Oak Industry Lawsuit May Soon Be Resolved
Ailing Oak Industries is expected soon to announce settlement of a class-action shareholders lawsuit with a $13.25-million cash payment and a payment from its insurance carrier of as much as $40 million over the next few months, sources familiar with the case said Wednesday.
Current and former Oak officers and directors are not participants in the proposed pact and will remain defendants, the sources said.
Oak’s insurer, Chubb & Sons Insurance, could pay between $30 million and $40 million to the shareholders in the next few months, one source said.
Oak would not confirm details. “We’re talking about settlement but we’re not ready to say it’s done,” said spokesman Robert Hartney.
The proposed agreement was reached Tuesday, sources said, but questions from attorneys representing individual Oak executives stalled the agreement Wednesday.
How Oak would pay the $13.25 million is not known. As of year-end 1984, Oak had about $15 million in cash and marketable securities. And last month, Oak secured a $15-million line of credit from Foothill Capital Corp. One source said Oak will have to either use that line of credit or borrow the funds elsewhere to satisfy the settlement.
The shareholder suit, filed in May, 1983, alleged fraud, deceit and negligence by Oak and eight executives in connection with a $100-million, 10.5% convertible subordinated debenture offering in 1982. It sought more than $35 million.
The shareholders claimed that Oak Industries management knew about manufacturing problems with the company’s TC-56 cable television converters at the time of the offering but did not disclose them to investors.
The suit also accused Oak officials of “self-dealing transactions,” notably the $1.1 million in decoration contracts awarded to the wife of Everitt A. Carter, who resigned as chairman and chief executive last November.
Many of the allegations raised in the lawsuit have also been under investigation by the Securities and Exchange Commission for the last 16 months, Oak has acknowledged.
A consent decree between Oak and the SEC had been expected in February, but Oak officials balked when the government demanded the resignations of four executives, among them President Raymond E. Peirce and Chief Financial Officer Frank A. Astrologes.
Peirce resigned anyway late last month, although it remains uncertain whether his departure was tied to the SEC’s demands.
The shareholders want to settle the case out of court because Oak’s “financial condition is such that to . . . pursue the litigation to the point of forcing them into bankruptcy achieves nothing for us, and it might result in us getting nothing at all,” said attorney William Lerach of Milberg Weiss Bershad Specthrie & Lerach, who represents the shareholders.
Oak last month also announced that it had increased its estimated fourth-quarter loss provision to $115 million from $80 million. The increase was made, officials said, because of deterioration of Oak’s cable-TV equipment division and because of the expected settlement.
After the write-offs, Oak’s net worth will plummet to a negative $58 million. Earlier this week, Oak said 79% of its debenture holders had agreed to exchange $230 million in debentures for a combination of stock, notes and warrants. The restructuring could save $22.1 million in annual interest payments.
