without input from WLR or any interested directors, officers, or

managers. Except as expressly admitted and stated, Defendants deny any remaining allegations

in Paragraph 322.


Defendants admit that the fairness opinion work related to NITG’s acquisition of BST was done

by SunTrust Robinson Humphrey, which had advised FITG’s special committee during the

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merger, and that hiring decision was made by the NITG special committee without input from

WLR or any interested directors, officers, or managers. Except as expressly admitted and stated,



Defendants admit that NITG’s special committee made the hiring decisions about its advisors

without input from WLR or any interested directors, officers, or managers. Defendants further

admit that they had no agreement with RSM about giving it additional work after the merger and

RSM was not hired to do further fairness opinion work after the merger. Except as expressly



Defendants admit that McGladrey & Pullen, not RSM, did certain accounting work converting

accounting practices for BST subsidiaries to comply with U.S. GAAP. Except as expressly






Defendants admit that McGladrey & Pullen was involved in auditing FITG’s pension plan and

generally advised FITG concerning Sarbanes-Oxley compliance. Except as expressly admitted



Defendants admit that McGladrey & Pullen was involved in auditing FITG’s pension plan.

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Paragraph 329.






Defendants admit that McGladrey & Pullen had audited Cone Mills’s pension plan and had been

auditing FITG’s pension plan for approximately two years at the time of the merger. Defendants

further admit that RSM did not work for FITG before the merger, and that the SCI special

committee hired RSM without input from WLR or any interested directors, officers, or

managers. Except as expressly admitted and stated, Defendants deny any remaining allegations

in Paragraph 332.


Defendants admit that Mr. Smith, while at Cone Mills and FITG, worked with various partners

and employees of McGladrey & Pullen. Defendants further admit that RSM did not work for

FITG before the merger, and that the SCI special committee hired RSM without input from WLR

or any interested directors, officers, or managers. Except as expressly admitted and stated,



Defendants admit that McGladrey & Pullen, not RSM, did certain accounting work converting

accounting practices for BST subsidiaries to comply with U.S. GAAP. Except as expressly


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Defendants admit that no one from RSM McGladrey, Inc., McGladrey & Pullen, or RSM made

any report or presentation to FITG’s Board on August 17, 2006. Defendants further admit that

no one from RSM McGladrey, Inc., McGladrey & Pullen, or RSM ever reported to FITG’s

Board about the merger. Defendants further admit that Plaintiffs purport to paraphrase and quote

from Wax Depo. Ex. 465, that document speaks for itself, and Defendants deny any allegations

inconsistent with it. Except as expressly admitted and stated, Defendants deny any remaining





Defendants further admit that Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex.

16, that document speaks for itself, and Defendants deny any allegations inconsistent with it.

Except as expressly admitted and stated, Defendants are without knowledge or information to

form a belief as to the truth of the remaining allegations in Paragraph 337.


Defendants further admit that Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex.







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Defendants admit that McGladrey & Pullen had audited Cone Mills’s pension plan and had been

auditing FITG’s pension plan for approximately two years at the time of the merger. Defendants

further admit that Mr. Smith, while at Cone Mills and FITG, worked with various partners and

employees of McGladrey & Pullen. Defendants further admit that RSM did not work for FITG

before the merger, and that the SCI special committee hired RSM without input from WLR or

any interested directors, officers, or managers. Except as expressly admitted and stated,



385. Defendants state that the allegation “The RSM Engagement Agreement –

Limitations Rendered it of ‘Questionable Reliability’” preceding Paragraph 342 is so vague that

Defendants are without knowledge or information to form a belief as to the truth of that

allegation.


Defendants admit that Plaintiffs purport to paraphrase and quote from Choy Depo. Ex. 13, that




387. Defendants state that the allegations in Paragraph 343 are a legal conclusion that

is not subject to admission or denial. To the extent a response is possible, Defendants deny the



Defendants admit that FITG management provided accurate and complete information to the due

- 98 - Greenville: 819718 v.1

diligence room and the special committee advisors. Defendants further admit that FITG

management had many follow up conversations and communications with the advisors for the

special committees concerning the information provided to them during due diligence for the

merger. Defendants further admit that Plaintiffs purport to paraphrase and quote from Choy

Depo. Ex. 60, that document speaks for itself, and Defendants deny any allegations inconsistent

with it. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 344.

389. Defendants state that they are without knowledge or information to form a belief

as to the truth of the allegation “RSM Questioned but did not ‘Vet’ FITG Numbers, violating

Normal Practice” preceding Paragraph 345.


Defendants admit that RSM had one several hours long in person meeting with FITG

management, and many follow up communications via telephone and email. Defendants further

admit that FITG management expected the special committee advisors to test FITG’s

projections, run sensitivity analyses, and reach their own independent conclusions. Defendants

further admit that Plaintiffs purport to paraphrase and quote from Mr. Choy’s deposition

testimony, that testimony speaks for itself, and Defendants deny any allegations inconsistent with

it. Except as expressly admitted and stated, Defendants are without knowledge or information to



response to Paragraph 345 as though fully set forth herein. Defendants further admit that

Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex. 7, that document speaks for

itself, and Defendants deny any allegations inconsistent with it. Except as expressly admitted

- 99 - Greenville: 819718 v.1

and stated, Defendants are without knowledge or information to form a belief as to the truth of

the remaining allegations in Paragraph 346.

392. In response to Paragraph 347 of the Complaint Defendants admit that Plaintiffs

purport to paraphrase and quote from Mr. Choy’s deposition testimony, that testimony speaks for





response to Paragraph 345 as though fully set forth herein. Defendants admit that Plaintiffs

purport to paraphrase and quote from Mr. Choy’s deposition testimony, that testimony speaks for





Defendants admit that Plaintiffs purport to paraphrase and quote from Mr. Wax’s deposition

testimony, that testimony speaks for itself, and Defendants deny any allegations inconsistent with

it. Defendants further admit that the nature, breadth, and type of diligence performed varies from

deal to deal. (Wax Depo. at 237-38.) Defendants further admit that FITG management expected

the special committee advisors to test FITG’s projections, run sensitivity analyses, and reach

their own independent conclusions. Except as expressly admitted and stated, Defendants deny



Defendants admit that Fund III acquired BST and that a financial advisor familiar with the

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automotive market was engaged as part of that acquisition. Defendants further admit that the

financial advisor for the BST transaction conducted a sensitivity analysis of the seller’s

projections for BST. Defendants further admit that FITG management expected the special

committee advisors to test FITG’s projections, run sensitivity analyses, and reach their own

independent conclusions. Defendants further admit that RSM was hired by the SCI special

committee without input from WLR or any interested directors, officers, or managers. Except as







Defendants admit that FITG’s Strategic Plan projected improved growth rates based on, among

other things, lower costs of operating in foreign countries, improved margins, and increased

market share. Defendants further admit that FITG’s Strategic Plan was developed in conjunction

with input from its customers and market experts who supported the projections. (Smith Depo.

at 434-441.) Defendants further admit that certain business partners believed FITG’s Strategic

Plan’s growth rates and projections were too conservative. (Id.) Defendants further admit that

FITG’s constituent businesses previously had more than $3 billion in sales, FITG was a preferred

supplier for its customers, and FITG expected to recapture a portion of that lost business.

Defendants further admit that Plaintiffs purport to paraphrase and quote from Choy Depo. Ex.


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Paragraph 353.



Defendants admit that Plaintiffs purport to paraphrase and quote from Wax Depo. Ex. 472,

which is a duplicate of Ross Depo. Ex. 779, that document speaks for itself, and Defendants deny

any allegations inconsistent with it. Defendants further admit that Mr. Ross testified about Ross

Depo. Ex. 779 as follows:

A That is not what it says here. It says to risk SCI and BST. BST was a 200-odd million dollar commitment. It's much bigger than SCI.

Q Well, part of that statement is to risk SCI, isn't it?

A That's part of it, but it's not the whole statement, and it's not therefore accurate the way you read it.

Q You raised it -- I'm sorry.

A What I am talking about is three things. The ITG [direct] commitment by us, and the SCI and the BST, and the context for that, if you look up above in that paragraph, is I am still on this question, is this going to work for the big IPO. That's why I am saying, if something like it is not achieved, no one will believe the 2008 numbers, let alone put a multiple. UBS and Goldman had indicated to us that late in '07, investors would be willing to value it based on a multiple of 2008 EBITDA. So what I am saying here is, if we don't get to something like that, the underwriting won't work. This is really talking as much about the underwriting as it is about anything else.

And as I say, at the end of the day, he [Wax] convinced me, and you would be able to find a fairly similar, maybe not the same word for word, but fairly similar e-mails by me to whoever is the point person on whatever deal we are doing as we get to the last minute. (Ross Depo. at 567-68.)

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Paragraph 355.


Defendants admit that the SCI special committee negotiated the merger agreement at arm’s

length and found it to be fair to SCI’s minority shareholders. Defendants further admit that the

merger agreement included significant representations and warranties that were added at the

instance of the SCI special committee. Except as expressly admitted and stated, Defendants

deny the allegations “The Merger Agreement – Unfair to SCI” and “WLR Refuses to Provide

Warranties” preceding Paragraph 356.


Defendants admit that Nixon Peabody, counsel for SCI’s special committee, significantly revised

the draft merger agreement circulated by WLR’s counsel, and that Nixon Peabody added many

provisions that were ultimately included in the final merger agreement, including sections

3.1(g)(ii), (j), (o-z) (representations and warranties); 6.2(e) (MAC clause); and Article VIII

(established indemnities). Except as expressly admitted and stated, Defendants are without

knowledge or information to form a belief as to the truth of the remaining allegations in

Paragraph 356.


Defendants admit that on or about August 9, 2006, the SCI special committee cut off

negotiations concerning the merger agreement based on WLR’s refusal to provide fair and

meaningful post-closing indemnity protections for SCI in the event there was a breach of the

representations and warranties of the merger agreement. Defendants further admit that Nixon

Peabody added many provisions that were ultimately included in the final merger agreement,

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including sections 3.1(g)(ii), (j), (o-z) (representations and warranties); 6.2(e) (MAC clause); and

Article VIII (established indemnities). Defendants further admit that since the merger agreement

was signed and the merger closed, there have been no breaches of the representations and

warranties in the merger agreement. Defendants further admit that Plaintiffs purport to

paraphrase and quote from Tessoni Depo. Ex. 61, that document speaks for itself, and

Defendants deny any allegations inconsistent with it. Except as expressly admitted and stated,


















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Defendants admit that Plaintiffs purport to paraphrase and quote from Choy Depo. Ex. 25, that


further admit that Mr. Smith testified that his phone call to RSM was to keep the process moving

in order to reduce fees and expenses associated with the merger and:

My feeling was in this particular situation, I was just mentioning to him that he should continue progress. Did not see the offense to

- 105 - Greenville: 819718 v.1

the phone call that he did because I was not in -- as you can see from the text, wasn’t trying to shape the opinion and what the opinion said in any manner and obviously was willing to provide additional detail. So he took from a process viewpoint, he may have been absolutely correct; but I had no ill intent in making the phone call. Just trying to say, “Let’s keep the process moving.” (Smith Depo. at 589-90.)

Defendants further admit that Mr. Smith testified that when Mr. Choy said “certainty of close”

that “‘close’ doesn't necessarily mean a successful close, but you either put an end to it one

direction or the other.” (Smith Depo. at 590-91.) Except as expressly admitted and stated,



Defendants admit that FITG was not a client of RSM, that RSM personnel spoke to FITG

management many times during the diligence process, and that communications between RSM

and FITG do not demonstrate a “long standing close relationship with [RSM’s] sister company.”

Defendants further incorporate their responses to Paragraphs 327-333 as though fully set forth


Paragraph 368.


Defendants admit that Plaintiffs purport to paraphrase and quote from Choy Depo. Ex 25, that


further admit that that Nixon Peabody added many provisions that were ultimately included in

the final merger agreement, including sections 3.1(g)(ii), (j), (o-z) (representations and

warranties); 6.2(e) (MAC clause); and Article VIII (established indemnities). Defendants further

admit that since the merger agreement was signed and the merger closed, there have been no

breaches of the representations and warranties in the merger agreement. Except as expressly


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response to Paragraph 367 as though fully set forth herein. Except as expressly admitted and





further admit that Mr. Ross and Dr. Tessoni discussed resolutions of the indemnity issue, counsel

for both parties negotiated a mutually acceptable resolution, and that resolution was incorporated

in the final merger agreement. Except as expressly admitted and stated, Defendants deny any



Defendants admit that Plaintiffs have not brought a fraud claim against Defendants, have not

identified any fraudulent statements or actions by Defendants, and that Delaware law creates

remedies for defrauded shareholders that would be available in addition to the indemnity

provisions set forth in the merger agreement. Except as expressly admitted and stated,





further admit that Plaintiffs have not brought a fraud claim against Defendants, have not



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further admit that the Dr. Tessoni was the Stockholder Representative for SCI under the escrow

agreement. Defendants further admit that since the merger agreement was signed and the merger

closed, there have been no breaches of the representations and warranties in the merger

agreement. Except as expressly admitted and stated, Defendants deny any remaining allegations

in Paragraph 377.





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Defendants deny the allegation “The Indemnity Did Not Exclude Fraud” preceding Paragraph

379.







427. Defendants deny the allegation that “The Indemnity was Less Valuable the

Greater the Breach” preceding Paragraph 380.


429. Defendants deny the allegation that “The Indemnity Disproportionately

Disadvantaged SCI” preceding Paragraph 381.



Defendants admit that SCI was a public company and made public filings under SEC

regulations. Defendants further admit that FITG was a private company and that information

about FITG was made public beginning August 30, 2006. Except as expressly admitted and



Defendants admit that the FITG and SCI special committees conducted extensive due diligence

- 109 - Greenville: 819718 v.1

on FITG and SCI as part of the merger process. Except as expressly admitted and stated,



Defendants admit that the SCI special committee conducted extensive due diligence on FITG as

part of the merger, had a detailed understanding of FITG and its business, and could judge the

risks associated with FITG and the provisions in the merger agreement. Except as expressly


434. Defendants deny the allegation that “No Truly Independent Board Representative

Protected the SCI Minority Shareholders” preceding Paragraph 385.



Defendants admit that Dr. Tessoni was independent and adversarial while serving on the SCI

special committee, and was not improperly influenced by any of the interested directors, officers,

or managers of FITG or SCI. Defendants further admit that Dr. Tessoni was not pressured

whatsoever by an interested director, officer, or manager of FITG or SCI. (Tessoni Depo. at

815.) Defendants further admit that Dr. Tessoni was paid a flat fee of $40,000 for his work on

the SCI Special Committee, he would have received that payment whether or not he approved

the merger, and he was not offered or paid any additional money contingent upon the merger’s

approval. Defendants further admit that Dr. Tessoni had no financial interest to approve the

merger, and was paid no money by WLR, Fund II, Fund III, Associates II, Associates III, or any

individual defendant in this matter. Defendants further admit that Dr. Tessoni’s role as director

of NITG provided him with detailed financial information about NITG, and allowed him to

simultaneously fulfill his role as the SCI Stockholder Representative while serving as a NITG

- 110 - Greenville: 819718 v.1

director. Defendants further admit that Dr. Tessoni was the Stockholder Representative for SCI

under the escrow agreement. Defendants further admit that since the merger agreement was

signed and the merger closed, there have been no breaches of the representations and warranties

in the merger agreement, and Plaintiffs have failed to identify any. Except as expressly admitted



Defendants admit that Dr. Tessoni’s role as director and chairman of the audit committee for

NITG provided him with detailed financial information about NITG and allowed him to

simultaneously fulfill his role as the SCI Stockholder Representative while serving as a NITG

director. Defendants further admit that Dr. Tessoni testified as follows:

Q. Did you -- what did you do to monitor and fairly administer claims of the SCI shareholders?

A Well, on a go-forward basis, subsequent -- … to the transaction, I was chairman of the audit committee. That certainly was a big, big part of my ability to observe what was happening. I was on the board of directors, and so from that perspective, it was -- a lot of information was available for me to evaluate, monitor, if you will, on behalf of the minority shareholders. (Tessoni Depo. at 922-23 [emphasis added].)

Defendants further admit that Dr. Tessoni did not “consider” making a claim on behalf of SCI’s

minority shareholders for indemnification because he determined, based on the information

available to him, that no claim was necessary:

Q. Did you consider making a claim on behalf of the minority shareholders?

A Well, in the context of my role, I would have determined whether a claim was necessary. And it never came to a claim is necessary. (Tessoni Depo. at 923.)

* * *

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Q. Did you ever consider, in light of ITG's performance after the merger, that a claim could be made, might be appropriate?

A No. I mean, given the reps and warranties that I was -- that were in the documents, I didn't believe any of them were ever breached.

Q Did you ever consider making a claim?

A I think I constantly considered the fact that I was responsible to determine whether any reps or warranties were breached. So when I would see what was going on, I would be aware that if something that I needed to consider, if there were violations of the reps and warranties occurring, that needed to be looked into.

Q Did you ever specifically consider making a claim?

A I never saw anything that led me to believe a claim was appropriate to consider. (Tessoni Depo. at 924-25 [emphasis added].)


Paragraph 387.

438. Defendants state that the allegation “No Earn-Out on the Consideration to FITG”

preceding Paragraph 388 is so vague that Defendants are without knowledge or information to

form a belief as to the truth of that allegation.


Defendants admit that SCI failed to meet the near term (or long term) earnings projections that it

represented that it would during the merger. Defendants further admit that an “earn-out”

structure (whatever Plaintiffs mean by that term) is cumbersome and virtually unworkable in a

stock-for-stock merger. Defendants further state that the alleged “earn-out” structure is a

brainchild of Plaintiffs’ counsel, was first raised after this lawsuit was filed, and is unclear how it

would operate in the context of the facts surrounding the merger. Except as expressly admitted


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440. Defendants deny the allegation “No Real Protection for SCI for False FITG

Information” preceding Paragraph 389.


Defendants admit that Plaintiffs have not identified any false or misleading information provided

by FITG. Defendants further admit that Plaintiffs have not sued Defendants for providing false

or misleading information. Defendants further admit that SCI shareholders had significant legal

remedies against Defendants for providing false or misleading information, including raising

such issues in this lawsuit, but Plaintiffs declined to do so. Except as expressly admitted and


442. Defendants state that the allegation “No Fiduciary Duty Out” preceding Paragraph

390 is so vague that Defendants are without knowledge or information to form a belief as to the

truth of that allegation.


Defendants admit that the merger agreement did not contain a provision that would have allowed

for the cancellation of the agreement in the event it caused a breach of fiduciary duty.

Defendants further admit that no breach of fiduciary duty occurred that would have required the

cancellation of the merger agreement. Defendants further admit that none of the interested

Defendants “controlled the transaction” because the power to approve the merger was

exclusively given to either a supermajority of minority shareholders or the Continuing Director.


Paragraph 390.

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444. Defendants state that the allegation “No Go-Shop Provision” preceding Paragraph




Defendants admit that (1) SCI could not be sold after two years of aggressive marketing, (2)

SCI’s controlling interest was sold at a discounted market rate to distressed investors, (3) the SCI

special committee did not have the power to shop the entire company three months after its

controlling interest was purchased by Fund III, and (4) the minority shareholders were free to sell

their stock at anytime on the open market if they disagreed with the exchange ratio or the merger.

Defendants further admit that during the merger SCI was valued at a higher price than what Fund

III paid for SCI in December 2005, and that an unaffiliated third party would have valued SCI at

an even lower level than Fund III in a “go shop” situation since SCI’s earnings had eroded by

approximately 70% in the time between Fund III’s purchase and the merger. Defendants further

admit that undertaking a costly, time consuming, and pointless sales effort to reaffirm the

market’s disinterest in purchasing SCI was unnecessary for the SCI Board to fulfill its fiduciary

duties in light of the SCI Board’s inability to sell the company in the two years before the

merger. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 391.

446. Defendants deny the allegation “FITG and WLR Improperly Communicated with

RSM” preceding Paragraph 392.


Defendants admit that Mr. Smith testified that his phone call to RSM was to keep the process

moving in order to reduce the fees and expenses associated with the merger, and:

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My feeling was in this particular situation, I was just mentioning to him that he should continue progress. Did not see the offense to the phone call that he did because I was not in -- as you can see from the text, wasn’t trying to shape the opinion and what the opinion said in any manner and obviously was willing to provide additional detail. So he took from a process viewpoint, he may have been absolutely correct; but I had no ill intent in making the phone call. Just trying to say, “Let’s keep the process moving.” (Smith Depo at 589-90.)

Defendants further admit that Mr. Smith testified that when Mr. Choy said “certainty of close”

that “‘close’ doesn't necessarily mean a successful close, but you either put an end to it one

direction or the other.” (Smith Depo. at 590-91.) Defendants further admit that this phone call

had no effect on the merger or the exchange ratio, and had no improper ramifications on the

merger. Defendants further admit that RSM personnel spoke to FITG management many times

during the diligence process, and that communications between RSM and FITG do not

demonstrate an “inappropriate relationship between Smith/FITG and RSM.” Except as expressly




Defendants admit that Plaintiffs purport to paraphrase and quote from Ross Depo. Ex. 740, that


further admit that Mr. Ross testified that he believed that the reference to financial advisors in

Ross Depo. Ex. 740 concerned the BST transaction, not the merger of SCI and ITG. Defendants

further admit that the merger financial advisors had nothing to “sign off” on as negotiations for

the exchange ratio had not begun by August 18, 2006. Defendants further state that

communications between interested parties and the financial advisors for the special committees

are not de facto inappropriate or improper. Except as expressly admitted and stated, Defendants


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Defendants admit that Wax Depo. Ex. 468 states that Mr. Wax was “scheduled to speak with

both FA’s [financial advisors] today,” but does not indicate if he actually did speak with them.

Defendants further admit that Mr. Wax testified that he did not recall speaking with them:

Q. Do you have any recollection of actually speaking to them?

A. No.

Q. Why would you have called them or spoken to them in person, however, you spoke to them?

A. Well, since I don't have a recollection, I don't know how to answer your question. (Wax Depo. at 589.)

Defendants further state that communications between interested parties and the financial

advisors for the special committees are not de facto inappropriate or improper. Defendants

further incorporate their response to Paragraph 394 as though fully set forth herein. Except as



Defendants admit that the FITG special committee opened negotiations by asking for an

exchange ratio that would provide FITG shareholders with more than 70% of the combined

company. Defendants further admit that the SCI special committee negotiated that initial offer

down by 7%. Except as expressly admitted and stated, Defendants are without knowledge or

information to form a belief as to the truth of the allegation “FITG Requests a Higher Share of

the Combined Company” preceding Paragraph 396.


Defendants admit that the proposed exchange ratio formula, at the time the Prospectus was filed,

would have yielded an exchange ratio of FITG shareholders owning 61.8% and SCI shareholders

owning 38.2% of the combined company because FITG’s balance sheet changed between March

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and September 2006. Defendants further admit that as of May 30, 2006, the proposed exchange

ratio formula would have yielded an exchange ratio of FITG shareholders owning approximately

63% and SCI shareholders owning approximately 37% of the combined company. Defendants

further admit that May 30, 2006 proposal from WLR to the FITG and SCI special committees


committees and was not used to calculate the agreed upon exchange ratio for the merger.

Defendants further admit that the May 30, 2006 proposal stated that FITG shareholders “would

own approximately 65% of the post-Merger entity,” was included for example purposes only,

and was not controlling on the special committees. Except as expressly admitted and stated,



Defendants admit that the May 30, 2006 proposal stated that FITG shareholders “would own

approximately 65% of the post-Merger entity,” and that this was not a misprint. Defendants

further incorporate their response to Paragraph 396 as though fully set forth herein. Except as






down by 7%. Defendants further incorporate their response to Paragraph 396 as though fully set

forth herein. Except as expressly admitted and stated, Defendants are without knowledge or

information to form a belief as to the truth of the allegations in Paragraph 398.

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Defendants admit that the negotiations for the exchange ratio were not completed by August 22,

2006. Defendants further admit that Plaintiffs purport to paraphrase and quote from Choy Depo.

Ex. 33b, that document speaks for itself, and Defendants deny any allegations inconsistent with

it. Except as expressly admitted and stated, Defendants are without knowledge or information to

form a belief as to the truth of the allegations in Paragraph 399.


Defendants admit that during exchange ratio negotiations the FITG special committee stated that

FITG had $100 million in assets that were not reflected on its books because accounting rules

required that certain assets be carried on FITG’s books at zero value due to FITG’s constituent

companies—Burlington Industries and Cone Mills—being purchased out of bankruptcy.

Defendants further admit that these off book assets were the principal basis for the FITG special

committee opening negotiations with an exchange ratio that would provide FITG shareholders

with more than 70% of the combined company. Defendants admit that Plaintiffs purport to

paraphrase and quote from Tessoni Depo. Ex. 5, that document speaks for itself, and Defendants

deny any allegations inconsistent with it. Except as expressly admitted and stated, Defendants







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458. Defendants state that the allegation “RSM Document Shows FITG Not Worth

What had Already Been Proposed” preceding Paragraph 402 is so vague that Defendants are

without knowledge or information to form a belief as to the truth of that allegation.






460. Defendants deny the allegations in Paragraphs 403A-M of the Complaint except

Defendants admit that Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex. 22,


any allegations inconsistent with it. Defendants further admit that Tessoni Depo. Ex. 22 was a

draft negotiating script that was later revised and used by the SCI special committee and its

advisors in negotiating the exchange ratio. Defendants further admit that Mr. Ross testified that

this draft negotiating script took the most extreme position possible to advocate on behalf of SCI:

A. Well, that's a matter of -- this, this fellow is applying this in a negotiating context to respond to some proposal that ITG's committee had made to him. So, this looks to me like a negotiating piece, trying to take the most extreme position he can come up with in order to be an advocate on behalf of SCI. That's how I read this whole document.

Q Okay. Next bullet point: “ITG's current levels of earnings, EBITDA, EBIT and net income do not support the implied equity valuation given to ITG.” Would you have agreed with that?

A No. No. But again, this looks to me like him trying to list bullet points that they should use as negotiating topics to try to refine the deal with ITG.

Q Did you --

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A The more you read me the bullet points, the more convinced I become that that is what this really is. (Ross Depo. at 507-08.)

Defendants further admit that Mr. Ross testified that his belief was that Tessoni Depo. Ex. 22

was RSM’s “proposed script for negotiating with ITG” and was not “a value conclusion,” but a

“sort of in argument negotiating document.” (Ross Depo. at 508-09.) Except as expressly

admitted and stated, Defendants are without knowledge or information to form a belief as to the

truth of the allegations in Paragraphs 403A-M.


Defendants admit that Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex. 22,


any allegations inconsistent with it. Defendants further admit that Tessoni Depo. Ex. 22 was a

draft negotiating script that was later revised and used by the SCI special committee and its

advisors in negotiating the exchange ratio and took the most extreme position possible to

advocate on behalf of SCI. Except as expressly admitted and stated, Defendants are without

knowledge or information to form a belief as to the truth of the allegations in Paragraph 404.

462. Defendants deny the allegations in Paragraphs 405A-F of the Complaint except



further admit that Tessoni Depo. Ex. 23 was a negotiating script that was used by the SCI special

committee and its advisors in negotiating the exchange ratio and took the most extreme position

possible to advocate on behalf of SCI. Except as expressly admitted and stated, Defendants are

without knowledge or information to form a belief as to the truth of the allegations in Paragraphs

405A-F.

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463. Defendants state that the allegation “Tessoni Caved and Agreed to Higher Split

for FITG” preceding Paragraph 406 is so vague that Defendants are without knowledge or

















down by 7%. Defendants further incorporate their response to Paragraph 396 as though fully set

forth herein. Except as expressly admitted and stated, Defendants are without knowledge or




- 121 - Greenville: 819718 v.1


further admit that Tessoni Depo. Ex. 23 was a negotiating script that was used by the SCI special

committee and its advisors in negotiating the exchange ratio and took the most extreme position

possible to advocate on behalf of SCI. Except as expressly admitted and stated, Defendants are


410.











Defendants admit that on August 23, 2006, the FITG and SCI special committees agreed to an

exchange ratio, subject to approval by their respective advisors that it was fair to the minority

shareholders, where FITG shareholders would receive 65% of the combined company and SCI

shareholders would receive 35% of the combined company. Except as expressly admitted and

stated, Defendants are without knowledge or information to form a belief as to the truth of the


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473. Defendants deny the allegation “By Agreeing to FITG’s Request, Tessoni

Assured Himself a Seat on the Board of the Combined Company, Thereby Protecting his Board

Income” preceding Paragraph 415.


Defendants admit that an exchange ratio resulting in a 65/35 split of the combined company’s

stock was agreed to on August 23, subject to the approval by the respective special committee

advisors that it was fair to the minority shareholders. Defendants further admit that SCI’s special

committee did not formally approve of this exchange ratio until August 28. Defendants further

admit that Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex. 14 and Duerk

Depo. Ex. 1, those document speaks for themselves, and Defendants deny any allegations

inconsistent with them. Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that that mutual indemnification provision in the merger agreement and the

exchange ratio were in SCI’s interest. Defendants further incorporate their responses to

Paragraphs 290-297, which show that Dr. Tessoni did not approve the merger in exchange for a

board position and that, under Delaware law, fees earned in his role as director of NITG after the

merger was approved do not render him interested at the time of the merger. Except as expressly



responses to Paragraphs 290-297, which show that Dr. Tessoni did not approve the merger in

exchange for a board position and that, under Delaware law, fees earned in his role as director of

NITG after the merger was approved do not render him interested at the time of the merger.

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Paragraph 417.


Defendants admit that Dr. Tessoni, like Mr. Gibbons, was a Class I Director and that his term

was due to expire at SCI’s 2007 annual meeting, more than a year after the merger would have

closed. Defendants further admit that Dr. Tessoni did not expect to be retained on the combined

company’s board and that no communications were made to Dr. Tessoni about his future on

NITG’s board until after the merger was approved. (Tessoni Dep at 238-239.) Defendants

further admit that Mr. Ross had not made any decision about retaining Dr. Tessoni until after the

merger had been reviewed and the exchange ratio was negotiated. (Gorga Depo. Ex. 254.)


Paragraph 418.


Defendants state that Plaintiffs’ sole basis for this allegation is that Dr. Tessoni was paid director

fees after the merger. Defendants further incorporate their responses to Paragraphs 290-297,

which show that Dr. Tessoni did not approve the merger in exchange for a board position and

that, under Delaware law, fees earned in his role as director of NITG after the merger was

approved do not render him interested at the time of the merger. Except as expressly admitted



Defendants state that Plaintiffs’ sole basis for this allegation is that Dr. Tessoni remains on

NITG’s board. Defendants further state that after more than two years of discovery, Plaintiffs

have no evidence that Dr. Tessoni was induced to approve the merger. Defendants further

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incorporate their responses to Paragraphs 290-297, which show that Dr. Tessoni did not approve

the merger in exchange for a board position and that, under Delaware law, fees earned in his role

as director of NITG after the merger was approved do not render him interested at the time of

the merger. Except as expressly admitted and stated, Defendants deny any remaining allegations

in Paragraph 420.

480. Defendants state that the allegation “RSM Undervalues SCI” preceding Paragraph













483. In response to Paragraph 423 of the Complaint, Defendants admit that Plaintiffs

purport to paraphrase and quote from Tessoni Depo. Ex. 5 and that document speaks for itself.



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of the allegation “RSM Fails to Apply Control Premium to SCI” preceding Paragraph 424.


purport to paraphrase and quote from Tessoni Depo. Ex. 5, that document speaks for itself, and














488. In response to Paragraph 427 of the Complaint, Defendants admit that FITG, like

all businesses, faced risks and that those risks were thoroughly disclosed in the Prospectus for the

merger. Defendants further admit that SCI faced great issues and risks before the merger.




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490. In response to Paragraph 429 of the Complaint, Defendants admit that SCI’s

minority shareholders were not entitled to a “control premium” as part of the merger as they did

not have control of SCI. Defendants further admit that Fund III purchased its controlling interest

in SCI for $12.30 per share when SCI’s asked for price on the OTCBB was $15.00 per share,

essentially receiving a “control discount.” Except as expressly admitted and stated, Defendants

are without knowledge or information to form a belief as to the truth of the allegations in

Paragraph 429.

491. Defendants state that the allegation “RSM Overvalues FITG” preceding

Paragraph 430 is so vague that Defendants are without knowledge or information to form a belief

as to the truth of that allegation.






493. In response to Paragraph 431 of the Complaint, Defendants admit that Trenwith

Valuation, LLC (“Trenwith”) valued FITG as of July 2005 for management equity plan purposes

and between them and the merger circumstances changed to increase FITG’s value compared to

what was calculated by Trenwith, including that FITG acquired additional businesses, including

the remaining 50% of Parras Cone, so that FITG was a larger business in 2006 than it was in

2005. Defendants further admit that Plaintiffs purport to paraphrase and quote from Choy Depo.

Ex. 16, that document speaks for itself, and Defendants deny any allegations inconsistent with it.

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494. In response to Paragraph 432 of the Complaint, Defendants admit that FITG

management made RSM aware of the Trenwith valuation and provided it to both special

committees as part of the due diligence process. Defendants further incorporate the response to

Paragraph 431 as though fully set forth herein. Except as expressly admitted and stated,






of the allegation “RSM Improperly Used Different Metrics for FITG than for SCI” preceding

Paragraph 434.











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of the allegation “RSM Improperly Disregarded Negative Metrics for FITG” preceding

Paragraph 438.






503. In response to Paragraph 439 of the Complaint, Defendants admit that FITG was

going through a significant reorganization in 2006 that included rationalizing domestic plants

and building international Greenfield projects. Defendants further admit that this plan was

designed to lower FITG’s costs, move it closer to its existing customers, and to expand into new

international markets. Defendants further admit that this quasi-start-up period was fully

disclosed before the merger and that FITG could operate at a loss to preserve market share and

technical capabilities until the Greenfield projects were completed and began producing.

Defendants further admit that FITG disclosed that the merger would be accretive to FITG

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shareholders on a standalone basis for 2006 to 2008. Except as expressly admitted and stated,






of the allegation “RSM Improperly Disregarded Execution Risks of FITG” preceding Paragraph

441.




purport to paraphrase and quote from Tessoni Depo. Exs. 22 and 23, those documents speak for

themselves, and Defendants deny any allegations inconsistent with them. Except as expressly










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purport to paraphrase and quote from Tessoni Depo. Exs. 22 and 23, those documents speak for

themselves, and Defendants deny any allegations inconsistent with them. Except as expressly



513. In response to Paragraph 448 of the Complaint, Defendants admit that the risks

associated with FITG’s plan to rationalize domestic assets and build international Greenfield

projects were patent and disclosed during due diligence and in the Prospectus before the merger.

Defendants further admit that Mr. Ross testified:

Q Did you have any -- did you have any conversations or communications with Mr. Tessoni regarding your belief that ITG faced tremendous execution risk?

A I think anybody who looked at ITG, and looked at the financial forecasts, would know that. They were phasing down several operations in the United States, starting up things in several different countries and planning to make a series of acquisitions. Anybody who can read and write would know there was tremendous execution risk.

Q Did you do anything to confirm that Mr. Tessoni and RSM understood the execution risk that ITG faced?

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A Again, I think it was obvious to anyone, number one, and number two, I was rebuffed in my efforts to even know what the McGladrey firm was doing because of the counsel for the special committee. So I did not introduce anything to them for fear they would claim I was interfering. (Ross Depo. at 598-99.)






purport to paraphrase and quote from Choy Depo. at 306-07, that testimony speaks for itself,

and Defendants deny any allegations inconsistent with it. Defendants further state that the cited

testimony does not support the allegation that RSM did not consider the effect if FITG did not

achieve its projected sales and profits. Defendants further state that the cited testimony is

nothing more than Plaintiffs’ counsel claiming a proposition without providing any record

evidence or getting Mr. Choy to agree with the stated proposition. Except as expressly admitted






of the allegation “RSM Improperly Disregarded Planned Dilution of FITG” preceding Paragraph

452.



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519. In response to Paragraph 453 of the Complaint, Defendants admit that FITG’s

Strategic Plan included assumptions concerning debt and equity to support FITG’s Greenfield

projects and other business needs, and that the actual capital needs were later modified and

reduced in 2007. Defendants further admit that after the merger Fund II converted

approximately $68 million in debt to preferred equity, and that Fund III contributed additional

equity to NITG. Except as expressly admitted and stated, Defendants are without knowledge or





of the allegation “RSM Improperly Disregarded FITG’s Under-Funded Pension Liability”

preceding Paragraph 455.






523. In response to Paragraph 456 of the Complaint, Defendants admit that the

underfunded pension liability was included in FITG’s Strategic Plan and was disclosed to the

advisors for the special committees. Except as expressly admitted and stated, Defendants are


456.

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of the allegation “RSM Improperly Failed to Assess FITG’s Off-Balance Sheet Assets”


526. In response to Paragraph 458 of the Complaint, Defendants admit that a

breakdown of FITG’s off-balance sheet assets and the accompanying appraisals of those assets

were provided to the advisors of the special committees during the diligence process. Except as





Defendants deny any allegations inconsistent with it. Defendants further state that the agreed

upon exchange ratio effectively discounted FITG’s off balance sheet assets by 70%. Except as






Defendants admit that Plaintiffs purport to paraphrase and quote from Wax Depo. at 306-07,

that testimony speaks for itself, and Defendants deny any allegations inconsistent with it.

Defendants further admit that Mr. Wax testified:

A. I think in my prior testimony when I outlined either five or six methodologies of which half the value is one, I said that there were

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preferred methodologies that focused more on earnings for the company. But that if you didn't have access to those methodologies or the information to undertake that analysis, that you could use book value. (Wax Depo at 668.)

Defendants further admit that FITG’s off balance sheet assets included operating facilities,

equipment, and inventory and provided value to the combined company on a going concern

basis. Except as expressly admitted and stated, Defendants deny the remaining allegations in

Paragraph 462.



of the allegation “RSM Improperly Used FITG Projections That Included Unapproved or

Uncertain Projects” preceding Paragraph 464.


Defendants admit that FITG provided its Strategic Plan to the advisors for the special committees

during due diligence. Defendants further incorporate their responses to Paragraphs 303-309 as

though fully set forth herein. Except as expressly admitted and stated, Defendants deny the



Defendants admit that the Strategic Plan was FITG’s management’s best good faith belief and

projection of FITG’s future business outlook. Defendants further admit that this Strategic Plan

included certain synergistic acquisitions that management believed were very likely and had

been previously disclosed to and discussed with the financial advisors for the special committees.

Defendants further admit that Mr. Ross testified that including potential acquisitions in a

strategic plan is not unusual. (Ross Dep. at 259-61.) Defendants further admit that SCI’s

projections provided to the special committees’ advisors also contained business that had neither

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been obtained nor contractualized. Except as expressly admitted and stated, Defendants deny



Defendants admit that FITG was targeting an acquisition of certain assets of Delta Woodside

(“Delta”), a cotton mill and textile manufacturer, that would have strong synergies with FITG.

Defendants further admit that Delta was on the verge of bankruptcy and that FITG had been

targeting Delta’s most valuable assets since 2005 and had undergone several rounds of

negotiations and bids with Delta’s management and credit holders. Except as expressly admitted



Defendants admit that Plaintiffs purport to paraphrase and quote from Wax Depo. Exs. 463 and

465, those documents speak for themselves, and Defendants deny any allegations inconsistent

with them. Defendants further admit that FITG management believed that the acquisition of

Delta was very likely: (1) On August 8, 2006, Mr. Gorga email Mr. Wax and advised him that

Delta’s Board was favoring FITG’s earlier offer; (2) on September 1, 2006, Delta filed an 8-K

that did not name FITG, but discussed it as a “potential acquirer”; (3) on September 22 and

October 5, FITG made revised offers to acquire Delta; and (4) on October 11, 2006, Mr. Gorga

emailed Mr. Ross that he was “cautiously optimistic” about Delta accepting FITG’s offer.

Defendants further admit that Mr. Gorga testified about Wax Depo. Ex. 463, which is contained

within Gorga Depo. Ex. 220, and rejected Plaintiffs’ interpretation:

Q. And when you talk here about determining whether the acquisition of Delta is a real possibility, what did that mean?

A. You know, August 17, I mean, we were – I was telling the board that we were going to continue to press. We felt like strategically this was the right direction for us to go in. And in my interactions with the advisor and with the CEO of Delta

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Woodside plant, you know, I was feeling pretty confident this was going to be part of ITG. (Gorga Depo. at 227 [emphasis added].)

Defendants further admit that FITG was so confident in acquiring Delta’s assets that it purchased

equipment from Gibbs International in reliance on acquiring Delta. (Gorga Depo. at 297-98;

Smith Depo. at 191.) Except as expressly admitted and stated, Defendants deny any remaining



Defendants admit that Plaintiffs purport to paraphrase and quote from Gibbons Depo. Ex. 569,

that document speaks for itself, and Defendants deny any allegations inconsistent with it.

Defendants further incorporate their response to Paragraph 467 as though full incorporated


Paragraph 468.


Defendants admit that the Bank Model referenced in Wax Depo. Ex. 428 was not intended to be,

and never was, FITG’s strategic plan. Defendants further admit that the Bank Model was

different from the Strategic Plan in content and purpose, and that the Bank Model had lower

projected earnings with less debt whereas the Strategic Plan had higher projected earnings with

greater debt. Defendants further admit that Plaintiffs purport to paraphrase and quote from Wax


with it. Except as expressly admitted and stated, Defendants deny any remaining allegations in

Paragraph 469.


Defendants admit that the Bank Model referenced in Wax Depo. Ex. 428 was not intended to be,

and never was, FITG’s strategic plan. Defendants further admit that the Bank Model was

- 137 - Greenville: 819718 v.1

different from the Strategic Plan in content and purpose, and that the Bank Model had lower

projected earnings with less debt whereas the Strategic Plan had higher projected earnings with

greater debt. Defendants further state that Plaintiffs purport to paraphrase and quote from

Spradling Depo. Ex. 338 (the Bank Model), that document speaks for itself, and Defendants deny

any allegations inconsistent with it. Except as expressly admitted and stated, Defendants deny


540. In response to Paragraph 471 of the Complaint, Defendants state that, as a general

proposition, changing inputs for a model will change the results projected by that model, and that

the Bank Model was different from the Strategic Plan in content and purpose. Except as















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544. In response to Paragraph 475 of the Complaint, Defendants admit that RSM had

one several hours long in person meeting with FITG management, and many follow up

communications via telephone and email. Defendants further admit that the Strategic Plan

included certain synergistic acquisitions, including the acquisition of Delta, that management

believed were likely and those potential acquisitions were disclosed to and discussed with the

financial advisors for the special committees. (Choy Depo. at 693-94; 753-767.) Defendants

further admit that FITG management expected the special committee advisors to test FITG’s

projections, run sensitivity analyses, and reach their own independent conclusions. Defendants

further incorporate their response to Paragraph 467 as though fully incorporated herein. Except

as expressly admitted and stated, Defendants are without knowledge or information to form a

belief as to the truth of the allegations in Paragraph 475.


responses to Paragraphs 467 and 475 as though fully incorporated herein. Except as expressly




responses to Paragraphs 467 and 475 as though fully incorporated herein. Defendants further

admit that Plaintiffs purport to paraphrase and quote from Wax Depo. at 354, that testimony

speaks for itself, and Defendants deny any allegations inconsistent with it. Except as expressly




responses to Paragraphs 467 and 475 which show that the advisors to the special committees

- 139 - Greenville: 819718 v.1

were told about Delta’s impact on FITG’s Strategic Plan, that including an acquisition in a

strategic plan is not unusual, and that SCI’s projections also included business that was neither

agreed to nor contractualized. Except as expressly admitted and stated, Defendants deny any



of the allegation “RSM Improperly Failed to Recommend or Conduct a Market Test” preceding

Paragraph 479.

549. In response to Paragraph 479 of the Complaint, Defendants admit that (1) SCI

could not be sold after two years of aggressive marketing, (2) SCI’s controlling interest was sold

at a discounted market rate to distressed investors, (3) the SCI special committee did not have the

power to shop the entire company three months after its controlling interest was purchased by

Fund III, and (4) the minority shareholders were free to sell their stock at anytime on the open

market if they disagreed with the exchange ratio. Defendants further admit that during the

merger SCI was valued at a higher price than what Fund III paid, and that an unaffiliated third

party would have valued SCI at an even lower level than Fund III’s purchase price in a “market

test” situation since SCI’s earnings had eroded by approximately 70% in the time between Fund

III’s purchase and the merger. Defendants further admit that undertaking a costly, time

consuming, and pointless market test to reaffirm the market’s disinterest in purchasing SCI was

unnecessary for the SCI Board to fulfill its fiduciary duties in light of the SCI Board’s inability

to sell the company in the two years before the merger. Except as expressly admitted and stated,



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purport to paraphrase and quote from Choy Depo. Ex. 70, that document speaks for itself, and





responses to Paragraphs 298-302 and 479 showing that additional marketing of SCI would have

been a costly and pointless endeavor in light of the preceding two year sales effort. Except as





been a costly and pointless endeavor in light of the preceding two year sales effort. Except as





been a costly and pointless endeavor in light of the preceding two year sales effort. Defendants

further state that this allegation also states a legal conclusion which is not subject to an admission

or denial, but to the extent a response is possible, Defendants deny that the SCI Board has any

duties under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986),

which is inapplicable. Except as expressly admitted and stated, Defendants are without


- 141 - Greenville: 819718 v.1


of the allegation “RSM Improperly Determined FITG’s Value From Discounted Cash Flow

Analysis” preceding Paragraph 484.

555. In response to Paragraphs 484A-C of the Complaint, Defendants admit that

Plaintiffs purport to paraphrase and quote from Tessoni Depo. Ex. 7, that document speaks for



the allegations in Paragraphs 484A-C.


of the allegations in Paragraph 485A.

557. In response to Paragraph 485B of the Complaint, Defendants admit that the risks

associated with FITG’s plan to rationalize domestic assets and build international Greenfield

projects were patent and disclosed during due diligence and in the Prospectus before the merger.

Defendants further admit that Mr. Ross testified that the risks of FITG’s business plan were

clear. Except as expressly admitted and stated, Defendants are without knowledge or

information to form a belief as to the truth of the allegations in Paragraphs 485B.

558. In response to Paragraph 485C of the Complaint, Defendants admit that Plaintiffs

purport to paraphrase and quote from Wax Depo. at 514, that testimony speaks for itself, and

Defendants deny any allegations inconsistent with it. Defendants further admit that Mr. Wax

testified that “effectively I might have gotten to the same place because there's no question that

there should be an increased risk premium for ITG at that level, at that stage in its development,”

and that he also clarified that:

In discussing how they got to it and how I might get to it, I said I might have gotten to the same number. You know, I can't tell

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you, you know, what number I would have gotten to four years ago. I acknowledge that there's significant execution risk. I don't know if I would have gotten to the same number or not. The way they got to the that number I've already critiqued. I don't know what else I can tell you. (Wax Depo. at 516 [emphasis added].)


form a belief as to the truth of the allegations in Paragraphs 485C.

559. In response to Paragraph 485D of the Complaint, Defendants admit that Plaintiffs

purport to paraphrase and quote from Gorga Depo. Ex. 263, that document speaks for itself, and



allegations in Paragraph 485D.

560. In response to Paragraph 485E of the Complaint, Defendants incorporate their

responses to Paragraphs 464-478 which show that the advisors to the special committees were

told about Delta’s impact on FITG’s Strategic Plan, that including an acquisition in a strategic

plan is not unusual, and that SCI’s projections also included business that was neither agreed to

nor contractualized. Defendants further admit that FITG management expected the special

committee advisors to test FITG’s projections, run sensitivity analyses, and reach their own

independent conclusions. Except as expressly admitted and stated, Defendants are without

knowledge or information to form a belief as to the truth of the allegations in Paragraph 485E.

561. Defendants state that the allegation “The SCI Special Committee’s Approval of

the Merger” preceding Paragraph 486 is so vague that Defendants are without knowledge or


562. In response to Paragraph 486 of the Complaint, Defendants admit that RSM found

that the exchange ratio resulting in a 65/35 split of the combined company’s stock was fair to the

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minority stockholders of SCI from a financial point of view on or about August 28, 2006.

(Prospectus Annex C.) Defendants further admit that Plaintiffs purport to paraphrase and quote

from Tessoni Depo. Exs. 22 and 23, those documents speak for themselves, and Defendants deny

any allegations inconsistent with them. Defendants further admit that Tessoni Depo. Exs. 22 and

23 were negotiating scripts used by the SCI special committee and its advisors in negotiating the

exchange ratio and took the most extreme position possible to advocate on behalf of SCI. Except

as expressly admitted and stated, Defendants are without knowledge or information to form a







564. In response to Paragraph 488 of the Complaint, Defendants admit that RSM found

that the exchange ratio resulting in a 65/35 split of the combined company’s stock was fair to the

minority stockholders of SCI from a financial point of view on or about August 28, 2006.

(Prospectus Annex C.) Except as expressly admitted and stated, Defendants are without







- 144 - Greenville: 819718 v.1


purport to paraphrase and quote from Choy Depo. Ex. 70, that document speaks for itself, and




567. In response to Paragraph 491 of the Complaint, Defendants admit that the SCI

special committee recommended to the SCI Board to approve the merger using an exchange ratio

that resulted in FITG stockholders receiving 65% of the combined company’s stock, and SCI

stockholders receiving 35% of the combined company’s stock. Except as expressly admitted and



568. In response to Paragraph 492 of the Complaint, Defendants admit that Article

Sixth of SCI’s Charter contained anti-takeover provisions that harmed SCI’s value, made it more

difficult to restructure, and shifted power over transactions from directors and officers with

fiduciary duties to minority shareholders who owed no fiduciary duties. Defendants further

admit that minority shareholders who disagreed with the changes to SCI’s Charter were free to

sell their shares in SCI before and after the merger. Except as expressly admitted and stated,




Defendants admit that Plaintiffs purport to paraphrase and quote from an August 26, 2006 email

from Mr. Ross to Mr. Wax (FURSA 758291), that document speaks for itself, and Defendants

deny any allegations inconsistent with it. Defendants further admit that Article Sixth of SCI’s

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Charter contained anti-takeover provisions that harmed SCI’s value, made it more difficult to

restructure, and shifted power over transactions from directors and officers with fiduciary duties

to minority shareholders who owed no fiduciary duties. Except as expressly admitted and stated,

Defendants deny the remaining allegations in Paragraph 493.

570. Defendants state that the allegation “SCI Board’s Approval of the Merger”




Defendants admit that on August 29, 2006, the SCI Board unanimously approved the merger in

reliance on the recommendation of the SCI special committee. Except as expressly admitted and

stated, Defendants deny the remaining allegations in Paragraph 494.


Defendants admit that Mr. Ross asked the SCI special committee’s counsel for the RSM

presentation and that request was refused. (Ross Depo. at 231-33; 450-52; 598-600.)

Defendants further admit that Dr. Tessoni presented the findings and conclusions of the SCI

special committee to the SCI Board before it voted to approve the merger. Except as expressly

admitted and stated, Defendants deny the allegation “The Board Approved the Merger Without

Analyzing the RSM Presentation” preceding Paragraph 495.


Defendants admit that Plaintiffs purport to paraphrase and quote from Wax Depo. Ex. 451,

which is the same as Ross Depo. Ex. 728, that document speaks for itself, and Defendants deny

any allegations inconsistent with it. Except as expressly admitted and stated, Defendants deny


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Defendants admit that counsel for FITG’s special committee agreed that the FITG Board was

permitted to see SunTrust’s presentation to the FITG special committee. Defendants admit that

Plaintiffs purport to paraphrase and quote from Wax Depo. Ex. 450, which is the same as Ross


with it. Except as expressly admitted and stated, Defendants deny the remaining allegations in

Paragraph 496.


Defendants admit that Mr. Ross asked the SCI special committee’s counsel for the RSM

presentation and that request was refused. Defendants further admit that Mr. Ross testified:

A. Well, I thought it [RSM presentation] would be useful, since we do have some experience with financial advisors' reports, to look at it, and be sure that I agreed with it. But the counsel said no, so there was not very much we could do about it.

Q Did you ask to do more about it? Did you say, well, I have got to have it before I can vote on the transaction?

A No. I had asked for it. Company counsel said it was inappropriate. Being the adverse party in the merger, in some regards, the last thing I wanted to do was to try to get the company counsel overruled. (Ross Depo. at 232; emphasis added.)

Defendants further admit that Mr. Ross did not want to interfere with the SCI special

committee’s decisions or try to force them to turn over the RSM presentation:

A I don't think it was our role to try to interfere with the special committee. We were an interested party. Anything we would propose by way of changing his process would surely end up being in litigation as interference.

Q At the point where they are reporting their conclusion and Dr. Tessoni is reporting their conclusion, did you have a duty in your mind to make sure that their conclusion was fair and reasonable?

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A We tried to get access to the work papers, which is what would have led us to make an independent evaluation of them. And counsel for the special committee, as you are aware, said that that was inappropriate.

Q Well, is it your belief that that ended your duty, your fiduciary duty?

A Well, other than going to court to try to force them to turn it over, I don't know what practical solution there was.

Q Well, were you obligated to vote in favor of the merger?

A I felt that the merger, as I have said before, was roughly in line with my own back-of-the-envelope thinking as someone who is very familiar with both companies. So I didn't see anything untoward in the opinion that would cause me any alarm. (Ross Depo at 451-52; emphasis added.)

Except as expressly admitted and stated, Defendants deny the remaining allegations in Paragraph

497.


Defendants admit that Dr. Tessoni presented the findings and conclusions of the SCI special

committee to the SCI Board before it voted to approve the merger. Defendants further admit that

on August 29, 2006, the SCI Board unanimously approved the merger in reliance on the

recommendation of the SCI special committee. Except as expressly admitted and stated,


577. Defendants hereby respond to the allegations in Paragraph 499 by incorporating

their responses to Paragraphs 181-190 as though fully set forth herein.

578. Defendants deny the allegation “The Board Approved the Merger Even Though

the Consideration to FITG was Far in Excess of Other Valuations of FITG” preceding Paragraph

500.

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Defendants admit that the merger was a stock-for-stock transaction and no cash was exchanged

between SCI and FITG. Defendants further admit that SCI could not issue stock for more value

than SCI was worth, SCI was not worth $164-$166 million, and did not issue consideration in

that amount. Except as expressly admitted and stated, Defendants deny the remaining



Defendants admit that Trenwith valued FITG as of July 2005 for management equity plan

purposes and, between then and the merger, circumstances changed to increase FITG’s value

compared to what was calculated by Trenwith, including that FITG acquired additional

businesses, including the remaining 50% of Parras Cone, so that FITG was a larger business in

2006 than it was in 2005. Defendants further incorporate their responses to Paragraphs 160-161

and 500 as though fully set forth herein. Defendants further admit that Plaintiffs purport to

paraphrase and quote from Choy Depo. Ex. 16, that document speaks for itself, and Defendants

deny any allegations inconsistent with it. Except as expressly admitted and stated, Defendants

deny the remaining allegations in Paragraph 501.


Defendants admit that after June 2005, FITG acquired additional businesses, including the

remaining 50% of Parras Cone, so that FITG was a larger business in 2006 than it was in 2005.

Defendants further admit that Plaintiffs purport to paraphrase and quote from NixonPeabody

0000236; FURSA-653141; and the Prospectus, those documents speak for themselves, and

Defendants deny any allegations inconsistent with them. Defendants further incorporate their

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Defendants further admit that Plaintiffs purport to paraphrase and quote from FURSA-696593,

that document speaks for itself, and Defendants deny any allegations inconsistent with it.

Defendants further incorporate their response to Paragraph 500 as though fully set forth herein.


503.


Defendants further admit that Plaintiffs purport to paraphrase and quote from an August 23, 2006

email between Pam Wilson and Mr. Ross (FURSA 653141), that document speaks for itself, and

Defendants deny any allegations inconsistent with it. Defendants further admit that Fund II’s

and Fund III’s internal valuations of FITG and SCI were approximately within the same ratio as,

and consistent with, the merger exchange ratio. Defendants further admit that Mr. Ross testified:

A. But it's not -- it's not that surprising that two advisors would come with somewhat different absolute numbers. The real question in a merger for shares is the relative value of the two entities, because cash is not changing hands, it's only shares. And it turned out that they [financial advisors] had essentially the same view as fairness of the share exchange ratio, and to me that was the relevant topic. (Ross Depo. at 453; emphasis added.)

Defendants further incorporate their response to Paragraph 500 as though fully set forth herein.


504.


Defendants admit that Plaintiffs purport to paraphrase and quote from an August 27, 2006 email

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between Mr. Ross and Mr. Wax (FURSA 235211), that document speaks for itself, and

Defendants deny any allegations inconsistent with it. Defendants further admit that Mr. Wax

responded to this email and informed Mr. Ross that he “misread the write-up” and that his

numbers were incorrect. (FURSA 652710.) Defendants further incorporate their response to



585. Defendants deny the allegation “The Board Approved the Merger Even Though

the SunTrust Valuation (Which Had Been Provided to Ross and Gorga) Showed that FITG was

not Worth Anything Close to the Merger Consideration” preceding Paragraph 506.





that amount. Defendants admit that Plaintiffs purport to paraphrase and quote from Tessoni


with it. Except as expressly admitted and stated, Defendants deny the remaining allegations in

Paragraph 506.


is not subject to admission or denial. To the extent a response is possible, Defendants deny the



Defendants admit that Plaintiffs purport to paraphrase and quote from Ross Depo. Ex. 729, that


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further admit that Mr. Ross testified that SunTrust’s conclusions about the merger exchange ratio

were consistent with his thinking and he did not see anything untoward about SunTrust’s

conclusions or the merger. (Ross Depo. at 235.) Except as expressly admitted and stated,



Defendants admit that Plaintiffs purport to paraphrase and quote from Ross Depo. Exs. 729 and

730, those documents speak for themselves, and Defendants deny any allegations inconsistent

with them. Defendants further incorporate their response to Paragraph 508 as though fully set

forth herein. Except as expressly admitted and stated, Defendants deny the remaining allegations

in Paragraph 509.


Defendants admit that Plaintiffs purport to paraphrase and quote from the depositions of Messrs.

Ross, Gorga, and Wax, their testimony speaks for itself, and Defendants deny any allegations

inconsistent with it. Except as expressly admitted and stated, Defendants deny the remaining



Defendants admit that Plaintiffs purport to paraphrase and quote from Gorga Depo. Ex. 263,


any allegations inconsistent with it. Except as expressly admitted and stated, Defendants are


511.



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which is a duplicate of Ross Depo. Ex. 730, and Ross Depo. Ex. 735, that those documents speak

for themselves, and Defendants deny any allegations inconsistent with them. Defendants further

state that SunTrust found FITG’s value ranged between $80-$235.8 million. Except as expressly

admitted and stated, Defendants deny the remaining allegations in Paragraph 512.



which is a duplicate of Ross Depo. Ex. 730, Ross Depo. Ex. 735, and the Trenwith valuation,

that those documents speak for themselves, and Defendants deny any allegations inconsistent

with them. Defendants further state that SunTrust found FITG’s value ranged between $80-

$235.8 million. Defendants further state that Trenwith’s valuation of FITG was for management

equity plan purposes, not a merger, and it does not stand for the proposition alleged. Defendants

further state that a net asset value is not the same as “forced liquidation value” and the

allegations include terms that are not present in the cited documents. Except as expressly





any allegations inconsistent with it. Defendants further admit that Mr. Wax testified that asset

valuation is another way of looking at book value, but the two terms are not identical. Except as

expressly admitted and stated, Defendants deny the remaining allegations in Paragraph 514.


Defendants admit that Plaintiffs purport to paraphrase and quote from Wax Depo. at 234-35, that

- 153 - Greenville: 819718 v.1

testimony speaks for itself, and Defendants deny any allegations inconsistent with it. Defendants

further admit that asset value can be an important metric under the correct circumstances:

I think in my prior testimony when I outlined either five or six methodologies of which half the value is one, I said that there were preferred methodologies that focused more on earnings for the company. But that if you didn't have access to those methodologies or the information to undertake that analysis, that you could use book value. (Wax Depo. at 668.)


515.


Defendants admit that Plaintiffs purport to paraphrase and quote from a SunTrust spreadsheet

(STRH_for_ITG_0000821.xls), that document speaks for itself, and Defendants deny any

allegations inconsistent with it. Defendants further state that this SunTrust document found

FITG’s value, even when excluding FITG’s net asset value, ranged between $58.1-$206.5

million. Except as expressly admitted and stated, Defendants are without knowledge or



Defendants admit that SCI could not issue stock for more value than SCI was worth, SCI was not

worth $164-$166 million, and did not issue consideration in that amount. Except as expressly




purport to paraphrase and quote from Gorga Depo. Ex. 263, which is a duplicate of Ross Depo.

Ex. 730, and Ross Depo. Ex. 735, that those documents speak for themselves, and Defendants

deny any allegations inconsistent with them. Defendants further state that SunTrust found

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FITG’s value ranged between $80-$235.8 million. Except as expressly admitted and stated,




Defendants state that SunTrust found FITG’s value ranged between $80-$235.8 million, which

was greater than the value SunTrust found for SCI. Defendants further admit that SCI could not

issue stock for more value than SCI was worth, SCI was not worth $164-$166 million, and did

not issue consideration in that amount. Except as expressly admitted and stated, Defendants

deny the allegations in Paragraph 520.



worth $164-$166 million, and did not issue consideration in that amount. Defendants further

incorporate their response to Paragraph 142 as though fully set forth herein. Except as expressly



Defendants state that SunTrust found FITG’s value ranged between $80-$235.8 million, which

was greater than the value SunTrust found for SCI. Except as expressly admitted and stated,



Defendants admit that FITG was paying its debts as they came due, was never issued a going

concern opinion by its independent auditor, was never in the zone of bankruptcy, and never filed

for bankruptcy. Except as expressly admitted and stated, Defendants deny the allegations in

Paragraph 523.

- 155 - Greenville: 819718 v.1


responses to Paragraphs 199-200 which show that the performance and value of FITG, SCI,

and/or NITG played no role in the sale of WLR to Invesco and that WLR has raised billions of

dollars while NITG’s asked for price on the OTCBB has declined. Except as expressly admitted

and stated, Defendants deny the allegations in Paragraph 524.

605. Defendants admit the allegation “The Merger Closed on October 20, 2006”



Defendants admit that Mr. Duerk was directed by the SCI Board to execute the merger

agreement and other related documents. Defendants further admit that no interested officers or

directors, like Mr. Duerk, performed merger related due diligence and that all diligence related to

the merger was delegated by the FITG and SCI boards to their respective special committees and

advisors. Except as expressly admitted and stated, Defendants deny the allegations in Paragraph

525.


Defendants admit that Plaintiffs purport to paraphrase and quote from the Prospectus and Merger

Agreement, those documents speak for themselves, and Defendants deny any allegations

inconsistent with them. Defendants further state that the allegations in Paragraph 526 state a

legal conclusion that is not subject to admission or denial. Except as expressly admitted and

stated, Defendants deny the allegations in Paragraph 526.


purport to paraphrase and quote from Duerk Depo. Ex. 34 and 36 and NITG’s October 26, 2006

8-K, those documents speak for themselves, and Defendants deny any allegations inconsistent

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with them. Defendants further admit that Wachovia Bank consented to amend its credit facility

with SCI on or about October 11, 2006 to waive a provision that precluded SCI from merging

with any company without Wachovia Bank’s consent. (10/26/06 NITG 8-K & Ex. 10.1 thereto.)

Defendants further admit that SCI’s existing credit facility was due to expire on October 8, 2006

and that as of October 6, 2006, Wachovia Bank and SCI agreed to extend the maturity date.

(10/10/06 SCI 8-K.) Defendants further state that Wachovia Bank’s delay in consenting to the

merger concerned its belief that a replacement credit facility would be in place for the combined

company before the existing credit facility expired so that a consent would not be necessary.

(Duerk Depo. Ex. 34.) Except as expressly admitted and stated, Defendants are without



Defendants admit that Wachovia Bank consented to the merger and that the merger closed on

October 20, 2006. Except as expressly admitted and stated, Defendants deny the allegations in

Paragraph 528.


Defendants admit that FITG was merged with a subsidiary of SCI, SCI was renamed

International Textile Group, Inc., and the combined company’s corporate headquarters was

relocated to Greensboro, NC. Except as expressly admitted and stated, Defendants deny the


611. Defendants deny the allegation “The Value of SCI (Now NITG) has Collapsed

Because of the Merger” preceding Paragraph 530.


Defendants admit that the asked for bid price for NITG on the date the merger closed was $13.25

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per share and that the average asked for bid price for NITG for the remainder of 2006 was

$13.15 per share. Except as expressly admitted and stated, Defendants deny the allegations in

Paragraph 530.


Defendants admit that on the day the merger was announced, August 30, 2006, the asked for bid

price for SCI was $14.65 per share and 1000 shares were traded that date at that price. Except as

expressly admitted and stated, Defendants deny the allegations in Paragraph 531.


Defendants admit that on the day the merger was announced, August 30, 2006, the asked for bid

price for SCI was $14.65 per share, 1000 shares were traded that date at that price, and this

transaction yielded a gross return of $14,650. Defendants further admit that SCI’s stock traded

precisely ten times between August 30 and October 20, 2006 with an average volume of 3750

shares per trade. Defendants further admit that in the time between the announcement of the

merger and its close, no one traded SCI’s stock on 27 of the 37 available trading days.

Defendants further state that at least since SCI began marketing itself for sale in 2004, no one

was interested in purchasing all of SCI’s shares (5,507,147 shares in total), and that the largest

volume purchase during that sales effort was when Fund III purchased a controlling interest in

SCI for a $2.70 per share discount from the then asked for market price. Except as expressly

admitted and stated, Defendants deny the allegations in Paragraph 532.


Defendants admit that Plaintiffs purport to paraphrase and quote from RSM’s presentation to the

SCI special committee, that document speaks for itself, and Defendants deny any allegations

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inconsistent with it. Except as expressly admitted and stated, Defendants deny the allegations in

Paragraph 533.


responses to Paragraph 532-533 as though fully set forth herein. Except as expressly admitted

and stated, Defendants deny the allegations in Paragraph 534.




admit that NITG’s market cap on the day after the merger was more than $230 million. Except

as expressly admitted and stated, Defendants deny the remaining allegations in Paragraph 535.


Defendants admit that NITG’s stock price dropped over a long period of time and that drop had

nothing to do with the merger. Defendants incorporate their response to Paragraph 532 as

though fully set forth herein. Except as expressly admitted and stated, Defendants deny the



Defendants state that Bear Stearns & Co. collapsed in March 2008. Defendants further admit

that on or about April 2, 2006 the asked for bid price for NITG was $1.65 per share and

approximately 1200 shares traded at the price. Except as expressly admitted and stated,


620. In response to Paragraph 538 of the Complaint, Defendants hereby incorporate

their responses to Paragraphs 5-9 as though fully set forth herein. Except as expressly admitted

and stated, Defendants deny the remaining allegations in Paragraph 538.

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621. Defendants deny the allegation “Further Negative Consequences of the Merger”



623. Defendants state that the allegation “New Credit Facility” preceding Paragraph




Defendants admit that SCI’s existing credit facility was due to expire on October 8, 2006 and

that as of October 6, 2006, Wachovia Bank and SCI agreed to extend the maturity date so SCI

could obtain a larger replacement credit facility for the combined company. (10/10/06 SCI 8-K.)

Defendants further state that the credit facilities of the pre-merger entities were insufficient for

the needs of the combined entity and NITG entered into a new credit facility in December 2006,

which was announced in January 2007. Except as expressly admitted and stated, Defendants



Defendants state that SCI’s credit facility was not comparable to NITG’s credit facility as SCI’s

credit facility supported a much smaller entity that did not effectively use its debt, made virtually

no investment in capital expenditures, and avoided incurring debt to enhance efforts to sell SCI.


541.


Defendants admit that Funds affiliated with WLR invested equity in NITG after the merger to

provide enough capital for the international Greenfield projects. Defendants further admit that

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Funds affiliated with WLR capitalized NITG with approximately $140 million in post-merger

equity. Except as expressly admitted and stated, Defendants deny the remaining allegations in

Paragraph 542.


Defendants admit that NITG formed an independent special committee to review, analyze,

negotiate, and, if appropriate, approve the creation of preferred shares in NITG and certain

related transactions. Defendants further state that the approval of the merger of SCI and FITG

had nothing to do with the issuance of preferred shares, and that the preferred shares transactions

were approved by a different special committee and board and concerned different issues.

Defendants further state that providing capital to a corporation must be in the form of either debt

or equity, and equity contributions require the issuance of stock. Defendants further admit that

the preferred shares in NITG had various terms, including a conversion option and cumulative

dividend that could be paid with shares at NITG’s discretion so as not to negatively impact its

cash flow. Except as expressly admitted and stated, Defendants deny the remaining allegations

in Paragraph 543.


response to Paragraph 543 as though fully set forth herein Except as expressly admitted and






responses to Paragraphs 540-543, which show that NITG’s credit facility was far superior to

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SCI’s old, expiring facility, and that SCI’s old facility was inadequate for the needs of the much

larger combined company. Except as expressly admitted and stated, Defendants deny the



responses to Paragraphs 540-543, which show that NITG’s credit facility was far superior to





Defendants admit that the Bank Model was updated several times during the closing period and

presented to potential lenders as part of the process to obtain a credit facility for the combined

company. Except as expressly admitted and stated, Defendants deny the remaining allegations in

Paragraph 548.

633. Defendants state that the allegation “Debt for Equity Swap” preceding Paragraph




Defendants admit that before the merger Fund II loaned FITG approximately $56.2 million for

its international Greenfield projects. Except as expressly admitted and stated, Defendants deny



Defendants admit that the $56.2 million that Fund II loaned to FITG before the merger was

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loaned under certain unsecured notes that charged interest at a rate of 4.78%. Except as



Defendants admit that the $56.2 million Fund II loaned FITG was worth $56.2 million plus

interest and was used by FITG to develop and build its international Greenfield projects. Except



Defendants admit that SCI’s and FITG’s debts were not extinguished by the merger and both

companies brought their respective debts and other financial obligations to NITG. Defendants

further admit that the $56.2 million debt owed by NITG to Fund II was transmuted to equity in

2007 and NITG has not had to repay that debt. Except as expressly admitted and stated,



Defendants admit that in March 2007, Fund II agreed that in lieu of cash payment to satisfy the

debt and interest owed on the notes by NITG, Fund II would accept preferred shares in the

amount owed. Defendants further state that by converting this debt to equity, NITG was no

longer required to pay back these debts and its cash flow improved. Except as expressly



Defendants admit that the preferred shares in NITG had various terms, including a conversion

option at a certain stock price based on a specific formula set forth in the preferred stock

certificate and cumulative dividend that could be paid with shares at NITG’s discretion so as not

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to negatively impact its cash flow. Except as expressly admitted and stated, Defendants deny the



Defendants admit that the preferred shares in NITG had various terms, including a conversion

option at a certain stock price based on a specific formula set forth in the preferred stock

certificate and cumulative dividend that could be paid with shares at NITG’s discretion so as not

to negatively impact its cash flow. Except as expressly admitted and stated, Defendants deny the



Defendants admit that the new credit facility and preferred shares transactions benefited NITG.

Defendants further state that the approval of the merger of SCI and FITG had nothing to do with

the issuance of preferred shares. Defendants incorporate their responses to Paragraphs 540-543

which show that NITG’s credit facility was far superior to SCI’s old, expiring facility, and that

SCI’s old facility was inadequate for the needs of the much larger combined company. Except

as expressly admitted and stated, Defendants deny the allegations in Paragraph 556.


643. Defendants state that the allegation “Allegations as to Defendants’ Knowledge”



644. In response to Paragraph 558 of the Complaint, Defendants admit that Messrs.

Ross, Wax, Gorga, and Smith were aware of FITG’s financial condition in 2006. Defendants

further state that the remaining allegations in Paragraph 558 are so vague and over broad that

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Defendants are without knowledge or information to form a belief as to the truth of those

allegations.


Ross, Wax, Gorga, and Smith were aware of FITG’s financial condition in 2006 before the

merger closed. Defendants further admit that Messrs. Storper, Gibbons, and Duerk were made

aware of certain facts concerning FITG’s financial condition in 2006 before the merger closed.

Defendants further admit that information concerning FITG’s financial information and business

was disclosed to the public before the merger closed, and that FITG could operate at a loss to

preserve market share and technical capabilities until the Greenfield projects were completed and

began producing. Defendants further admit that Messrs. Ross, Wax, Gorga, Smith, Storper,

Gibbons, and Duerk were aware of NITG’s financial performance after the merger closed.




Ross, Wax, Gorga, and Smith were aware of FITG’s financial condition in 2006 before the

merger closed. Defendants further admit that Messrs. Storper, Gibbons, and Duerk were made

aware of certain facts concerning FITG’s financial condition in 2006 before the merger closed.

Defendants further admit that information concerning FITG’s finances and business was

disclosed to the public before the merger closed, and that FITG could operate at a loss to


began producing. Except as expressly admitted and stated, Defendants are without knowledge or

information to form a belief as to the truth of the remaining allegations in Paragraph 560.

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647. In response to Paragraph 561 of the Complaint, Defendants admit that FITG

borrowed $20 million from Fund II on September 18, 2006 to fund FITG’s international

Greenfield projects, and that Messrs. Ross, Wax, Gorga, Smith, Storper, Gibbons, and Duerk

were aware of these international Greenfield projects and their funding demands, and that the

September and earlier loans were publicly disclosed along with the reasons for those loans.




response to Paragraph 561 as thought fully set forth herein. Except as expressly admitted and




response to Paragraph 561 as thought fully set forth herein. Except as expressly admitted and



Defendants admit that information concerning FITG’s finances, borrowing history, and business

was disclosed to the public before the merger closed, and that FITG could operate at a loss to


began producing. Defendants further admit that NITG’s finances, borrowing history, and

business history were disclosed to the public at least on a quarterly basis after the merger closed.

Except as expressly admitted and stated, Defendants deny the allegations in Paragraph 564.


Defendants admit that Messrs. Ross, Wax, Gorga, Smith, Storper, Gibbons, Tessoni, and Duerk

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were aware of NITG’s selling of the mattress business after the merger closed. Defendants are

without knowledge or information to form a belief as to the truth of the allegations as to RSM.

Except as expressly admitted and stated, Defendants deny the allegations in Paragraph 565.



Defendants admit that Messrs. Ross, Wax, Gorga, and Smith were aware of FITG’s financial

condition in 2006 before the merger closed. Defendants further admit that Messrs. Storper,

Gibbons, and Duerk were made aware of certain facts concerning FITG’s financial condition in

2006 before the merger closed. Defendants further admit that information concerning FITG’s

finances and business was disclosed to the public before the merger closed, and that FITG could

operate at a loss to preserve market share and technical capabilities until the Greenfield projects

were completed and began producing. Defendants further admit that Messrs. Ross, Wax, Gorga,

Smith, Storper, Gibbons, and Duerk were aware of NITG’s financial performance after the

merger closed Defendants are without knowledge or information to form a belief as to the truth

of the allegations as to RSM and Tessoni. Except as expressly admitted and stated, Defendants

deny the allegations in Paragraph 567.





Defendants admit that SCI’s existing credit facility was due to expire on October 8, 2006, would

have had to have been renegotiated whether or not the merger was approved, and that these facts

were publicly disclosed in SCI’s SEC filings before the merger. Defendants further incorporate

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their responses to Paragraphs 540-543 which show that NITG’s credit facility was far superior to





Defendants admit that SCI’s and FITG’s debts were not extinguished by the merger and both

companies brought their respective debts and other financial obligations to NITG, and these facts

were publicly disclosed. Defendants further admit that FITG did not borrow money from WLR,

but from Fund II. Except as expressly admitted and stated, Defendants deny the remaining




of the allegations as to RSM and Dr. Tessoni, but deny the remaining allegations in Paragraph

572.


Defendants admit that FITG management was aware of and supervised the development of its

Strategic Plan, and that FITG’s Board and, after the merger, NITG’s Board were aware of this

fact. Defendants are without knowledge or information to form a belief as to the truth of the

allegations as to RSM. Except as expressly admitted and stated, Defendants deny the remaining





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that amount. Except as expressly admitted and stated, Defendants deny the remaining




allegations as to RSM in Paragraph 576.










Defendants admit that FITG management disclosed to RSM and SunTrust that FITG’s Strategic

Plan included assets that had not yet been acquired, but that FITG management had a good faith

belief would be acquired. Defendants further admit that SCI’s projections provided to the

special committees’ advisors also contained business that had neither been obtained nor

contractualized. Except as expressly admitted and stated, Defendants deny the remaining


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668. Defendants deny the remaining allegations in Paragraph 582.




allegations as to RSM and Dr. Tessoni in Paragraph 584.








Defendants admit that SCI’s Board was aware of its special committee’s authority concerning

the merger, and that the SCI special committee’s scope of authority was publicly disclosed

before the merger closed. Defendants further admit that, in response to a request from WLR to

waive the standstill provision, the SCI special committee demanded that a new merger special

committee be formed to “review, evaluate, investigate, negotiate, and approve the terms of any

Potential Transaction.” Defendants further incorporate their responses to Paragraphs 298-302,

which show that additional marketing of SCI would have been a costly and pointless endeavor in

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light of the preceding two year sales effort. Except as expressly admitted and stated, Defendants




allegations as to RSM and Dr. Tessoni. Defendants further incorporate their response to









Defendants admit that the merger benefited SCI more than FITG. Except as expressly admitted

and stated, Defendants deny the remaining allegations in Paragraph 592.

679. Defendants state that the allegation “Class Allegations” preceding Paragraph 593

is so vague that Defendants are without knowledge or information to form a belief as to the truth

of that allegation.

680. Defendants state that the allegations in Paragraph 593 state a legal conclusion not

subject to admission or denial. To the extent a response is possible, Defendants deny the



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682. Defendants state that the allegations in Paragraphs 595A-CC state a legal

conclusion not subject to admission or denial. To the extent a response is possible, Defendants

deny the allegations in Paragraphs 595A-CC.

683. Defendants state that the allegations in Paragraphs 596A-I state a legal conclusion

not subject to admission or denial. To the extent a response is possible, Defendants deny the

allegations in Paragraphs 596A-I.










687. Defendants state that the allegation “Derivative and Demand Excused

Allegations” preceding Paragraph 600 is so vague that Defendants are without knowledge or





689. In response to Paragraph 601 of the Complaint, Defendants state that Mr.

Menezes did not own stock in SCI until July 2006, only purchasing shares after learning that the

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merger was pending. Defendants further admit that FURSA owned stock in SCI in 2006 and

purchased additional shares after the merger was announced and after it closed. Except as

expressly stated and admitted, Defendants are without knowledge or information to form a belief











subject to admission or denial. To the extent a response is possible, Defendants admit that

Delaware law governs the internal affairs of NITG and that it is a Delaware corporation. Except






subject to admission or denial. To the extent a response is possible, Defendants state that certain

directors and officers of SCI and FITG were interested in the merger, but that these officers and

directors were segregated from the transaction by the special committee structure used to

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negotiate and approve the merger on behalf of SCI and FITG. Except as expressly admitted and



Defendants admit that Messrs. Ross, Gibbons, and Storper were “interested” SCI directors for

the merger because they had indirect financial interests in FITG and SCI through their

investments in the general partners of Fund II, Recovery Associates II, Fund III, and Recovery

Associates III. Except as expressly admitted and stated, Defendants deny the remaining



Defendants admit that Mr. Gorga was an “interested” SCI director for the merger because he

held shares in FITG and had a financial interest in the merger. Except as expressly admitted and



Defendants admit that Mr. Gorga was CEO of FITG, was CEO of NITG after the merger, and

remains CEO of NITG today. Defendants further state that if the merger had not been approved,

Mr. Gorga would have remained CEO of FITG. Defendants further state that at the time of the

merger, SCI had no CEO and was in desperate need of senior management. Except as expressly



subject to admission or denial. Defendants further state that the unique process of two special

committees negotiating and approving the terms and price of the merger segregated the

controlling shareholder from the merger decision and requires the application of the business

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judgment rule. Except as expressly admitted and stated, Defendants deny the remaining









subject to admission or denial. Defendants further state that the unique process of two special

committees negotiating and approving the terms and price of the merger segregated the

controlling shareholder from the merger decision and requires the application of the business

judgment rule. Except as expressly admitted and stated, Defendants deny the remaining



subject to admission or denial. Defendants admit that the merger was a stock-for-stock

transaction and no cash was exchanged between SCI and FITG. Defendants further admit that

SCI could not issue stock for more value than SCI was worth, SCI was not worth $164-$167

million, and did not issue consideration in that amount. Defendants further state that SCI needed

the merger with FITG for many reasons—including to obtain management, technical experience,

and cost saving synergies—and approving the merger was an example of sound business

judgment on the part of SCI’s board. Except as expressly admitted and stated, Defendants deny


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subject to admission or denial. Defendants further incorporate their response to Paragraph 616

as though fully set forth herein. Except as expressly admitted and stated, Defendants deny the







Defendants admit that Messrs. Ross, Gibbons, Wax, and Storper and Ms. Wilson are employees

and/or officers of WLR. Defendants further admit that WLR is the management company for

Funds II and III, and that Ms. Wilson is a Senior Vice President for WLR and has been since

2000. Except as expressly admitted and stated, Defendants deny the remaining allegations in

Paragraph 620.





subject to admission or denial. Defendants further admit that any officer of NITG, like Mr.

Gorga, could be considered an “affiliate of WLR,” but that does not make him unable to consider

a demand that NITG sue WLR. Except as expressly admitted and stated, Defendants deny the


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Defendants state that no Defendant or employee of WLR has “profited” from the merger

(whatever Plaintiffs mean by that allegation), particularly Fund II and Fund III, which

collectively invested hundreds of millions of dollars in NITG and have not earned a return from

that investment. Defendants further state that no Defendant self-dealt in this transaction as the

terms and exchange ratio for the merger were arrived at by independent special committees for

FITG and SCI, not the controlling shareholder. Except as expressly admitted and stated,






that amount. Defendants further incorporate their response to Paragraph 624 as though fully set


in Paragraph 625.


Defendants state that Mr. Gorga has not “profited” from the merger (whatever Plaintiffs mean by

that allegation), and further incorporate their response to Paragraph 624 as though fully set forth

herein. Except as expressly admitted and stated, Defendants deny the remaining allegations in

Paragraph 626.

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Defendants state that Mr. Bosworth has not “profited” from the merger (whatever Plaintiffs mean

by that allegation), and further incorporate their response to Paragraph 624 as though fully set


in Paragraph 627.








Defendants state that Plaintiffs have made certain allegations against Messrs. Ross, Gibbons,

Storper, Gorga, and Dr. Tessoni, and that these allegations are without merit. Except as



subject to admission or denial. Defendants admit that Dr. Tessoni was the single member of the

SCI special committee for the merger, and that special committee recommended the merger be

approved. Except as expressly admitted and stated, Defendants deny the remaining allegations

in Paragraph 631.


Defendants admit that Plaintiffs have made certain allegations against Mr. Wax and that he is an

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employee of WLR. Except as expressly admitted and stated, Defendants deny the remaining



Defendants admit that Mr. Bosworth was the single member of the FITG special committee for

the merger and, in that role and as a director of FITG, was aware of FITG’s financial condition in

2006. Defendants further state that despite Plaintiffs’ intimations that Mr. Bosworth was

somehow involved in the alleged wrongdoing, Mr. Bosworth has not been sued in this matter, the

time for adding parties has lapsed, and Mr. Bosworth is not at risk of any liability with regard to

the merger or the claims in this action. Defendants further state that Mr. Bosworth is

independent and disinterested in this matter, and could have reviewed a demand to bring a

derivative lawsuit on behalf of NITG. Except as expressly admitted and stated, Defendants deny



Defendants admit that Ms. Wilson is an employee of WLR and in that role and as a director of

FITG she was aware of FITG’s financial condition in 2006. Defendants further state that despite

Plaintiffs’ intimations that Ms. Wilson was somehow involved in the alleged wrongdoing, she

has not been sued in this matter, the time for adding parties has lapsed, and she is not at risk of

any liability with regard to the merger or the claims in this action. Defendants further state that

Ms. Wilson could have reviewed a demand to bring a derivative lawsuit on behalf of NITG.


634.

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724. In response to Paragraph 636, Defendants incorporate the foregoing paragraphs as

if fully set forth herein.



















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subject to admission or denial.


Defendants admit that Mr. Wax was on FITG’s Board and was involved in FITG’s business.


651.


Defendants admit that Mr. Wax was familiar with the merger structure negotiations. Except as









Defendants admit that Mr. Smith was familiar with the pre-merger investigation of SCI by FITG

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and with the merger structure negotiations. Except as expressly admitted and stated, Defendants









Defendants admit that Plaintiffs purport to paraphrase and quote from the Prospectus, that

document speaks for itself, and defendants deny any allegations inconsistent with it. Except as







Defendants admit that Mr. Ross was on the boards of SCI and FITG and was the CEO of WLR.

Defendants further admit that Mr. Ross was familiar with FITG’s and SCI’s businesses. Except



Defendants admit that Mr. Ross was familiar with the merger structure negotiations. Except as


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Defendants admit that Mr. Gorga was familiar with the pre-merger investigation of SCI by FITG

and with the merger structure negotiations. Except as expressly admitted and stated, Defendants








Defendants admit that Mr. Storper was a director of SCI and an employee of WLR. Except as








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Defendants admit that Mr. Gibbons was a director of SCI and an employee of WLR. Except as





















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admit that NITG’s market cap on the day after the merger was more than $230 million. Except



Defendants state that Bear Stearns & Co. collapsed in March 2008. Defendants further admit

that on or about April 2, 2006, NITG traded at $1.65 per share on a volume of approximately

1200 shares. Defendants further incorporate their responses to Paragraphs 5-7 as though fully set


in Paragraph 698.


Defendants state that they have not been enriched by the merger. Defendants further state that

no Defendant or employee of WLR has earned a return from the merger, particularly Fund II and

Fund III, which collectively invested hundreds of millions of dollars in NITG and have not

earned a return from that investment. Except as expressly admitted and stated, Defendants deny




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purport to paraphrase and quote from Tessoni Depo. Ex. 17, that this document speaks for itself,

and Defendants deny any allegations inconsistent with it. Except as expressly admitted and




of the allegations in Paragraphs 711A-W.







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purport to paraphrase and quote from Tessoni Depo. at 503-504, that this testimony speaks for







subject to admission or denial. To the extent a response is possible, Defendants are without








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their responses to Paragraph 317-341 as though fully set forth herein. Defendants further state

that the allegations in Paragraph 723 state a legal conclusion not subject to admission or denial.

To the extent a response is possible, Defendants are without knowledge or information to form a



their response to Paragraph 711 as though fully set forth herein. Defendants further state that the

allegations in Paragraph 724 state a legal conclusion not subject to admission or denial. To the

extent a response is possible, Defendants are without knowledge or information to form a belief






815. Defendants deny the allegations in the “Prayer for Relief” and the Paragraph

entitled “WHEREFORE.”

816. Defendants deny any and all allegations of the Complaint not expressly admitted

herein and deny that Plaintiffs are entitled to any form of relief, deny that Plaintiffs are entitled to

trial by jury, and that they take nothing by way of this lawsuit.

SECOND DEFENSE

817. Defendants repeat the relevant and consistent allegations of their previous

Defenses and their Counterclaim as if fully set forth herein.

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818. The Complaint fails to state sufficient facts to constitute a claim or cause of

action.

THIRD DEFENSE



820. Plaintiff Brian Menezes’s claims are barred in whole or in part because they were

released on September 28, 2006. All of the claims Mr. Menezes asserts in this lawsuit arose or

accrued before he signed the release. Attached hereto as Exhibit A is a true and correct copy of

the Confidential Settlement Agreement and Release (“Settlement Agreement”) wherein Mr.

Menezes released all asserted claims against the named Defendants.

FOURTH DEFENSE



822. Mr. Menezes’s claims are barred in whole or in part because there has been an

accord and satisfaction. As set forth in the Settlement Agreement, he disputed, among other

things, the amount owed to him under his employment agreement. In satisfaction of that dispute,

including any of his disputes that were based upon or as an owner of any stock or interest, he

accepted and cashed several payments made in January, March and August 2007.

FIFTH DEFENSE



824. Plaintiffs’ claims are barred in whole or in part by the doctrines of estoppel,

waiver, acquiescence, and/or ratification. Plaintiffs were aware of the claims they assert in this

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lawsuit and, on information and belief, either voted for or acquiesced to the merger at issue in

this lawsuit.

SIXTH DEFENSE



826. Plaintiffs’ claims are barred in whole or in part by the business judgment rule.

Disinterested and independent special committees of SCI, FITG, and NITG, acting in good faith

and using due care and relying on independent advisors and fairness opinions, approved the

merger as a valid business decision. The Boards of Directors of the merging companies relied in

good faith on the special committees’ recommendation. Any other claims Plaintiffs allege

concerning transactions where the Boards of SCI, FITG, and NITG were disinterested are also

protected by the business judgment rule.

SEVENTH DEFENSE



828. Some of Plaintiff’s claims are barred because Plaintiffs failed to make a demand

on the Board of Directors of the combined company and failed to meet the other procedural and

substantive requirements for a derivative action as specified in Rule 23(b)(1) of the South

Carolina Rules of Civil Procedure.

EIGHTH DEFENSE



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830. Plaintiffs’ claims are barred in whole or in part by principles of exculpation under

Delaware law and Article VII of the Amended and Restated Certificate of Incorporation of

International Textile Group, Inc. (f/k/a Safety Components International, Inc.) and Article VII of

the Certificate of Incorporation of Safety Components International, Inc., both of which are

attached hereto as Exhibit B.

NINTH DEFENSE



832. Plaintiffs’ claims are barred in whole or in part because, on information and

belief, they lack standing and are inadequate representatives for this action.

TENTH DEFENSE



834. Plaintiffs’ claims are barred in whole or in part because the Defendants acted in

good faith, relied in good faith on the recommendation of the special committees approving the

merger and other challenged business transactions, and did no unlawful act or thing directly or

indirectly. The disinterested and independent special committees of SCI, FITG, and NITG relied

in good faith on independent advisors and fairness opinions when recommending and approving

the merger and other challenged business transactions.

ELEVENTH DEFENSE



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836. Plaintiffs’ claims are barred in whole or in part because Plaintiffs cannot show

causation between the conduct of the Defendants and the damages alleged. Any alleged

reduction in stock price was due to independent intervening events and circumstances unrelated

to the allegations set forth in the Complaint.

TWELFTH DEFENSE



838. Plaintiffs’ claims are barred in whole or in part under the doctrine of laches.

Plaintiffs’ claims arose and accrued no later than when the merger was agreed upon, and

Plaintiffs should have brought their lawsuit at that time.

839. Plaintiffs’ claims are barred in whole or in part under the doctrine of laches.

Plaintiffs’ claims arose and accrued no later than when the merger was agreed upon, and they

should have brought this lawsuit at that time or within the time allotted for challenges in the

August 29, 2006 Agreement and Plan of Merger between FITG, SCI and SCI Merger Sub, Inc

(“Merger Agreement”).

THIRTEENTH DEFENSE



841. Plaintiffs’ aiding and abetting claims are barred in whole or in part to the extent

that Defendants are fiduciaries, did not knowingly participate in any alleged breach, or did not

owe a duty to Plaintiffs.

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FOURTEENTH DEFENSE



843. Mr. Menezes’s claims are barred in whole or in part because they were claims

related to those asserted by him in his earlier lawsuit captioned Menezes v. SCI, et. al. (C.A. No.:

2006-CP-23-4236), that were expressly dismissed on September 29, 2006, “with prejudice and

are hereby res judicata.”

FIFTEENTH DEFENSE



845. Plaintiffs’ claim for unjust enrichment is precluded by the Merger Agreement.

SIXTEENTH DEFENSE



847. Plaintiffs’ claims sounding in equity are barred by all available equitable

defenses. To the extent the Court finds that any of the claims are at law, then those legal claims

bar recovery for any remaining equitable claims.

SEVENTEENTH DEFENSE



849. Plaintiff’s claim for conspiracy is barred because the alleged acts are consistent

with a lawful purpose, namely the combination of the companies.

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EIGHTEENTH DEFENSE


Defenses as if fully set forth herein.

851. Plaintiffs lack standing to bring this lawsuit because, on information and belief,

they have not continuously owned stock in the necessary companies from the time of the alleged

breaches until the filing of this lawsuit.

NINETEENTH DEFENSE



853. Plaintiffs’ claims are barred because they cannot show the necessary

particularized facts that the directors acted with the requisite scienter to negate the principles of

exculpation under Delaware law and as set forth in the attached Certificates of Incorporation,

which provided that “no Director of the Corporation will be personally liable to the Corporation

or its stockholders for or with respect to any acts or omissions in the performance of his or her

duties as a Director of the Corporation.”

TWENTIETH DEFENSE



855. Plaintiffs’ claims are barred, in whole or in part, to the extent that the Court does

not have personal jurisdiction over the non-resident Defendants and/or the claims violate South

Carolina Code section 15-5-150 by asserting claims on behalf of non-South Carolina residents.

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TWENTY-FIRST DEFENSE



857. Plaintiffs’ claims are barred under the applicable statute of limitations because

this lawsuit was filed more than two years after the discovery of the facts giving rise to the

causes of action asserted in the Complaint.

TWENTY-THIRD DEFENSE



859. Plaintiffs’ class claims are barred against Defendant Gary L. Smith on the

grounds that they were was previously asserted against him before these lawsuits were

consolidated, and the class claims against Defendant Smith have been added without the Court’s

approval as required by the South Carolina Rules of Civil Procedure.

TWENTY-FOURTH DEFENSE



861. Plaintiffs’ demand for a trial by jury is barred because Plaintiffs’ claims sound in

equity; Defendants reserve the right to move to transfer to the Court’s nonjury trial roster at the

appropriate time.

TWENTY-FIFTH DEFENSE



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863. Plaintiffs’ demand for punitive damages is barred because Plaintiffs’ claims sound

in equity.

TWENTY-SIXTH DEFENSE



865. Defendants hereby give notice that they intend to rely upon such other and further

defenses as may become available or apparent during pretrial proceedings in this action and

hereby reserve all rights to amend this Answer and to assert all such defenses.

WHEREFORE, Defendants pray as follows:

(1) That Plaintiffs take nothing by virtue of their Complaint and that this action be

dismissed in its entirety;

(2) That Plaintiffs demand for jury be denied;

(3) For costs of suit and attorneys’ fees herein incurred; and

(4) For such other and further relief as the Court may deem just and proper.

COUNTERCLAIMS AGAINST PLAINTIFF BRIAN MENEZES

866. Brian Menezes is a disgruntled former employee who is suing released parties on

released claims in breach of his agreement with Counterclaimants.

867. In mid-2006, Menezes was removed as interim Chief Executive Officer (“CEO”)

of Safety Components International, Inc. (“SCI”). At that time, Menezes, knowing that a merger

of SCI and International Textile Group, Inc. (“ITG”) was in advanced stages, demanded to be

paid a change of control bonus based on the contemplated merger. SCI refused to pay this bonus

in reliance on the terms of Menezes’s employment agreement, and Menezes sued SCI in July

2006.

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868. From July to mid-September 2006, while Menezes’s employment lawsuit was

pending, SCI and ITG negotiated and agreed to the merger, publicly disclosed its terms, and filed

two drafts and a final merger prospectus with the SEC. On September 28, 2006, Menezes signed

a settlement agreement where he broadly released all known and unknown claims against SCI

and related parties, including the ones asserted in his Complaint.

869. Menezes’s lawsuit against the Counterclaimants is based on claims that arose or

accrued before September 28, 2006 and were expressly released in the settlement agreement.

Menezes is in breach of that agreement and that breach has harmed and continues to harm

Counterclaimants.

PARTIES

870. On information and belief, Plaintiff and Counterclaim Defendant Brian P.

Menezes is an individual domiciled in the State of South Carolina.

871. Counterclaimants WL Ross & Co. LLC (“WLR”), Wilbur L. Ross, Michael J.

Gibbons, David H. Storper, David L. Wax, Gary L. Smith, Joseph L. Gorga, WLR Recovery

Fund II, L.P. (“Fund II”), WLR Recovery Fund III, L.P. (“Fund III”), WLR Recovery Associates

II LLC (“Associates II”), and WLR Recovery Associates III LLC (“Associates III”) are residents

of states other than the State of South Carolina.

FACTS

872. Historically, SCI’s principal business was supplying automotive airbag fabric and

cushions for automotive airbag modules.

873. In September 1999, Menezes was promoted to Chief Financial Officer (“CFO”) of

SCI after working in senior management with the company. In May 2001, he signed an

employment agreement with SCI that contained a “change of control” provision that provided for

a one-time only payment that was more than double his six figure salary upon the occurrence of

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certain events, including when stockholders approved a business combination or where certain

Board of Directors members failed to maintain majority control.

874. Menezes’s change of control provision was intended to correct the pricing

difference of certain stock options given to him by SCI. More particularly, in the event of a

change of control, other SCI employees’ strike price for stock options was reduced to one cent,

whereas Menezes’s stock option price remained at $8.75.

875. As such, if Menezes had exercised these options and sold his SCI stock after a

change in control, he would have been paid $8.74 less the per share than other SCI employees

whose strike price reduced to $0.01 after a change in control.

876. To offset this different treatment upon a change in control, SCI agreed to pay

Menezes $393,300 upon the occurrence of a change of control event. The amount of this change

of control “bonus” was calculated by taking the difference between Menezes’s strike price and

other employees’ strike prices ($8.75 – $0.01) and multiplying it by the number of shares at issue

(45,000). Unlike the other SCI employees, who had to sell shares to be paid and were subject to

fluctuations in SCI’s share price, Menezes received this bonus regardless of SCI’s market price

and without having to sell any shares in SCI.

877. In September 2003, Zapata Corporation acquired 53.7% of SCI, which triggered

Menezes’s change of control bonus provision.

878. Shortly thereafter, SCI paid Menezes a $393,300 change of control bonus.

Because this bonus was based on the disparity in share prices, Menezes’s employment agreement

limited it to “a one-time bonus [to be paid] . . . at the time the change of control [was]

consummated.” (2001 Menezes Employment Agreement; emphasis added.)

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879. Although the employment agreement plainly confirms that the change of control

provision was a one-time bonus, Menezes sought to “double dip.” In connection with the

December 2005 purchase of the controlling interest of SCI by Fund III of SCI from Zapata

Corporation, Menezes demanded a second bonus. SCI refused to pay based on the express

language and intent of the employment agreement. After all, Menezes had already been

compensated for his higher strike price. But Menezes escalated the dispute to such a degree that

SCI paid Menezes $406,000 bonus to avoid a lawsuit and minimize business disruption.

880. Menezes was interim CEO for approximately five months before he was

terminated. Menezes, as CFO and interim CEO, took part in discussions concerning the merger

of SCI and ITG, and had access to information about the merger and future transactions for SCI.

881. In April and May 2006, SCI and ITG respectively appointed special committees

to explore a possible combination of the companies. In May 2006, WLR proposed preliminary

merger structure to ITG’s and SCI’s special committees.

882. In response to the May merger proposal, Menezes made a third demand for a

change of control bonus from SCI. SCI refused his demand.

883. On July 6, 2006, Menezes sued SCI and Mr. Gorga for various claims, including

SCI’s refusal to pay the change of control bonus for the proposed merger of ITG and SCI. When

he filed his lawsuit, Menezes knew that ITG and SCI were in advanced merger discussions and

negotiations. For example, even before Menezes had left SCI, due diligence was under way and

special committees at SCI and ITG had been established to assess the merger.

884. On August 30, 2006, while Menezes’s employment lawsuit was still in its early

stages, SCI and ITG publicly announced the merger and disclosed its material terms, including

the exchange ratio.

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885. On September 1, 2006, ITG and SCI publicly filed a preliminary Joint Proxy

Statement/Prospectus (“Prospectus”) with the SEC for the SEC’s review and comment. The

Prospectus included a detailed description of the background and reasons for the proposed

merger, the terms and conditions of the merger agreement and the transactions related thereto,

the financial analyses performed by RSM EquiCo Capital Markets, LLC’s (“RSM”) to the SCI

Special Committee, and the fairness opinion delivered by RSM.

886. On September 22, 2006, ITG and SCI publicly filed the definitive Prospectus for

the combined company with the SEC and mailed it to stockholders shortly thereafter. Pursuant

to that Prospectus, SCI’s record stockholders as of September 19, 2006 were entitled to vote on

the Amended and Restated Certificate of Incorporation and to re-elect five director-nominees to

SCI’s Board of Directors.

887. Menezes knew that the upcoming merger would provide him increased settlement

leverage in his employment lawsuit against SCI and Gorga. In an effort to capitalize upon the

upcoming merger, Menezes prepared an amended complaint asserting additional allegations and

related claims against ITG, WLR, and David Wax. Menezes never filed his amended complaint,

but provided it to opposing counsel.

888. Paragraph 36 of the copy of the amended complaint stated that “[u]pon

information and belief, the terms of the proposed merger are unfair to SCI and effectively

transfer value from the shareholders of SCI, including Plaintiff, to the shareholders of ITG.”

889. In an effort to bring a quick end to Menezes’s lawsuit and preclude him from

further interfering with the merger and the combined company’s future business, SCI and Gorga

agreed to settle the matter with Menezes without admitting any liability. Among other

consideration, Menezes received a $197,500 payment in lieu of a change of control bonus.

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890. In sum, what should have been a one-time change of control payment to put

Menezes on equal footing with other SCI employees became a windfall of nearly $1 million

without Menezes selling a single share of SCI stock.

891. After ITG’s and SCI’s merger was announced and the prospectus was mailed to

stockholders, on September 28, 2006, Menezes executed the Confidential Settlement Agreement

and Release of All Claims (“Settlement Agreement”) concerning his employment lawsuit.

Notably, the attorney representing Menezes in his current lawsuit was the same one who

negotiated and drafted the Settlement Agreement. The Settlement Agreement included the

following provision:

Releases by Plaintiff. As a material inducement to Employer to enter into this Confidential Settlement Agreement, Plaintiff does herby release, acquit and forever discharge Gorga and Safety Components, and any parent, subsidiary and affiliated person, company, business, entity or enterprise of Gorga and Safety Components, along with all current and former officers, directors, agents, employees, insurers, representatives, attorneys, successors, and assigns of same, which shall also include by way of enumeration but not a limitation, the International Textile Group, Inc., W.L. Ross & Co. L.L.C., and David Wax, a resident of the State of Connecticut (collectively, the “Released Parties”), from any and all manner of actions, causes of action, suits, claims, setoffs, debts, compensation, salary, benefits, sums of money, accounts, covenants, trespasses, damages, judgments, and demands, whatsoever, in law or in equity, whether known or unknown, liquidated, contingent, absolute or otherwise, which Plaintiff either has had or now has against Released Parties for or related to any matter or thing whatsoever from the beginning of time up to and including the date of execution hereof. It is Plaintiff’s intention to release all rights and claims that he may lawfully release.

(Exhibit A at ¶ 7) While Menezes executed this release “[w]ithout in any way limiting the

generality of the foregoing” provision, he specifically released “any claim based upon or as an

owner of any stock or interest in any of the Released Parties arising prior to the execution of this

Confidential Settlement Agreement.” (Id.)

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892. Indeed, Menezes expressly released all possible claims, recognizing that certain

facts and consequences may have been unknown to him: “Plaintiff understands, acknowledges,

and voluntarily agrees that this Confidential Settlement Agreement, except as otherwise

explicitly stated, is a total and complete release by him of any and all claims which he has

against Employer as of the effective date of this Confidential Settlement Agreement, both known

or unknown, even though there may be facts or consequences which are unknown to Plaintiff.”

(Id. at ¶ 8.)

893. Plaintiff also agreed that he would not disparage the parties, promising that he

would not publicly or privately criticize or disparage “in a manner intended or reasonably

calculated to result in public embarrassment to, or injury to the business reputation of the

Parties.”

894. Plaintiff did not live up to his promises. On information and belief, Menezes

falsely agreed to release his claims and not disparage Counterclaimants in order to maximize his

settlement payment while secretly planning a lawsuit based on released claims.

895. On September 29, 2006, the parties agreed to dismiss Menezes’s lawsuit with

prejudice, and on October 9, 2006, the Court closed the matter.

896. On October 20, 2006, ITG was combined with SCI. On or about that time, ITG

became a wholly-owned subsidiary of SCI, and SCI changed its name to International Textile

Group, Inc. (the “Combined Company”)

897. On April 9, 2008, Menezes filed his first lawsuit concerning the merger of SCI

and ITG and asserted claims that arose or accrued before September 28, 2006 against parties that

were expressly within the scope of the release in the Settlement Agreement. That lawsuit was

ultimately consolidated with the above-captioned action on February 4, 2010.

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898. This matter is based on released claims and is in breach of the Settlement

Agreement.

CAUSE OF ACTION

Breach of Contract Against Menezes

899. The foregoing allegations are incorporated herein by this reference.

900. Menezes, SCI (now the Combined Company), and Gorga competently entered

into a binding contract, the Settlement Agreement, wherein there was a clear offer, mutual

acceptance, and valuable consideration exchanged among the parties, as set forth above and

agreed to in the Settlement Agreement.

901. In the Settlement Agreement, Menezes agreed to release all claims against SCI,

Gorga, and the Counterclaimants to this action. Counterclaimants were contemplated by the

Settlement Agreement, were intended to be direct third party beneficiaries to the Settlement

Agreement, and were intended to be included in the release provisions. The release of these

direct third party beneficiaries was part of the consideration exchanged for the Settlement

Agreement.

902. SCI, Gorga, and the Counterclaimants to this action performed all or substantially

all of the material things that the Settlement Agreement required, and all conditions required for

Menezes’s performance have occurred.

903. Alternatively, performance by SCI, Gorga, and the Counterclaimants to this

action has been excused, forgiven or rendered impossible by Menezes’s prior material breach of

the Settlement Agreement.

904. Menezes breached the Settlement Agreement and has acted in bad faith by,

among other things, bringing this lawsuit on claims that have been expressly released in the

Settlement Agreement.

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905. Counterclaimants have been directly and proximately damaged by Menezes’s

foregoing breaches, and are entitled to actual and consequential damages in an amount to be

proven at trial.

WHEREFORE, Counterclaimants pray for judgment as follows:

A) For actual and consequential damages against Menezes;

B) For recovery of all costs, attorneys fees and expenses reasonably incurred in the

defense and prosecution of this action to the extent permitted by law; and

C) For such other and further relief as the Court deems just and proper.

October 25. 20 ~ 1 Respectfully sub1nitted,

OF COUNSEL:

George T. Manning JONES DAY 2727 N. I--Iarwood Street Dallas, Texas 75201-1515 Telephone: (214) 220-3939 Facsi1nile: (214) 969-5100

Michael J. McCmmell Joseph E. Finley JONES DAY 1420 Peachtree Street, N.E. Suite 800 Atlanta, GA 30309-3053 Telephone: (404) 521-3939 Facsin1ile: (404) 581-8330

Counsel for WL Ross & Co. LLC; Wilbur L. Ross, Jr.; Michael J. Gibbons; David H. Stm-per; David L. Wax; Joseph L. Gorga; Gary L. Sn1ith; Stephen B. Duerk; vVLR Recovery Fund III, L.P .; WLR Recovery Fund III, L.P.; WLR Recovery Associates II LLC; And WLR Recovery Associates III LLC

- 204-

ThisCONFIDENTIALSETILEMENTAGREEME.NTANDRELEASEOFALLCLAIMS (he::c:ina.fter "Confidcnti.al Settl~meot Agreement'') by and between Brian P. Menezes, a resident of Greenville, South Carolina (hereinafter "Plaintiff'), and his heirs, executors, administtators, successors and :tssigns, :md Safety Components lotcmational, Inc., a company v.rith m office and p~ce of doing business in Greenville, South Carolina (hereinafter "Safety Components" or "Employer"), its officc::.rs, dlrecrors, board members, shareholdere, its affiliates and controlli.a.g persons (If any), employees, attorneys, insurers, representatives, bailees, agents, servants, heirs, executors, administtaror.s, personal rep::esentacives, predecessor£, successors, assigns, parent companies, subsidW::ies, related companies, divisions, ~md rhe officers, diJ:ectors, board members, shareholders, employees, bailees, agems and serv:mt:s of thdr paxcnt companies, subsidiuies, reb ted companies, divisions, and affiliates, and all persons acting by, through, under, or in concert with any of thC!ll, and Joseph L. Gorga, a resident of Greensboro, North Carolina (hereinafter "Gorga"). Safety Componems and Gorga may be identified collectively hc:rdnafter as '(Employer' solely for the:: purpose of identification i.n this document. Plaintiff, Safety Components, and Gorga may also be identified collectively hereinafter as the "Parties."

WITNESSETH:

WI-IEREAS, on or about July 6, 2006, Plaintiff filed a complaint entitled "Bn"an P. Menezu, Plaintiff, vr. Saft!J Compo11ents Inumalional. Inc., ond Joreph L Gorg11. De.fondarrtr," bearing civil action ao. 2006-CP-23-4236, in the South Carolina Court of Common Pleas for the Thirteenth Judicial Circuit, County of Greenville (hereinafter "the Underlying Lawsuit'~. in which Plaintiff alleged, among other things, that the Defendants were liable for violation of the South Carolina Payment of Wages Act (S.C. Code Ann.§ 41-10-10 et seq.) and breach of contract arising out of Plaintiff's employment with Safety Components and an ''Employment Agreement" between Menezes aod Safety Components, entered in to on May 18, 2001, as subsequently amended (hereinafter "Employment Agreement"), and wro?gful rcuniuacion of Menezes' employment from Safety Components (hereinafter collectively "Plaintiffs Claims"), and seeking damages and R declaratory ;udgment on Plaintiffs Claims;

WHEREAS, Plaintiff :Uso prepared an Amend~d Compla.in.t incorporating Plaia tiffs Claims against Employer, buc which also contained additional allegations ag;Unst lnternatiooal Textile Group, Inc., W.L. Ross & Co., LLC, and David Wax, a resident of the State of Connecticut, for, among others, wrtious interference with contract and civil conspiracy (hereinafter collectively "PI.llntiff's Amended Cl:Ums"), which Amended Complaint was nor filed with any court or serve:d upon Employer, Interoation~l Textile Group, Inc., W.L. Ross & Co., LLC, or David Wax;

\X.'HEREAS. the Parties have engaged 1.'1 sufficient investigation upon which to evaluate the claims :~.nd potenrud defenses in the Underlying Lawsuit;

WHEREAS, Def::nchnts deny :o.nd dispute Plaintiff\ Chums ~md Plainnffs A.rnendeu Cl.aims. m whole or ir. part, and any liabiluy therefore:

EXHIBIT

I _A __ I I

EXHIBIT A

StttkmrntAgnemmt qud Rekau q[A/1 Clqr'mJ

WHEREAS, the Parties have. reached an agxccment to resolve any and all ch.ims arising ouc of Plaintiffs Claims 1.nd Plaintiffs Amended Claims, or any right to dam;age~ or a declaratory judgment, prior to Employer filing an Answer responding ro Plaintiffs Claims or Plaintifrs Amended Claims;

WHEREAS, the Parties have agreed upon a compromise settlement and now wish to forever resolve, settle, compromise., and end any :md all claims either or both may have against the another arising from PLaintiff's employment, :aod the termination thereof, and in the Underlying Lawsuit and as expressed in Plaintiffs Amended Claims;

WHEREAS, Plainciff acknowledges th:u Employer has paid to him ali wages ew1ed, all unused v:1cacion benefits accrued (if any), and :ill other amounts which may have been owed to him by Employer pursuant to the Employment Agreement OI otherwise by Employc.r's policy, contract, or applicable law through the date of Plaintiffs termination, june 9, 2006 (hereinafter the "Termination Dare"), less standard payroll withholding and any a.uthocized deductions.

NOW, THEREFORE, in considf.ratioo of the mutual covenants contained bere..in and the exchange of other good and valuable consideration, rhe receipt and sufficiency of which ate hereby expressly acknowledged, the Parties hereto agree to the following tcnns of settlement in full satisfaction, accord and settlement of all claims against one another.

t. Paymeot by Employer to Plaintiff in Lieu ofSeve.rancc Pay. The Parties agree that subject to the expiration of the seven-day (7 ·day) revocation period (as desccibcd in Section 18 bdow) and receipt by Employe.r of an executed Stipulation of Dismissal with Prejudice of the Underlying Lawsuit, the Employer will pny to Plaintiff, in full satisfaction, accoiCi, and settlement for any and all claims, and specifically for any cl..rim for severance payments as contemplated purswoc to §7.4{b)(l) of the Employment Agreement, the amounts set forth below on the dates indicated:

(:~.) A first payment on January 9, 2007, in the amount of Ninety Thousand Two Hundred Teo and no/1 OOths ($90,210.00) Dollars (which takes into consideration the payments previously made by the Employer of Fifty Four Thousand Two Hundred Ten and no/ 1 OOths ($54,21 0.00) Dollars).

(b) A second payment on March 2, 2007 in the amount of Oac Hundred f'orty-Four Thousand Four Hundred Twenty and no/lOOths {il44,420.00) Dollitrs.

(c) A third and final paymenc on August 7, 2007 in the amount of One Hundred FortyFour Thousand Four Hundred Twenty a:1d no/100ths ($144,420.00) Dollar:;,

Each of the aforementioned payments is robe paid li'lnus all applicable withholdings as required by law.

2. Payment by Employer to Plaintiff in Lieu of Chang~: in Control Bonus. The Pa.rcit:s dispute the right to any change in control bonus payment under the Employment Agre~mcnt, but agree chat in full sarisfaccion, accord, and sectlcrncnl for nny claim, tight or enciticment to any payment for a change in control bonus payments. whclher pw:;uant to §7.4(b)(4) of the Employmcm /\grcement, or from any other part of the Employmcnr Agreement, or oLI,c:rwise from any Released Party. SJfcty Componcnt5 will pay to rhe Plaintiff the total sum of One Hundn:c Nlnety Seven

Page: 2of i I

Scttkmml A.Jrmlwll n1td &fum iJ(1/! GaiTIU

Thousand Five Hundred and no/lOOths ($197,500.00) Dolhrs, agaio subjecr ro the expiracion of the scv:.:r:-<.1-ay (7 -d:1y) rtvocacion period (as described in Section 18 below) and rcccip[ by Employer of an execured Scipulation of Dismissal with Prejudice of rhc Underlying Lawsuit.

Th.is sum shall 'oc paid in three (3) scpa:atc. payments of Sixty Five Thousand Eight Hundred Thirty Tnree and 33/lOOt:hs ($65,833.33) Dollus, each ofwruch is to be paid on or before January 9, 2007, M3rcb 2, 2007, and August 7. 2007; respectively, and from which shall be: deducred all applicable withholdings as required by la.w. If applicable, the afo!esaid payment, in compromise and settlement of nny and :1.U rights to any change in conaol bonus, shall be 1'grossed up'' as provided in the Employment Agreement at Paragraph 10. Comp~agce with Internal Revenue Code §280G.

3. Benefits. All of Plaintiffs benefits, :md :my right t.'l,e.retc, shill be deemed re.uninared as of the Termination Date (other tha.n, where applic2ble, health, dental, :~.nd vision lnsunoce, wh.ich sh.ill terminate effective as of the lasr day of the month in which Plaintiff was terminated) unless the terms of the benefic plans provide otherwise, or except to the extent inconsistent with the remainder of this paragraph. Employer shall provide ar no expense to Plaintiff for a period of cighteen (18) months following the Termination Date continued health insurance coverage as in effect from rime to rime (but which shall include coverage under Execucare or a plan or program providing coverage subsrancially equi"alent to that Plaintiff had immediately prior to rhe Tenniru.ti.on Date) and, tO the extent they continue ro be eligible for such cov~agc nnder COBRA, his dependents who were covered by Employer's health insur:mce plan inunecfu.tely prior to the Termination Date. Othcrv.risc, Plainciff acknowledges rhar Plaintiff shall not be entitled to any other or additional benefits, swns or amounts, including wjthoul lunitation, any right to any bonus, vacation pay, sick pay, life insurance, disability income policies, cu allowance:, contributions for 401(k) or similar plans nor any other benefits, except for the payments of prcmiwns for medical insurance sec forth above, and except as otherwise provided in the benefit plans, or specifically identified in this Con£dential Settleme:ntAgrcemept. Plaintiff shall be entitled, at Pl.aintifPs sole expense ro any COBRA benefits to which he may be encitlcd by law.

4. Payment by Employer to Counsel for Plaintiff. On Plaintiffs behalf, and at his request, the Parties agree that Employer will pay Plaintiffs atmmey, Will.iam D. Herlong, Esq., of Anderson & Herlong, LLC., the sum of Seven Thousand Five Hundred and no/100ths ($7,500.00) Dollars, payable pursuant to a Form 1099. Pl.aintiE's attorneys agree to hold harmless and .indemnify Employer for any liability for tax payments and filings for which Plaintiffs :lttorneys are responsible, if any.

5. Nature of Consideration. The mutual promises and sums described herein arc acknowledged to be good and valuable consideration in full and final p:~.yment and accord and satisfaction of aU claims by Plaintiff ::tgainst Employer by virtue of his employment, the Employment Agreement, or otherwise.

6. Dismissal of the Underlying Lawsuit. The Parties hereby agree to din:ct rbcir n:spcctivc cou11Scl to dismiss the Underlying Lawmit, aod any and all claim::, counterclaims, crosscl..:urns, or rclat::t.l claims th:lt have been or could have been asserted ir. the Underlying L:J.wsu.it, with prejudice. The Uaderlying Lawsuir and anr -and :7.11 rehced cl.::t.i.ms, countcrcln.ims, cross-claims, or rebred claims ;;h:t.lJ hcuccforch be res jlldicara.

Page 3o: 11

S£ftkmlnl-dgmmtnt and &f<&lJt' ~(All Clqjrnr

7. Rdeascs by Plaimiff. As a material i..nducemeot to Employer to enter into this Confidcncial Settlement Agreement, Plaintiff does hereby rele:~.sc, acquit a..nd for~vcr dischru:gt! Garb"" and Safety Components, and any parent, subsid.Wy and affilia[ed person, company, business, entiry or emerprise of Go.rga and Safety Components, along with all current ~nd fo.ancr officers, ilirectors, agents, employees, insur,ets, representatives, attomers. successors, rancl assigns of the same, which sbaU also i.I"Jcludc by way of enumeration but not limicarioo, the Inrernation:U Textile Group, Inc., W. L Ross & Co. LLC., and David L. Wax. a residem of the Sute of Connecticut (collectively, the "Released Parties"), from any and all manner of actions, causes of action, suits, claims, setoffs, debts, compensation, sal.ary, benc6.rs, sums of money, accounts, coverunts, txespasses. damages, judgments and dc.tnands, wh:moever, in bw or in equity, whethc.: known or unknown, liquid:~ted1 contingent, absolute, or otherwise, which Plaintiff either has had o:: now has against the Released Parties for or related to any m:1ttcr or thing whatsoever from the beginning of cime up to and including the date of execution hereof. It is Pla.inciffs intention to release all rights and claims that he may lawfully =:-eleasc.

Without in any way limiting the geneulity of the foregoing, this Rdea.se applies to and waives: (1) any and all chims, causes of action, or !igbrn, whlch Pl:llntiffh:as had or may now have under or pursuant to Title VII of the Civil Rights Act of 1964, as amended; Civil Rights Act of 1991; Title 42, United St;nes Code, Section 1981; the Americans with Disabilities Act; the Age Discrimination In Employment Act, as amended, the Older Workers Benefit and Prorecrion Act; and any other stature, rule, or executive order prohibiting disc:rim.inatioo in employmc:ot on the basis of agt:, disability, religjon, national ocigin, sex, race, color, or veteran's smtus; (2) any and all cla.ims, causes of action, or rights, which Plainciff has ha.d or may now b:ave under or pursw.nt to the Employment Retirement Inc:omc Security Act; (3) any claims, causes of action, or tights which Plaintiff might have or has had for employment discrimination, unlawful employment practices, or relating in any way to hi:; employment or termination thereof, :and arising u.nde.c loca~ state, or fcde.rallaw; (4) any claims or causes of action which Plaintiff might have or have had for personal injuries; and (5) any cl.ai.ms or causes of action whic;h Plaintiff might have or have had for breach of contr~ct or based upon any agreement with the Rdeased Parties, spec:i.fically including but not limited to the Employment Agreement~ (6) any claim based upon or as an owner of any stock or interest in any of the: Released Parties arising prior to the execution of this Confidential Settlement Agreement; (7) any cl.a.ims or causes of action which Plain riff might have or have had for defamation, tortious conduct :md wrongful discharge and (8) all ofPlaintiffs Claims, Plaintiff's Amended Claims and all claims made or which may have been made in the Underlying Lawsuir or Amended Complaint.

Adtlitionally, without waiving n.ny prospective or retwspecti.ve righcs under the Family and Medkal Leave Act ("FMLA"), Plaintiff admits that he has received from Employer ill rights and benefits, if any, potenwlly due to him pursuant to the FMLA. Similarly, without waiving any prospective o.r retrospective rights under the Fair Labor Standards Act C'FLSA"), Plaintiff admits thar he has received from Employer all s:1la.ry, w:1ges, or other compensation, if any, potentially due to him purswnt to the FLSA.

8. Releases by Plaiutiff- Addit.iooal Informariuu. Plaintiff specifically agrees that his rdease of d:Ums identified in Section 7, 1bovc, is knowing and voluntary and that h~ !u.s had sufficient opporrunity co consult with his attorney to er..s:Jre that be understands the hnguagc used in this Confidencia! Settlcmem Agrc~ment anci the rights :tnd obligacions crcarcd herein nnd he hnd in fact consulted with his auoror:y regarding the sam~. Plainciff understands, acknowledges, and voh.:.nta..rily agrees that this Con:iden::ial Settlement Agreement, e:xcepl as othen.vise cx;:Jlicitly stHed, is a ror:U and

P::1gc 4of 11

Sttlluhenl 4gmmtnl qad &k4ff ofA/1 Claim!

complete release by him of any and all claims whicb he has against Employer :LS of the effective dace of this Confidcnti~ Settlement Agreement, both known or uuknown, even chough there may be facrs or consequences of facts which 2rc unknown to Pb.intiff.

9. Other Claims. Plaintiff represems thar bestdes the Underlying Lawsuit, he !1as not filed any or:her compl~ms, claims, or actions ag-Unst the Released Pa.rt:i~s with any stlte, federal, or local agency or court, or t:hat ifPb.inciff luis, Plaintiff agrees to withdraw and dismiss with prejuc.lice (or cau.se robe withdrawn and dismissed with prejudice) any such complaint, claim, action, or cbuge. Pbinti.ff acknowledges that he knows of no facts which may lead to or suppor:t any complaints, claims, actions, or charges against Employer in or through my state, federal, or local agency or court other than Pl.ai.nciff's Claims and/or Plaintiff Amended Claim$ as described hcrc..inabove and asserted in the Underlying Lawsuit and/or dc::;ctibcd in the Amended Complaint, which are ~ereby released and forever setded.

10. Status of "Employment Agreement., Plaintiff further agtees that be and Safety Component:.'i entered into the Employment Agreement on May 18, 2001, which agreement was subsequently amended by the Parties on September 22, 2003. The Parties hereby :agtee that the prior EmpioymcntAgrccmcnr, including all amendments thereto, is hereby rescinded, te.rminated, cancelled, or otherwise null and void as of June 9, 2006, and the Patties shall be relieved of any obligations or liability rhereunde.t, except with the sole exceptions addressed herein. While it is the Parries' intent to

otherwise rescind the Employment Agreement; the following provisions conuined in the Employment Agreement shall rerru.in ln full force :md effect md are incorpma.ted herein by reference:

Sec. 8. Confidential Informacion, Inventions (including§§ 8.1 - 8.5); and

Sec. 9. Non-Competition, Noo-So.licibtion (mclucling §§ 9.1 - 9.5).

Plaintiff agrees and understands that, notwithsr:a.oding the provisions cont~a.ined in Puagraph 24 herein, the foregoing provisions contained in the Employment Agyeement, and lltllcnd.rnents thereto, shall remain in full force and effect despite the execution 1nd t:et::ms of this Confidential Scttltmcnt Agreement, are subject ro separate valid considcncion previously paid by Employer to Plaintiff. a.od art: subjc:ct to enforcement pwsuant to the o.ciginal tcnns of the: Employment Agreement.

11. Releases by Employer. As a material inducement to Plaintiff to enter into thls Confi.dcn tial Settlement Agreement, Employer hereby releases, acquits, and forevc:.r discharges Phi.ntiff &am any and all manner of actions, causes of action, sui~. claims, setoffs, debts, compensation, saw:y, benefits, swns of money, accounts, covenants, trespasses, damages, judgments and demands, whatsoever, in law or in equity, whether known or unknown, liquidated, contingent, absolute, or othcrwis~:, which the Employer either has had or now has against Plaintiff for or related to an}' m:a.Lter or thing, whatsoever, from the: beginning of time up to and inducting the date of exec·.Jtion hereof, exccp~ for the provisions in the: Employment Agrtc:mcnt enumerated and desc.cibed above in Sc.ccion 10 cncitlcd '·Status of Employment Agreement". and with regard to th:lt provision, only any cxi:;cing cLU.ms predating the execution of this agreement are released. Other th:m the provisions set forth m Sccrion 10, above, it is the Employer's intention co release all rigbts and d:Ums that the Emplcyt:r rn:ty lawfully release.

Page Soi 11

Smkment A.gn.·mmtl t11(d RtkaJt o{A/1 Claim!

12. Non-Disparagem~nt. The Parties agree that they will not publicly cntlau or disparage dH: c.:ach other, or printely criticize or dispuage each other in a manner intended or reasonably calcuJated co result in public embarrassment co, or injury m the business or reput.-1cion of the Parties. Employer shall take rc~c;onablc efforts to ensure that David Wax and the executive officers of JnrcmacionnJ Textile Group, loc., :md W.L. Ross & Co., liC. comply with this provision as if each was

Employer.

13. Cooperation. Plaintiff agrees clue for a period of one year he will provide such coopention, informacion or reasonable assist.ane~: that the Released Parries (as defined :above) may reasonably request of him upon rc:a~onable prior nocice, including making himself available to be a witness in judicial or other legal proceedings, with respect to any matters that he uuy have been fa.m.ilU.r wirh or responsible for during h.is £enure with the Employer. The Employer will reimburse all related and reasonable expenses aad shall compensate Pb...intiff ac the rate of Two Hundred and No/lOOths {t200.00) DoU~rs per hour, with a minimum of fo·J.: (4) hours, per request for such futu.rt.: s~:rviccs.

14. Resignation From Offices. Plaintiff coofums that effective June 9, 2006, he ceased to be employed with Safety Components and that he does resign from all offices and positions with Safety Components, includi.ng (a) from all offices of Safety Components to which he has been elected by the Board ofDirectors of Safety Components or ar.y RcleiLSed Parry (or to which he has otherwise been appointed), (b) from all directorships or offices of any entity that is a subsidiary of, or is otherwise related to or affiliated with, Safety ComponenlS or any Released Party, (c) from all :1dministracive, fiduciary or other positions he may hold with respect to auangernents or plans for, of or relating to

Safety Components or any Released Party, smd (d) from any other directorship, office, or position of or with any corporation, partnership> joint venture.. trustE of any other enterprise (each, an "Other Entity") insofar as PJ~i.nciff is serving in the directorship, office or posicion of the Other Entity at the request of Safety Components or :my Released Party.

15. Futwc Employment. PWn.tiff agrees that Employer is not obligated to offer employment to Plaintiff (or to accept services or the performance of work. from Plaintiff directly or incfucctly) now or in the future. Plaintiff agrees not to seek or accept employment or any direct i..1dcpcndcnt: contractor relationship with the Released Parties, as defined herein, now or at any rime in the future. Plaintiff agrees that in the event sucb employment or other relationship occurs in the future, thls provision shall serve as good and just cawe for termination of same. Plaintiff knowingly and voluntarily waives all rights, if any, he may have under federal and/or state law to re-hire by, or rclllsr:nemcnt of employment with, Employer. This provision does not apply to the extent Plaintiff is an employee or independent conaactor with a company that is acquired by a Released Party. Further, !his provision is void after five (5) years.

16. N on·Admission. The Parties agree and understand that tlus Confidenti!U Settlement Agrc::emen t is a compromise of disputed claims and shall noc in anyway be: construed as an admission by any of the Parties or Released Parties that it has actc:d wrongfully witlt respect to any other Party or Released P:trry or ar.y other person, which is expressly denied, or that they have any rights whatsoever against each other. The Parties further agree that Employer and the Rdcascd Parties specifically disclaim ;my ltability to or ntlcgcd wrongful acts against Pla.moff or any other person. on the part of ttsdf. irs affihatcs, and their rt:speccivc representatives, officers. employees, attorneys, ami agents.

17 Confidentiality :lnd Breaches. Except as required to comply with legal d.rsclosurc

Page 6of 11

ScalwentAgrouncnt and &.'eaJr olA/1 ClaimJ

requirements (e.g .. subpoenas) or as ot:hc.rwlSc required or protected by law or otberv.r:ise allowed in this paragraph, the Pla.L1tiff represents and agrees chat he will keep the terms, and amount of this Confidcotiru Settlement Agreement completely coofidenruli a..'1.d he bas not disclosed :~.nd will not disdose any informacion cegtUding trus Confidential Sectlcmet'lt Agreement (or discussions preceding chis Confidential Settlement Agreement) to anyone other than his attorneys, tu: advisors, financial advisors, h.is spouses and/ or ocher individuals who have a r~sooablc need co know and who have been approved in w.ricing to receive such infoilTUl.tion by Employer. The Plaintiff agrees rhar he will not describe this Confidcncial Settlement Agreement or rhe serdement of his Claims in any way (e.g., substantial/insubstantial, generous/parsimonious, large/small, fair/unfair, etc.). The Plaintiff may discuss this Confidencial Sctdcmc:ot Agr:eemem with his attorneys, t:J.x advisors, fin:mcial advisors, his spouses and/ or orher individuals who have a reasonable need ro know and have been approved to

receive sucb information by Employ~. but Plaintiff will inform them of these confidcnciality provisions, and will remain responsible for aoy further clisclo:;urcs that may result. TI1e Plaintiff agrees that the unauthorized disclosure of the tenns or amoWlt of this Confidential Settlement Agreement is a material breach of this Confidential Settlement Agreeme:lt In the evem thece is a breach of this Confidential Sertlement Agreement, the remaining provisions of thls Settlement Agreement shall remain in full force and effect for the benefic of the Employer. The Parties and the Rdcased Parties willlimir their public disclosure of this settlement ~o a simple statement that the matter has been resolved on confidential terms.

18. Acknowledgment.

(a) The release set forth herein includes a waiver of rights and claims which Plaintiff may have arising under the .Age Discrimination in Employment Act of 1967 (I'itle 29, United States Code, Sections 621, et seq.) ("ADEN'). Plaintiff is advised to coil9ult with his attorney regarding his waiver of rights and claims under the ADEA. Plaintiffunderst:ands that by signing this release, he waives his rights or claims under the ADEA. Plaintiff further understands that he is not waiving rights or claims under that ADEA that may arise after the effective date of this fully executed Confidential Settlement Agreement.

(b) Plaintiff agrees that he has been advised to consult with an attorney prior to executing this Confidential Settlement Agreement, Plaintiff acknowledges that he has had the opportunity to consult with an attorney to re\oicw this agreement. prior to signing, and that he has in fact done· so. Plaintiff acknowledges that his attorney has fully explained in a manner undeiStood by him the waiver of any rights or claims contained in this Confidential Settlement

Agreement.

(c) Plaintiff certifies that he has been given a period of up to twenty-one (21) days to study this Confidential Settlement Agreement, and to consult with :an attorney, accountant, or other advisor before signing the Confidential Settlement Agreement, and that the actual time be has taken for such purposes was adequate for all appropriate consultations.

(d) Plaintiff represents that he has read and thoroughly discussed ali aspects of this Confidential Settlement Agreement with his attorney, Wlderstands its provi::~ions, and understands that this Confidential Settlement Agreement establishes binding contractual rights. Plaintiff admowledges that this Confidential Settlement Agreement and the release and waiver

of claims contained herein are given knowingly and voluntarily.

Page /of 11

s~ttlrmtnt Agmmmt and Rtleme ofAU O(Jirm

(c) Plain tifi understands that this Con.fiden tial Settlemc:nt Agreements hall not be effective and enforceable w1til seven (7) days from the dare he executes this Confidential Settlement Agreement. During this seven-day period, Plaintiff may change his mind and revoke tlus Confidc:ntial Settlement Agreement by notifying Employee, in writing, oOus wish to revoke this Confidc:ntial Settlement Agreement. Any such revocation must be in the form of a signed

1

wrirren statement delivered to Employers counsel, M. Baker lPyche, J/1, ar Oglerree, Deilins1

.'\lash, Smoak & Stewart, P.C.1 300 N. Main Streer, PO Box 275"' Greenville, SC 29602.

19. Waiver of Breach. Either P:uty may w:Uvc: or c:x:cuse the otlu:r's failw-c to perform any provision o( chis Confidential Settlement Agreement; provided, however, that any such waiver sh.all be in writing and shaU nor preclude the cnforcl!lJlent of this Confidential Settlcm~ntAgrecmc:nt upon any subsequent breach, whether or not similar in character.

20. Assignment Ths Confident:WSc:ttlcnent Agrcemc::ntand tile rights and obligations of Employer hereunder may be assigned by Employer and shall inure: to the benefit of, shall be binding upon and shall be enforceable by any such assignee. 1b.is Confidential Settlement Agreement and the rights and obligations of Plaintiff hereunder !Il3.}' I1Q! be assigned by Plainoff and, further, Plaintiff expressly states that he !us oot assigned any rights or obligations arising out of his employment with Employet, his sepa.ncion therefrom, or pursuant to this Confidential Settl.cmcot Agreement.

21. Successorship. This Confidential Settlement Agreement sh2ll be binding upon and inure to the benefit of Gor~ and Safety Components and its affiliates, successors, and assigns, and, subject to Section 21 above, Plaintiff, his heirs, peisonal representatives, :tdminisaators, beneficiaries, and assigns. If Pb.inriff should clie while any amount would still be payable to him under this Confidential Settlement Agreement lud PW.ntiff continued to live, all such amounts, unless otherwise provided herein, srutll be paid in accordance with the tenns of tllls Confidential Settlement Agreement to his de!visee, legatee, or other designee 01:, if the.re is no such designee, to his estate.

22. Non-Reliance. PIW1riff rep:esents md acknowledges that in executing uus Confidential Settlement Agteemcnt he does not rely, and has not relied, upon any representation or s~te.mcnt nor set forrh herein by Employer or any of Employer's agents, representatives, or attorneys.

23. Encirc Agrt=emcnt. Plalnrifffunherreprcsents aod acknowledges that this Confidcmilll Settlemcm Agreement constitute." the ~oti.re agr4::ement between the P•mic.s. Except :.s stated otherwise herein, any oral or wrinen reprc.:.sl!ntations, prior agreements, or understandings not reflected in this Confidential Settlement Agreement shall have no force or effect., and arc superseded by rhis Confidential Settlement Agteernl!nt.

24. Sevc:lability. The terms of this Confidential SenlcmcntAgrccment, including paragraph subparts, an: ~cverable, aod if any part or subpart is found lObe unen.forccable, tht: other terms shall remain in full force and effect and are valid and en.forceabl~.

I..J.kcwise, the P3.rries expressly recogruzc thar the obligations scr forth in this Cnr.fidcnual Settlement Agrccmcnc :ue independent of one: another, in that n breach of one provision coes not extinguish 3.ny duties or rights set forth in other provisiOns of this Confidencial Settlement

Agreement.

Page 8of 1 t

.f~alemeqt Agrmmnt q11d &lrrm ~(All Cli11rlJ r

25. Interpretation. The Parties agree that this Coofidemw Senlement Agreement shall be intc:rprtted according to South Carolina law and shall not be construed against the dnftcrs. In Lhc event for anr !C:!SOP. that any provision or portion of this Confidential Scctlerm:ntAgrccmcnt shall be found to be voic..l or inv:1lid. then such provision or portion shill be deemed to be scvcr:.~.blc.: from chc remaining provisions or portions of this Confidential Settlement Agrec:menc, and it sbnll not affect the validity of the remaining provisions or portions, which provo..sions or portions shall be given full effect as if the vold or invahd provision or porcion had not been included herein.

26. Modification. This ConEdeatia.l Settlement Agreement shall not be modified or amended except by ~n iosttumcnr in writing signed by Pb..intiff and EmplO}'er.

27. Cooperation in Drafting. The Parries agree that r:hey h2ve cooper:aed in the drafting and preparation of this Confidential Serdement Agreement with the :~.ssisunce of cou.oscl. In 2.ny consrrucrion to be made of this Confidential Settiemenr Agreement, the same shall nor be construed against either parry but shall be viewed as each sharing an equal role in the negotiation and drafting of its terms.

28. Legal Counsel. Plaintiff agrees that he has been advised to seek the advice of legal counse~ and that he bas had the opportunity to have legal counsel review this agreement, prior ro signing.

29. Governing Law, Juris diction, and Venue. This Confidential Settlement Agreement has been entered into under and shall be governr:d by and construed in accordance with the laws of the: State of South Carolina, without regard to its conflicts of laws provision. The parries agree that the · Greenville County Court of Common Pleas or the Federal District Court for the District of South Car9lin~ Greenville Division, shall be the sole and exclusive jurisdiction and venue for all disputes between the Parties under this Con.6dentialSettlemcntAgreement Plaintiffhereby irrevocably consents to the jurisdiction and venue of these courts for adjudication of all disputes between the Parties under this Confidential Settlement Agreement Pl.a.intiff hereby waives any objections or defenses to jurisdiction or venue in any such proceeding before such court(s).

30. Effective Date. The tcnns of this Confideotinl Settlement Agrcc:meoc shall become final and binding only upon the execution of tlUs Confidential Settlement Agreement by both parties and upon the expir:1tioo of the seven [1) chy revocation period discussed above.

* * * * * IN WITNESS WHEREOF ilie Pmic.s have caused this Confidential Settlement Agreement to

be signed. By signing this agreement, the Parties wuuant that they havl! read and ·.mdcrst:l.nd each provision o( this Confidential Sctt1emcnc Agreement, that they voluntarily agree to :1nd have signed the Confidenual Scalcmcnt Agreement, that i.u so doing they arc nor relying upon any indllccmcms, represcnratiom, agreements or understandings other than as arc set forth hen:.in, :111d tl1at they :ue acting w1th full adYJCc of ar.d explanation by the.i: respcccive legal counsel.

Pagr.: 9of 11

Settkment .Agummt and RtHM rtAJJ Claimr

* * * * * The Parties recognize md agree th2t this Confide:otial Scttlemt=D l Agrceme.nt and Rck:asc may be

signed and executed in one or more parts or counterparts a.nd/ or by facsimile signature. Each counterpart, including :t sigw.rure p~ge ~ecutt:d by e2cb party. shall be an origiruJ counterpart of this Confidential Setrlt!tneut Agreement and Release, but all sucil counterparts &lull constitute ooe instrument.

WITNESSES: Brian P. Mene.zes

Safety Components Intemat.ional, Inc.

Br----------------------------1~:-------------------------------

Page lOof 10

Setflmwrl A,:rrtmmt aad &k4u ofAU C/gjms

* * * * * 'fhc P:ucies recogo.ize ::~ad~ tlur this Coniide:nt:W SerrlemcntAgxttme.nr md lU:lcase may be

signed ~d executed iri ooe or more p:uts or counte.tputs and/or by Eu:.s.imile sigtuture. &ch counterpart, inc.ludiog a signature page: c::xecuted by e:ich party, shall be ao original countc~ of this Confidential Settlement Agreement and Release, but all such count~rparts shall coostirure one tnstrumen t.

WITNESSES: Brian P. Me11ezes

/ .·'

Safety Components lntematiorua.J.. Inc.

B~~~~h%-,r---1 ~~~-l_ It:s: _ __.,:8~1l.o:;;;..IP_.;..;J;J_~----

Darc: -~--L-..:...-+·-~-~-T-/ ..:::._~_btJ-=-C __

Page lOaf 10

ScU/mtmt.Azmmwt qnd IW4ft efAU Clgimr

J osepb I.. Gorga

4385701.1

Page 11 of 11

'lJe[aware PAGE 1

%e :first State

I, HARRIET ·SMITH WINDSO~, SECRETARY OF STATE OF THE STATE OF

DELAWARE, DO HEI(gBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT

COPY OF THE RESTATED CERTIFICATE OF "SAFETY COMPONENTS

INTERNATIONAL, INC. ", CHANGING ITS NAME FROM "SAFETY COMPONENTS

INTERNATIONAL, INC. " TO "INTERNATIONAL TEXTILE GROUP, INC. rr,

FILED IN THIS OFFICE ON THE TWENTIETH DAY OF OCTOBER, A.D. 2006,

AT 12 : 4 9 0 'CLOCK P.M.

A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE

NEW CASTLE COUNTY RECORDER OF DEEDS.

AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF

THE AFORESAID RESTATED CERTIFICATE IS THE TWENTIETH DAY OF

OCTOBER, A.D. 2006, AT 11:59 O'CLOCK P.M.

Harriet Smith Windsor, Secretary of State

2367886 8100 AUTHENTICATION: 5132671

060965025 DATE: 10-20-06

EXHIBIT B

St:4 t:e o:f .DI!.laware Secretary of Stltt:e

Division of Corporations Delivered 12:48 PM 10/20/2006

FILED 12:49 PM 10/20/2006 SRV 060965025 - 2367886 FILE

SECOND AMENDED AND REST A TED CERTIF1CATE OF INCORPORATION

OF SAFETY COMPONENTS INTERNATIONAL, INC.

Safety Components International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as follows:

1. The present name of the corporation is Safety Components International, Inc. (the "Corporation"), and the Corporation was originally incorporated under the name Safety Systems International, Inc.; and the date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of the State ofDela.ware is January 12, 1994.

2. The ColJloration filed an Amended and Restated Certificate of Incorporation on February 1, 1994 with the Secretary of the State of Delaware, an amendment to the Amended and Restated Certificate of Incorporation on February 7, 1994, an amendment to the Amcadcd and Restated Certificate of Incorporation on November 1, 1995 a:nd an amendment to the Amended and Restated Certificate of Incorporation on October 11, 2000.

3. 'This Second Amended and Restated Certificate of Incorporation, which restates, integrates and further amends the provisions of the Certificate of Incorporation of this Corporation, has bem duly adopted pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware.

4. The text of the Amended and Restated Certificate of Incorporation of the Corporation, and all previously filed amendments thereto, is hereby, effective as of 11:59 p.m .• Eastern Time, on October 20, 2006, amended and restated to read as follows:

ARTICLE I

The name of the corporation is International Textile Group, Inc. (the "Corporation").

ARTICLE II

The rogistered agent Wld registered office of the Corporation in the State of Delaware is Corporation Service Company, 271 1 Centerville Road, Suite 400, Wllmington, New Castle County, Delaware 19808.

ARTICLE ill

The pwpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended (the "DGCL").

ARTICLE rv

Section 1. Authorized C§pital Stoc.k. The Corporation is authorized to issue two classes of capital stock, designamd Common Stock and Preferred Stock. The total number of shares

of capital stock that the COiporation is authorized to issue is 250,000,000 sharcst consisting of 150tOOO~OOO shares of Common Stock, with a par valueof$0.01 per share, and lOO,OOOtOOO shares of Preferred Stoc~ with a par value of$0.01 per share.

Section 2. Preferred Stock. The Preferred Stock may be issued in one or more series. The Board ofDirectors of the Cotporation (the "Board") is hereby authorized to issue the shares of Preferred Stock in such series and to fix :from time: to time before issuance the number of shares to be included in any such series and the designation, relative powers, preferences, rights and qualifications, limitations or restrictions of such series. The authority of the Board with respect to each such series will include, without limiting the generality of the foregoing, the determination of any or all ofthe following:

(a) the number of shares of any series and the designation to distinguish the shares of such series from the shares of all other series;

(b) the voting powers, if any, and whether sucb voting powers are full or limited in such series;

{c) the extent, if any. to which the holders of the shares of such series shall be entitled to vote as a class or otherwise with respect to tbe election of the directors or otherwise;

{d) the redemption provisions, if any, applicable to such series, including the redemption price or prices to be paid;

{e) whether dividends on such series, if any, will be cumulative or noncwnulative, the mvidend rate of such series, and the dates and preferences of dividen<b on such series;

(f) the rights of such series upon the voluntary or :involuntary dissolution of: or upon any distribution of the assets of, the Corporation;

(g) the provisions, if any, pursuant to which the shares of such series arc convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock, or any other security, of the Corporation or any othor corporation or other entity, and the rates or other determinants of conversion or exchange applicable thereto;

(h) the right, if any, to subscribe for or to purchase any securities of the Corporation or any other cotparation or other entity;

(i) the provisions, if any, of a sinking fund applicab)e to such series; and

(Jl any other relative, participating, optional or other specia1 powers, preferences or rights and qualifications, limitations or restrictions thereof;

all as may be determined from time to time by the Board and stated or expressed in the resolution or resolutions proviiling for the issuance of such Preferred Stock.

Section 3. Common Stock. Subject to the prior or equal rights, if any, of the Preferred Stock of any and all series stated and expressed by the Board in the resolution or resolutions

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providing for the issuance of such Preferred Sto~ the holders of Common Stock shall be entitled (i) to receive dividends when and as declared by the Board out of any funds legally available thc::refort (ii) in the event of any dissolution, liquidation or wiruling up of the Corpo:rati~ to receive the remaining assets of the Corporation, ratably according to the number of shares of Common Stock ~Id~ and (iii) to one vote for each share of Common Stock: held on all matters submitted to a vote of stockholders.

ARTICLEV

The Board may make, amend and repeal the Bylaws of the Corporation. Any Bylaw made by the Board under the powers conferred hereby may be amended or repealed by the Board (except. as specified in any such Bylaw so made or amended) or by the stockholders in the manner provided in this certificate of incorporation or bylaws of the Corporation {together, the "Co:rporation's Constituent Documents"). Notwithstanding the foregoing and anything contained in the Corporation's Constituent Documents tc the contrary, the Bylaws may not be amended or repealed by the stockholders, and no provision inconsistent therewith may be adopted by the stockholders, without the affirmative vote of tbe holden of at least 80010 of the outstanding Voting Stock (as defined bel ow), voting together as a single class. The Corporation may in its Bylaws confer powe:rs upon the Board in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board by applicable law. For the purpose;s of this Certificate of Incorporation, "Voting Stock" means stock of the Corporation of any class or series entitled to vote generally in the election of the directors of the Board (the "Directors"). Notwithstanding anything contained in this Certificate of .Incorporation to the contrary, the affirmative vote of the ho1ders of at least 800/o of the outstanding Voting Stock, voting together as a single class, is required to amend or repeal, or to adopt any provisions inconsistent with, this Article V.

ARTICLE VI

Subject to the rights of the holders of any series of Preferred Stock:

(a) from and subsequent to the first closing of a firm commitment underwritten offering to the public by the Corporation of shares of Common Stock pursuant to an effective registration statement under the federal Securities Act of 1933, as amended, that OCC'UfS after October 20, 2006, any action required or permitted to be taken by the stockholders of the Corporation pursuant to this certificate of incorporation OT under applicable law may be effected only by vote of the stockholders at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing of such stockholders; and

(b) special meetings of stockholders of the Corpomtion may be called only by the Chairman of the Board of the Corporation individually or by the Board of the Corporation pmswmt to a resolution adopted by a majority of the total number of Directors that the Corporation would at thr: time have if there were no \racancies.

At any annual meeting or special meeting of stockholders of the Corporation, only such business will be conducted or considered as has been brought before such meeting in the manner provided in the Bylaws of the Corporation or as required by the Securities Exchange Act of 1934, as amended from time to time or any successor act thereto, and the rules and regulations promulgated

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thereunder, to the extent such act, rules or regulatiom are applicable to the Corporation. Notwithstanding anythlng contained in the Corporation,s Constituent Documents to tho contrary. the a~ve vot~ of the hol_ders of at least 80% of the outstanding Voting Sto~ voting together as a single class, will be reqtnred to amend or repeal, or to adopt any provision incon.qisten.t with, this Article Vl.

ARTICLEVU

Limitation of Liability. To the full extent permitted by the DGCL or any other applicable laws currently or hereafter in effect, no Director of the Corporation will be personally liable to the Corporation or its stockholders for or with respect to any acts or omissions in the performance of his or her duties as a Director of the Corporation. If the DGCL or any other applicable law is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent so authorized. Any repeal or modification of this Article Vl1 will not adversely affect any right or protection of a Director of the Corporation existing prior to such repeal or modification.

ARTICLEVDI

Section 1. Right to Jndmnjfica.tion. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or pnxeeding, whether civil, criminal, adm.inistrative or investigative (a "Proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or any of its Subsidiariest or is or was serving at the request of the Corporation as a director, officer, employee or agent of another company or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan {an "Indemnitee"), whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indc:mnifiod and hcid harmless by the Corporation to the fu11est extent permitted or required by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and Ioss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred or suffered by such Indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this Article VIII with respect to Proceedings to enforce rights tD indemnificatio~ the Corporation shall indemnify any such Indemnitee in connection with a Proceeding (or pnrt thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board.

Section 2. Ri~ to Advancement of Expenses. Tho right to indemnification conferred in Section l of this Article VIII shall include the right to be paid by the Corporation the expenses (including.. without !lmitation, attorneys' fees and expenses) incurred in defending any such Pro~ing in advance of its final disposition (an 11Advancement ofExpen.ses")~ provided, however, that, if the DGCL so requires, an Advancement of Expenses incurred by an Indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such Indenuritee, including. 'Without lim1tation, service with respect to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (an "Undertaking")2 by or on

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behalfofsucb Indemriitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no furtllcr right to appeal (a lfFinal Adjudication") that

. such !ndemnitee is not entitled to be indemnified far such expenses under this Article Vffi, Section 2 or otherwise. The rights to indemnification and to the Advancetnent of Expenses conferred in Sections I and 2 of this Article VIII sWill be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the Indemnitee's heirs, executors and administmtots.

Section 3. Right of Indemnitee to Bring Suit If a claim under Section l or 2 of this Article vm is not paid in full by the Corpora.tlon within 30 calendar days after 8 written claim has been received by the Corporation, except in the case of a claim form Advancement of Expenses, in which case the applicable period shall be 10 calendar days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. lf successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit In (i) any suit brought by the Indemnitee to enforce a right to indemnincation hereunder (but not in a suit brought by the Indemnitee to enforce a right to an Advancement of Expenses) it shall be a def~ that, and (il) any suit brought by the Corporation to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Corporation shall be entitled to recover such expenses upon a Final Adjudication tllat. the Indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its Board, independent legal counsel or stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances becmlSe the Indemnitee bas met the applicable standard of conduct set forth in the DGCL, no:r: an actual detennination by the Corporation (including its Board, independent legal counsel or stockholders) that the Indemnitee has not met such applicable standard of conducts shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce aright to indemnification or to an Advancement of Expenses hereunder, or brought by the Corporation to recover an Advancement of Expenses purruant to the terms of an Undertaking. the burden of proving that the rndemnitee is not entitled to be indemnified, or to sucb Advancement of Expenses, under this Article vm or otherwise shall be on the Corporation_

Section 4. Non-Exclusivity of Nahts. The rights to indemnification and to the Advancement of Expenses conferred in this Article vru shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Ccnstituent Documents, agreement, vote of stockholders or disinterested directors or otherwise. The Bylaws of the Corporation may contain such other provisions conceming indemnificatio~ including provisions specifying reasonable procedures relating to and conditions to the receipt by indemnitees of indemnification: provided that such provisions are not inconsistent with the provisions of this Article VIII.

Section 5. Insurance. The Cl>rporation may maintain insurance, at its expense, to

protect itself and any director, officer, employ~ or agcmt of the Cotp~tion or another corporation, · partnership, joint venture, trust or other enterprise against any ex.pense, liability or loss, whether ot

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not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

Section 6. lndqnpification of EmPloyees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board, grant rights to indemnification and to the Advancement of Expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article Vlli with respect to the indemnification and Advancement of Expenses of directors and officers of the Corporation.

ARTICLE IX

The Corporation reserves the right to amend, alter~ change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation.

Dated effective as ofll :59 p.m., Eastern Time, on October 20,2006.

ATI-2:2Sl&bvl0

SAFETY COMPONENTS INTERNATIONAL, INC.

By. ;84L-~k Printed Name: Stephen B. Duerk: Title: President

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<DOCUMENT> <TYPE>EX-3.1 <SEQUENCE>2 <FILENAME>d67395 ex3-1.txt <DESCRIPTION>ARTICLES OF INCORPORATION <TEXT>

Exhibit 3.1

The Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company dated October 11, 2000 set forth below (the "New Certificate") replaced Articles I through X of the Company's Amended & Restated Certificate of Incorporation dated February 1, 1994, as previously amended (the "Old Certificate"), with new Articles I through X. The Old Certificate contained eleven articles, and Article XI of the Old Certificate is substantially identical to Article X of the New Certificate. Therefore, only the New Certificate is being filed as an exhibit to this Annual Report on Form 10-K. Article XI of the Old Certificate reads in its entirety as follows:

ELEVENTH: Amendment of Certificate of Incorporation. The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

CERTIFICATE OF AMENDMENT OF THE

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

STATE OF DELAWARE SECRETARY OF STATE

DIVISION OF CORPORATIONS FILED 09:00AM 10/11/2000

001515624 - 2367886


Safety Components International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as follows:

1. The present name of the corporation is Safety Components International, Inc. (the "Corporation"), and the Corporation was originally incorporated under the name Safety Systems International, Inc.; and the date of filing the original Certificate of Incorporation of the Corporation with the Secretary of the State of Delaware is January 12, 1994.

2. The Corporation filed an Amended and Restated Certificate of

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Incorporation on February 1, 1994.with the Secretary of the state of Delaware, an amendment to the Amended and Restated Certificate of Incorporation on February 7, 1994 and an amendment to the Amended and Restated Certificate of Incorporation on November 1, 1995.

3. On ~pril 10, 2000, the Corporation commenced cases under chapter 11 of title 11 of the United States Code, 11 U.S.C. Section 101-130 (as amended, the "Bankruptcy Code'') , in the United States Bankruptcy Court for the District of Delaware (the 11 Bankruptcy Court'') .

4. The amendment·of the Amended and Restated Certificate of Incorporation herein certified has been approved by the Bankruptcy Court as part of its order (the "Confirmation Order"), dated as of August 31, 2000, approving and confirming the Corporation's plan of reorganization (the "Plan of Reorganization") pursuant to applicable provisions of the Bankruptcy Code. This amendment of the Amended and Restated Certificate of Incorporation is being filed pursuant to Section 303 of the General Corporation Law of the State of Delaware.

5. The Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by striking out Articles First through Tenth thereof and by substituting in lieu of said Articles the following new Articles:

FIRST: Name. The name of the Corporation is Safety Components International, Inc.

SECOND: Registered Office. The registered office of the Corporation is to be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New

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Castle, State of Delaware, 19808. The name of its registered agent at that address is The Prentice-Hall Corporation System, Inc.

THIRD: Corporate Purpose. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.

FOURTH: Capitalization.

SECTION 1. Authorized Capital. The total number of shares of stock which the Corporation shall have authority to issue is twenty-five million (25,000,000) shares, of which twenty million (20,000,000) shares shall be common stock, par value $.01 per share ("Common Stock 11

), and five million (5,000,000) shares shall be preferred stock, (''Preferred Stock") . The common stock and preferred stock, when issued, shall have such rights with respect to dividends, liquidation, voting, and other matters as set forth hereinbelow, in the Corporation's Amended Bylaws and as provided under applicable non-bankruptcy

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law; provided, however, that no such common stock and preferred stock shall be nonvoting shares.

SECTION 2. Preferred Stock. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of the Preferred Stock are as follows:

The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, with voting powers, and with such other designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, subject to the limitations prescribed by law and in accordance with the provisions hereof, including (but without limiting the generality thereof) the following:

(a) The designation of the series and the number of shares to constitute the series;

(b) The dividend rate, if any, of the series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock of the Corporation, and whether such dividends shall be cumulative or noncumulative;

(c) Whether the shares of the series shall be subject to redemption by the Corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption;

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(d) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of the series;

(e) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the Corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange;

(f) The extent to which the holders of the shares of the series shall be entitled to vote with respect to the election of directors or otherwise;

(g) The restrictions, if any, on the issue or reissue of any additional Preferred Stock; and

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(h) The rights of the holders of the shares of the series upon the dissolution, liquidation, or winding up of the Corporation.

SECTION 3. Common Stock. The designations and the powers, preferences and rights, ana the qualifications, limitations or restrictions thereof, of the Common Stock are as follows:

Subject to the prior or equal rights, if any, of the Preferred Stock of any and all series stated and expressed by the Board of Directors in the resolution or resolutions providing for the issuance of such Preferred Stock

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the holders of Common Stock shall be entitled (i) to receive dividends when and as declared by the Board of Directors out of any funds legally available therefor, (ii) in the event of any dissolution, liquidation or winding up of the Corporation, to receive the remaining assets of the Corporation, ratably according to the number of shares of Common Stock held, and (iii) to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders.

FIFTH: Stockholder Action. From and subsequent to the effective date of the initial public offering by the Corporation of shares of Common Stock and subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by stockholders pursuant to this Certificate of Incorporation or under applicable law may be effected only at a duly called annual or special meeting of stockholders and with a vote thereat, and may not be effected by consent in writing. Except as otherwise required by law and subject to the rights of any series of Preferred Stock, annual meetings may be called only by the Board of Directors pursuant to a resolution approved by a majority of the members of the Board of Directors, or by the Chairman of the Board of Directors, the President or the Chief Executive Officer, and special meetings of stockholders of the Corporation may be called only by the Chairman of the Board of Directors, the President, the Chief Executive Officer or the Board of Directors pursuant to a resolution approved by a majority of the members of the Board of Directors. Subject to the rights of holders of any series of Preferred Stock, stockholders are not permitted to

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call an annual meeting and, subject to the rights of holders of any series of Preferred Stock, stockholders are not permitted to call a special meeting of stockholders or to require that the Board of Directors call such an annual or special meeting.

SIXTH: Certain Business Combinations.

SECTION 1. Stockholder Approval. In addition to any affirmative vote required by or other conditions to be complied with pursuant to applicable law or this Certificate of Incorporation, and except as otherwise expressly provided


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in Section 2 of this Article SIXTH,

(a) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) an Interested Stockholder (as hereinafter defined) or (ii) any other Person (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate (as such terms are hereinafter defined) of an Interested Stockholder or

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(b) any sale, lease, exchange, mortgage, pledge, grant of a security interest, transfer or other disposition (in one transaction or a series of transactions) to or with (i) an Interested Stockholder or (ii) any other Person (whether or not itself an Interested Stockholder) which is, or after such sale, lease, exchange, mortgage, pledge, grant of a security interest, transfer or other disposition would be, an Affiliate or Associate of an Interested Stockholder, directly or indirectly, of assets of the Corporation (including, without limitation, any voting securities of a Subsidiary) or any Subsidiary, or both, having an aggregate Fair Market Value (as hereinafter defined) of one million dollars ($1,000,000) or more, or

(c) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or series of transactions) of any securities of the Corporation or any Subsidiary, or both, to (i) an Interested Stockholder or (ii) any other Person (whether or not itself an Interested Stockholder) which is, or after such issuance or transfer would be, an Affiliate or Associate of an Interested Stockholder, in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of one million dollars ($1,000,000) or more, other than the issuance of securities upon the conversion of convertible securities of the Corporation or any Subsidiary which convertible securities were not acquired by such Interested Stockholder (or such Affiliate or Associate) from the Corporation or a Subsidiary subsequent to the time the Interested Stockholder became an Interested Stockholder, or

ld) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate or Associate of an Interested Stockholder, or

(e) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation

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with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder), which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary directly or indirectly beneficially owned by (i) an Interested

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Stockholder or (ii)' any other Person (whether or not itself an Interested Stockholder) which is/ or after such reclassification, recapitalization/ merger or consolidation or other transaction would be, an Affiliate or Associate of an Interested Stockholder; shall not be consummated unless (x) such consummation shall have been approved by the affirmative vote of the holders of record of outstanding shares representing (i) at least eighty percent (80%) of the voting power of the then outstanding Voting Shares (as hereinafter defined) of the Corporation, voting together as a single class and (ii) at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the then outstanding Voting Shares of the Corporation, voting together as a single class, which are not beneficially owned, directly or indirectly, by such Interested Stockholder(s) and (y) such transaction shall either (A) meet the criteria set forth in Section 2, paragraphs (a) through (f) of this Article SIXTH or (B) if such criteria are not met, the Corporation shall, prior to the Corporation's stockholders approving such transaction, obtain the advice of a financial advisor to the effect that such transaction is fair to the holders of Voting Shares other than the Interested Stockholder; provided, however, that meeting such criteria will not be deemed to mean that the Continuing Directors are required to vote in favor of such transaction. The requirements of clauses (x) and (y) of the preceding sentence shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, in this Certificate of Incorporation or in any agreement with any national securities exchange or otherwise.

SECTION 2. Alternative Procedural Requirements. The provisions of Section 1 of this Article SIXTH shall not be applicable to any particular Business Combination (as hereinafter defined) , and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Certificate of Incorporation/ if the Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined) . The approval of a majority of the Continuing Directors shall be required to render Section 1 of this Article SIXTH inapplicable to a Business Combination with an Interested Stockholder whether or not the particular Business Combination meets the criteria set forth in paragraphs (a) through (f) below; provided, however, that meeting such criteria shall not be deemed to mean that the Continuing Directors are required to vote in favor of the proposed Business Combination.

The criteria referred to in the preceding paragraph are as follows:

(a) The transaction constituting the Business Combination shall provide for consideration to be received by all holders of Common Stock in exchange for all shares of their Common Stock, and the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other

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than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following:

(i) if applicable, the highest per-share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by an Interested Stockholder (1) within the two-year period immediately prior to the Announcement Date (as hereinafter defined), (2) within the two-year period immediately prior to the Determination Date (as hereinafter defined) or (3) in the transaction in which it became an Interested Stockholder, whichever is highest; or

(ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher;

(b) If the transaction constituting the Business Combination shall provide for consideration to be received by holders of any class or series of outstanding Voting Shares other than Common Stock, the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of such class or series of Voting Shares shall be at least equal to the highest of the following (it being intended that the requirements of this subsection (b) shall be required to be met with respect to every class and series of outstanding Voting Shares, whether or not an Interested Stockholder has previously acquired any shares of a particular class of Voting Shares) :

(i) if applicable, the highest per-share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class or series of Voting Shares beneficially owned by an Interested Stockholder (1) within the two-year period immediately prior to the Announcement Date, (2) within the two-year period immediately prior to the Determination Date or (3) in the transaction in which it became an Interested Stockholder, whichever is highest; or

(ii) the Fair Market Value per share of such class or series of Voting Shares on the Announcement Date or the Determination Date, whichever is higher; or

(iii) if applicable, the highest preferential amount per share to which the holders of shares of such class or series of Voting Shares are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

(c) The consideration to be received by holders of a particular class or series of outstanding Voting Shares (including Common Stock) shall be in cash or in the same form as was previously paid in order to acquire shares of such class


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or series of Voting Shares which are beneficially owned by an Interested Stockholder andr if an Interested

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Stockholder beneficially owns shares of any class or series of voting Shares which were acquired with varying forms of consideration, the form of consideration for such class or series of Voting Shares shall be either cash or the form used to acquire the largest number of shares of such class or series of Voting Shares beneficially owned by it. The price determined in accordance with subsections (a) and (b) of this Section 2 shall be subject to appropriate adjustment in the event of any recapitalization/ stock dividend, stock split

1

combination of shares or similar event; -

(d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination:

(i) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation;

(ii) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors/ and (2) no failure to increase such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split) r recapitalization/ reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Continuing Directors; and

(iii) such Interested Stockholder shall not have become the beneficial owner of any additional Voting Shares except as part of the transaction in which it became an Interested Stockholder or except as approved by a majority of the Continuing Directors;

(e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder or except as approved by a majority of the Continuing Directors), of any loans, advances, guaranties/ pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation/ whether in anticipation of or in connection with such Business Combination or otherwise; and

(f) A proxy or information statement describing the proposed Business


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Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder (or any subsequent provisions replacing the Exchange Act or such rules or regulations) shall be mailed to the stockholders of the corporation, not later than the earlier of (i) 30 days prior to any vote on the proposed Business Combination or {ii) if no vote on such

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Business Combination is required, 60 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to the Exchange Act or subsequent provisions) . Such proxy statement shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of them, may have furnished in writing and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or lack of fairness) of the terms of such Business Combination, from the point of view of the holders of Voting Shares other than an Interested Stockholder (such investment banking firm to be selected by majority of the Continuing Directors, to be furnished with all information it reasonably requests and to be paid a reasonable fee for its services upon receipt by the Corporation of such opinion) .

SECTION 3. Certain Definitions. For the purposes of this Article:

(a) 11 Affiliate 11 and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

(b) '1Announcement Date 1' shall mean the date of the first public announcement of the proposed Business Combination.

(c) A Person shall be a "beneficial owner 11 of any Voting Shares:

(i) which such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or

(ii) which such Person or any of its Affiliates or Associates has (1) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise of (2) the right to vote or to direct the voting thereof pursuant to any agreement, arrangement or understanding; or

(iii) which is beneficially owned, directly or indirectly, by



any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Voting Shares.

(d) "Business Combination" shall mean any transaction which is referred to in any one or more of subsections (a) through (e) of Section 1 of this Article SIXTH.

(e) ~~continuing Director" shall mean any member of the Board who is unaffiliated with, and not a nomine~ of, an "Interested Stockholder," and was a member of the Board prior to the time that such Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is unaffiliated with, and not

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a nominee of, an Interested Stockholder and is approved to succeed a "Continuing Director" ~y a majo.rity of Continuing Directors then on the Board.

(f) "Determination Date" shall mean the date on which the Interested Stockholder became an Interested Stockholder.

(g) "Fair Market Value" shall mean: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Shares, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Exchange Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Continuing Directors in good faith.

(h) "Interested Stockholder" shall mean any Person or entity (other than the Corporation, any Subsidiary of the Corporation, any employee benefit plan of the Corporation or any Subsidiary of the Corporation or any entity holding shares of Common Stock for or pursuant to the terms of any such plan, or any Person or entity who acquires beneficial ownership of more than 15% of the outstanding Voting Shares with the prior approval of a majority of the Continuing Directors), who or which:


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(i) is the beneficial owner, directly or indirectly, of more than 15% of the combined voting power of the then outstanding Voting Shares; or

(ii) is an assignee of or has otherwise succeeded to the beneficial ownership of any Voting Shares which were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Stockholder.

Notwithstanding the foregoing, no Person or entity shall become an Interested Stockholder as the.result of an acquisition of Voting Shares by the Corporation which, by reducing the number of shares of Common Stock outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Voting Shares of the Corporation then outstanding; provided, however, that if a Person or entity shall become the beneficial owner of 15% or more of the Voting Shares of the Corporation then outstanding by reason of shares purchased by the Corporation, and after such purchases by the Corporation becomes the beneficial owner of any additional

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Voting Shares of the Corporation, then such Person or entity shall be deemed to be an Interested Stockholder.

For purposes of determining whether a Person is an "Interested Stockholder," the number of Voting Shares deemed to be outstanding shall include shares deemed owned through application of subsection (c) above but shall not include any Voting Shares beneficially owned by any Person other than the Interested Stockholder which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

(i) "Person" shall mean any individual, firm, trust, partnership, association, corporation, unincorporated organization or other entity (other than the Corporation, any Subsidiary of the Corporation for itself or as a fiduciary for customers, or a trustee holding stock for the benefit of the employees of the Corporation or its Subsidiaries, or any one of them, pursuant to one or more employee benefit plans or arrangements), as well as two or more persons acting as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock.

(j) "Subsidiary" shall mean any corporation, partnership or other entity of which a majority of any class of equity security (as defined in Rule 3a(l 1)-1 of the General Rules and Regulations under the Exchange Act), is owned, directly or indirectly, by the Corporation; provided, however, that for purposes of the definition of Interested Stockholder set forth above in subsection (h),


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the term 11 Subsidiary" shall mean only a corporation, partnership or other entity of which a majority of each class of equity security is beneficially owned, directly or indirectly, by the Corporation.

(k) "Voting Shares" shall mean shares of all classes and series of stock of the Corporation entitled to vote generally in the election of directors.

SECTION 4. Determinations by the Board. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article SIXTH, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article SIXTH including, without limitation, (i) whether a Person is an Interested Stockholder, (ii) the number of Voting Shares beneficially owned by any Person, (iii) whether a Person is an Affiliate or Associate of another, (iv) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of one million dollars ($1,000,000) or more, (v) whether the requirements of Section 2 of this Article SIXTH have been met and (vi) such other matters with respect to which a determination is required under this Article SIXTH. The good faith determination of a majority of the Continuing Directors on such matters shall be conclusive and binding for all purposes of this Article SIXTH, and no director will

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have any liability to the Corporation or any other Person by reason of any such determination so made.

SECTION 5. Fiduciary Obligations. Nothing contained in this Article SIXTH shall be construed to relieve the members of the Board of Directors or an Interested Stockholder from any fiduciary obligation imposed by law.

The fact that any Business Combination complies with the provisions of Section 2 of this Article SIXTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner of the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination.

SECTION 6. Amendment or Repeal. Notwithstanding anything in this Certificate of Incorporation to the contrary, the provisions set forth in this Article SIXTH may not be repealed or amended in any respect, unless such action is approved by either (a) a majority of the Continuing Directors (in addition to the vote otherwise required by Section 242(b) (1) of the Delaware General



Corporation Law)· or (b) the affirmative vote of the holders of (i) eighty per~ent (80%) of the outstanding shares of capital stock of the corporation entltled to ;~te.generally for the election of directors voting as a single class, and (ll) lf an Interested Stockholder is proposing such amendment, sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the Corporation entitled to vote generally for the election of directors which are not beneficially owned, directly or indirectly, by such Interested Stockholder, voting as a single class.

SE\~NTH: Liability of Directors. No director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of a fiduciary duty as a director; provided, however, that to the extent required by the provisions of Section 102(b) (7) of the General Corporation Law of the State of Delaware or any successor statute, or any other laws of the State of Delaware, this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, (iv) for any transaction from which the director derived an improper personal benefit, or (v) for any act or omission occurring prior to the date when the provision becomes effective. If the General Corporation Law of the State of Delaware hereafter is amended to authorize the further elimination or limitation on personal liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended General Corporation Law of the State of Delaware. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall be prospective only, and shall not adversely affect

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any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification.

EIGHTH: Indemnification and Advancement of Expenses.

SECTION 1. Indemnification. Except as otherwise provided in the Plan of Reorganization or the Confirmation Order approving such plan, the Corporation shall indemnify each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a ''proceeding") , by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with


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respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or alleged action in any other capacity while service as a director, officer, employee or agent, to the maximum extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, excise taxes or penalties pursuant to the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) reasonably incurred by such person in connection with such proceeding and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. The right to indemnification conferred in this Article EIGHTH shall be a contract right and shall include the right to be paid by the Corporation for the expenses incurred in defending any such proceeding in advance of its final disposition; provided that, if the General Corporation Law of the State of Delaware so requires, the payment of such expenses incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon receipt by the Corporatio~ of an undertaking by or on behalf of such person to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article EIGHTH or otherwise.

SECTION 2. Nonexclusivity. The right to indemnification and advancement of expenses conferred on any person by this Article EIGHTH shall not limit the Corporation from providing any other indemnification permitted by law nor shall it be deemed exclusive of any other with which any such person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise.

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SECTION 3. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware.

NINTH: Amendment of By-Laws. The Board of Directors shall have power to make, amend and repeal the By-Laws. Any By-Laws made by the Board of Directors under the powers conferred hereby may be amended or repealed by the Board of Directors or by the stockholders.

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TENTH: Amendment of Certification of Incorporation. The Corporation reserves the right to amend or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed in its name this 11th day of October, 2000.

</TEXT> </DOCUMENT>


By: /s/ John C. Corey

John C. Corey President and Chief Executive Officer

14


STATE OF SOUTH CAROLINA

COUNTY OF GREENVILLE

In Re Inten1ational Textile Group, Inc. Merger Litigation

) IN THE COURT OF COMMON PLEAS ) ) ) ) ) C.A. No. 2009-CP-23-3346 ) )

CERTIFICATE OF SERVICE

I, the undersigned en1ployee of the lavv offices of Haynsworth Sinkler Boyd, P .A.,

attorneys for Defendants WL Ross & Co. LLC; \Vilbur L. Ross, Jr.; Michael J. Gibbons; David

H. Storper; David L. Wax; Joseph L. Gorga; Gary L. Smith; Stephen B. Duerk; WLR Recovery

Fund III, L.P.; WLR Recovery Fund III, L.P.; vVLR Recovery Associates II LLC; and WLR

Recovery Associates III LLC, do hereby certify that I have served counsel specified below in this

action with copies of the docun1ent below by serving a copy of the san1e, via electronic n1ail on

this the 25th day of October, 2011, to the following addresses:

DOCUMENT SERVED:

ANSrVER, DEFENSES AND COUNTERCLAIM OF rVL ROSS & CO. LLC; WILBUR L. ROSS, JR.: MICHAEL J. GIBBONS,· DAVID H. STORPER; DAVID L. ftV AX,· GARY L.

SA1ITH: JOSEPH L. GORGA; STEPHEN B. DUERI(; WLR RECOVERY FUND II, L.P.; ftVLR RECOVERY FUND III, L.P.; rVLR RECOVERY ASSOCIATES II LLC; AND TiVLR

RECOVERY ASSOCIATES III LLC

Willian1 D. Herlong, Esquire Herlong Law Firn1, LLC P.O. Box 2003 Greenville, SC 29602-2003 \Villi ain(Zu.herl o ng law. co 111

COUNSEL SERVED:

Thmnas L. Stephenson, Esquire N ex sen Pruet, LLC Post Office Drawer 10648 Greenville, SC 29603-0648 tstephensonw~nexsenpruet.com

I HAVE ALSO SENT COPIES BY E-MAIL TO:

Russell T. Burke, Esquire rburke(CZ;nexsenpruet.con1

W. Howard Boyd, Esquire hboyd((V, gwb 1 awfin11. con1

Cassandra L. Porsch, Esquire [email protected]

Phillip A. IG !gore, Esquire [email protected]

Mason A. Goldstnith, Esquire agoldsmith(@,ltatla\v.conl

Mark Weintraub, Esquire [email protected]

Luke Andrews, Esquire [email protected]

GaiTett Bradford, Esquire gbradford@j onesday.com

Holly S. Haynes, Esquire hshaynes(f_U,jonesday.cmn

- 2 -

Christopher D. King, Esquire [email protected]

Arthur D. Felsenfeld, Esquire [email protected]

M. Baker Wyche, III, Esquire baker. wyche(@ogletreedeakins.cmn

Jeffrey P. Dunlaevy, Esquire [email protected]

Michael McCmu1ell, Esquire tnn1cconnell(@.jonesday.com

Joshua M. Dickman, Esquire j n1diclm1an@i onesday. com

Jean-Paul Bonlee, Esquire [email protected]

Nicolette Lee, Esquire nl ee(ii).j onesda y. cotn

Robert A Sch1noll, Esquire [email protected]

arry, Legal Seer t ry Ha orth Sinkler Bovd, P .A. 75 Beattie Place, 11 111 Floor Post Office Box 2048 (29602) Greenville, South Carolina 29601 (864) 240-3200 Tel (864) 240-3300 Fax

answer of wlr defendants

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