EMPLOYMENT AGREEMENT

Exhibit 10.4

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is entered into effective as of January 1, 2005 (the “Effective Date”), by and between Joseph L. Gorga (“Executive”) and International Textile Group, Inc. (“Company” or “ITG”), a Delaware corporation.

R E C I T A L S:

A. Executive serves as the President and Chief Executive Officer of ITG and is a key corporate officer of ITG and is expected to make major contributions to the profitability, growth and financial strength of the ITG.

B. ITG desires to employ Executive, and Executive desires to accept such employment, under the terms and conditions of this Agreement.

C. The Board of Directors has also determined that it is in the best interests of the stockholders and ITG to promote stability among key officers.

IN CONSIDERATION OF THE FOREGOING, the mutual covenants contained herein, and other good and valuable consideration, receipt of which is hereby acknowledged, the parties agree as follows:

1.1 “Accountants” has the meaning set forth in Section 9.9(B)(i).

1.2 “ Base Salary ” has the meaning set forth in Section 6.1.

1.3 “ Board ” means the board of directors of ITG.

1.4 “ Cause ” means (A) the commission by Executive of (i) a felony or (ii) any serious crime involving fraud, dishonesty or breach of trust; (B) gross negligence or intentional misconduct by Executive with respect to ITG or in the performance of his duties to ITG; (C) failure to follow a reasonable, lawful and specific direction of the Board of Directors of ITG; (D) failure by Executive to cooperate in any corporate investigation, or (E) breach by Executive of any material provision of this Agreement, which breach is not corrected by Executive within ten (10) calendar days after receipt by Executive of written notice from ITG of such breach. For purposes of this definition, no act or failure to act by the Executive shall be considered “intentional” unless done or omitted to be done by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interests of ITG.

1.5 “Code” has the meaning set forth in Section 9.9(A).

1.6 “Covered Payments” has the meaning set forth in Section 9.9(A).

1.7 “ Disability ” or “ Disabled ” means the absence of Executive from Executive’s duties with the Company on a full time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to Executive or Executive’s legal representative.

1.8 “ Employee Benefits ” means the “benefit plans and policies” for the limited liability companies of ITG or its predecessor that was the employer of the Executive immediately prior to the execution of this Employment Agreement and Employee Benefits shall refer to such plans until adopted by and as subsequently amended by ITG.

1.9 “Excise Tax” has the meaning set forth in Section 9.9(A).

1.10 “Excise Tax Reimbursement” has the meaning set forth in Section 9.9(A).

1.11 “ Good Reason ” means the termination of Executive’s employment by Executive for any of the following reasons:

(A) involuntary reduction in Executive’s Base Salary unless such reduction occurs simultaneously with a reduction in officers’ salaries generally applicable on a company-wide basis;

(B) involuntary discontinuance or reduction in bonus award opportunities for Executive under ITG’s Incentive or Bonus Plan unless a generally applicable company-wide reduction or elimination of all officers’ bonus awards occurs simultaneously with such discontinuance or reduction;

(C) involuntary discontinuance of Executive’s participation in any employee benefit plans maintained by ITG unless such plans are discontinued by reason of law or loss of tax deductibility to ITG with respect to contributions to such plans, or are discontinued as a matter of ITG policy applied equally to all participants in such plans that are in the same classification of employees as Executive;

(D) failure to obtain an assumption of ITG’s obligations under this Agreement by any successor to ITG, regardless of whether such entity becomes a successor to ITG as a result of a merger, consolidation, sale of assets of ITG, or other form of reorganization, except when the rights and obligations of ITG under this Agreement are vested in the successor to ITG by operation of law;

(E) involuntary relocation of Executive’s primary office to a location more than fifty (50) miles from the City of Greensboro, State of North Carolina; and

(F) material reduction of Executive’s duties in effect on the Effective Date.

1.12 “ Incentive or Bonus Plan ” has the meaning set forth in Section 6.2 hereof.

1.13 “ ITG ” means International Textile Group Inc. and each of the affiliates of International Textile Group Inc. (meaning any entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, International Textile Group Inc.), along with all successors and assigns of each of such entities.

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1.14 “ Plan ” has the meaning set forth in Section 7.3.

1.15 “ Restricted Customers ” means all the specific customer accounts, whether within or outside of the Restricted Territory, with which Executive had any contact or for which Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.16 “ Restricted Industry ” means the specific industry segment or segments for which the Executive had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two (2)-year period prior to such termination.

1.17 “ Restricted Territory ” means the geographic area(s) within a 200 mile radius of any and all ITG location(s) in, to, or for which Executive worked, to which Executive was assigned or had any responsibility (either direct or supervisory) at the time of termination of Executive’s employment and at any time during the two-year period prior to such termination.

1.18 “Target Bonus” has the meaning set forth in the Incentive or Bonus Plan as defined in Section 6.2 hereof.

1.19 “ Term ” has the meaning set forth in Section 5.

1.20 “ Termination Date ” means the date on which the termination of Executive’s employment with ITG becomes effective.

The parties hereto acknowledge and agree that, effective as of the date hereof, all prior employment agreements if any are terminated and each and every provision of each of such agreements is rendered void and of no further force or effect whatsoever.

ITG hereby employs Executive, and Executive hereby accepts employment, according to the terms and conditions set forth in this Agreement and for the period specified in Section 5 of this Agreement.

During the Term, Executive shall serve ITG as its President and Chief Executive Officer in accordance with reasonable and lawful directions from ITG’s Board of Directors and in accordance with ITG’s Articles of Incorporation and Bylaws, as both may be amended from time to time. Executive will report directly to the Board of Directors. While Executive is employed by ITG as a full-time employee, Executive shall serve ITG, faithfully, diligently, competently and to the best of his ability, and will exclusively devote his full time, energy and attention to the business of ITG and to the promotion of its interests. Executive shall not, without the written consent of the Board of Directors either render services to or for any person, firm, corporation or

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other entity or organization in exchange for compensation, regardless of the form in which such compensation is paid and whether or not it is paid directly or indirectly to Executive, or serve as a board member, director or trustee of any corporation or organization regardless of whether Executive is paid for such services. Nothing in this Section 4 shall preclude Executive from managing his personal investments and affairs, provided that such activities in no way interfere with the proper performance of his duties and responsibilities as President and Chief Executive Officer.

Subject to Article 9, the term of this Agreement (the “Term”) shall commence on the Effective Date and end on December 31, 2007. The Term shall automatically be extended by one year on each December 31, beginning December 31, 2005, unless not later than September 30 of each year ITG notifies Executive, or Executive notifies ITG, that it or he, as the case may be, does not desire to have the Term extended. For example, if such notice of non-extension is not given by September 30, 2005, the Term of this Agreement shall automatically be extended to December 31, 2008.

6.1 Base Salary . While employed under this Agreement, Executive will receive as his compensation for the performance of his duties and obligations to ITG under this Agreement a Base Salary of Six Hundred Thousand Dollars ($600,000.00) per year, which will be payable in such installments established by ITG for all salaried employees, and which will be subject to annual review by the Board of Directors or any committee designated by the Board of Directors (the base salary, as it may be modified from time to time, is referred to herein as the “Base Salary”).

6.2 Bonus . In addition to the Base Salary, Executive will receive with respect to each plan year a bonus in accordance with ITG’s Incentive and Bonus Plan, a copy of which has been delivered to Executive.

6.3 Withholding . All compensation payable to Executive pursuant to this Section 6 shall be paid net of amounts withheld for federal, state, municipal or local income taxes, Executive’s share, if any, of any payroll taxes and such other federal, state, municipal or local taxes as may be applicable to amounts paid by an employer to its employee or to the employer/employee relationship.

7.1 Employee Benefits . Executive will be entitled to participate in such hospitalization, life insurance, long and short term disability, 401(k) and other employee benefit plans and programs, if any, as may be adopted by ITG from time to time, in accordance with the provisions of such plans and programs and on the same basis as other full-time salaried employees of ITG who participate in such employee benefit plans (except to the extent that the benefits provided under any of such plans or programs are expressly offset by any of the benefits provided under or pursuant to this Agreement).

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7.2 Executive Benefits . Executive shall be entitled to participate in any employee benefit adopted by ITG for executive level employees.

7.3 Stock Based Awards . Executive shall be eligible to receive grants of stock options, performance units, stock appreciation rights, restricted stock, deferred shares, and other stock-based awards in accordance with the provisions of any stock-based award or long-term incentive plan (“Plan”) ITG may adopt or amend or supersede from time to time. The terms of such grants shall be determined by the Board of Directors (or its designee as provided in the Plan or as appointed by the Board of Directors) in accordance with the Plan, provided, however, that notwithstanding any provision of the Plan to the contrary, in the event of any termination of Executive’s employment for any reason other than for Cause pursuant to Section 9.3, or for termination of employment for other than Good Reason pursuant to Section 9.5, any stock-based award granted to Executive prior to such Termination Date shall immediately vest and be exercisable by or issued to the Executive under the Plan.

7.4 Taxes and Withholding . Executive shall be responsible for paying all federal, state, municipal or local taxes payable by him with respect to any benefits provided under this Section 7, and ITG will, when required by law or when otherwise appropriate or customary, withhold from the benefits or other compensation amounts sufficient to satisfy such taxes, unless taxes are to be paid by ITG as set forth in the provisions of the executive benefit plan, Employee Benefit Plan, or an agreement with the Executive.

7.5 Vacation . Notwithstanding any policy of the company for salaried employees, Executive will be entitled to four (4) weeks paid vacation and ITG recognized holidays.

8.1 Termination by ITG .

(A) This Agreement shall automatically terminate effective upon (i) the date of Executive’s death; (ii) the date that Executive is determined to be permanently Disabled or (iii) the date of Executive’s retirement.

(B) ITG may terminate this Agreement, and Executive’s employment with ITG, without Cause upon ninety (90) days’ prior written notice to Executive.

(C) ITG may terminate this Agreement, and Executive’s employment with ITG, with Cause effective immediately and without the requir