International Textile to cancel some notes, preferreds to settle suit

By Marisa Wong

Madison, Wis., Feb. 20 - International Textile Group, Inc. entered into on Wednesday a settlement agreement that relates to a consolidated class-action lawsuit and affects its senior subordinated notes due June 6, 2015, series A convertible preferred stock and series C preferred stock, according to an 8-K filing with the Securities and Exchange Commission.

International Textile previously disclosed that it is a nominal defendant to a consolidated class-action lawsuit that relates to the combination of the company, which at the time was named Safety Components International, Inc., and a company formerly known as International Textile Group, Inc. The merger occurred in late 2006.

The consolidated action consolidated three factually identical lawsuits filed in 2008 and 2009 and names as defendants, among others, individuals who were officers and directors and some stockholders of the former International Textile or the current company, as well as an entity that acted as an independent financial adviser to the company in connection with the merger.

The plaintiffs contend that some of the non-company defendants breached fiduciary duties and have also made related claims in connection with the merger.

The stipulation and settlement agreement, preliminarily approved on Wednesday by the Court of Common Pleas, Greenville County, S.C., provides that in settlement of the consolidated action, non-company defendants will make an aggregate $36 million cash payment that includes a $16 million cash payment from the independent financial adviser and its insurers and a $20 million cash payment from other non-company defendants and their insurers.

Also, $21.9 million of principal and accrued interest on the senior subordinated notes due 2015 held by some affiliates of the company will be canceled, together with all additional interest that accrues from Dec. 31 through the effective date of the settlement agreement.

In addition, 10,315,727 shares of the company's series A convertible preferred stock, having a liquidation value of $257.9 million as of Dec. 31, and 11,488 shares of the company's series C preferred stock, having a liquidation value of $11.5 million as of Dec. 31, will be canceled, together with any additional shares of series A and series C preferreds that accrue through the effective date of the settlement agreement.

As of Dec. 31, the company had outstanding a total of $163.5 million principal and accrued interest of senior subordinated notes, series A preferreds with an aggregate liquidation value of about $337 million and series C preferreds with an aggregate liquidation value of roughly $126 million.

If the settlement agreement receives final approval by the court, the affected notes and preferreds will be canceled, and the company's respective obligations and the affiliates' respective rights will be terminated, effective as of Dec. 31.

The company expects that when these cancellations take effect, they will not have an impact on its consolidated statements of operations but will have an impact on its consolidated balance sheet by reducing its long-term debt and stockholders' deficit.

The court has scheduled a hearing to consider final approval of the settlement agreement on June 23, and the company expects the agreement, if approved, to take effect in the third quarter.

The textile manufacturer is based in Greensboro, N.C.

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