L.A. Gear Loses $26.4 Million in 2nd Quarter
L.A. Gear Inc. said Wednesday that it took a $13.9-million charge to settle class-action shareholder lawsuits, a decision that contributed to a $26.4-million second-quarter loss at the Marina del Rey-based athletic shoemaker.
The troubled company also said it does not expect to make a profit in the third quarter, which would mark the third consecutive quarter it would fail to pay dividends to its preferred shareholder, Burbank-based Trefoil Capital Investors.
As a result, Trefoil, which owns 34% of the company, would gain the right to select a majority of L.A. Gear’s board, beginning in late August.
Wednesday’s announcements are another sign of the severity of the problems that have plagued the nation’s third-largest athletic shoemaker since late 1990. The difficulties forced it to form a new management team and seek help from Trefoil, which invested $100 million last September under the condition that it gain board control if it receives no dividends for three consecutive quarters.
The company sought to deal with one of its potential financial problems by agreeing to settle three class-action suits in which shareholders alleged that L.A. Gear and its top management--executives who have since left the company--violated securities laws by issuing false, favorable public statements designed to pump up the stock price.
“The settlement of the class actions will allow the company to put the past behind it and remove both the distraction to the company’s new management and the risk of an adverse judgment which would be inherent in continuing litigation,” said L.A. Gear Chairman Stanley P. Gold.
The shareholder class-action suits were filed in 1990 and 1991 in federal court on behalf of investors who bought L.A. Gear common stock from 1989 to 1991. Besides the company, the suits list as defendants a number of former L.A. Gear executives, including ex-Chairman Robert Greenberg. Greenberg denied the allegations.
Suits against Greenberg and the other individual defendants are not affected by the settlement involving the company, under which L.A. Gear admitted no wrongdoing. In fact, L.A. Gear’s new management has said that it is willing to help go after its predecessors in court.
The settlement, which must be approved by a U.S. District Court in Los Angeles, would give the plaintiffs a minimum of $18.1 million--$5.5 million in cash and the rest in L.A. Gear stock.
