AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

Dated as of August 29, 2006

by and among

SAFETY COMPONENTS INTERNATIONAL, INC.,

SCI MERGER SUB, INC.

and

INTERNATIONAL TEXTILE GROUP, INC.

TABLE OF CONTENTS

 

 

-i-

TABLE OF CONTENTS

(continued)

 

 

-ii-

AGREEMENT AND PLAN OF MERGER

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

RECITALS:

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

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

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

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

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

ARTICLE I

THE MERGER

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

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

 

1

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

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

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

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

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

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

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

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

 

2

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

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

 

3

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT

CORPORATIONS; EXCHANGE OF CERTIFICATES

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

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

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

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

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

 

4

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

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

Section 2.2 Exchange of Certificates.

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

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

 

5

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

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

 

6

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

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

(e) No Fractional Shares.

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

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

 

7

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

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

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

Section 2.3 Dissenting Shares .

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

 

8

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

Section 2.4 ITG Stock Options.

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

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

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

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

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

 

9

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

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

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

ARTICLE III

REPRESENTATIONS AND WARRANTIES

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

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

 

10

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

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

 

11

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

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

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

 

12

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

(g) Financial Statements.

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

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

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

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

 

13

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

(j) Compliance with Applicable Laws.

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

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

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

 

14

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

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

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

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

(o) Employee Benefits.

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

 

15

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

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

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

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

 

16

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

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

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

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

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

 

17

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

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

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

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

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

 

18

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

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

(p) Environmental Matters.

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

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

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

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

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

 

19

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

(q) Real Property; Real Property Leases .

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

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

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

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

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

 

20

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

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

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

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

 

21

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

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

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

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

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

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

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

 

22

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

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

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

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

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

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

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

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

 

23

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

(t) Ownership of Property; Insurance Coverage.

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

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

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

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

 

24

(w) Intellectual Property .

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

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

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

 

25

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

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

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