Cherokee Inc. Settles Suit by Issuing Debt Securities

Cherokee Inc., a Sunland maker of apparel and shoes, said it has settled the last remaining issue of a class-action shareholder lawsuit that was filed in 1988 in connection with the company’s buyout by an investor group that included management.

Under terms of the settlement, Cherokee said it agreed to issue $700,000 in subordinated debentures, a kind of debt security that is repaid only after more senior debt has been retired.

Cherokee was taken private in the leveraged buyout in 1989. The shareholder suit sought to get a higher price for the company than what was originally offered. The buyout group eventually raised the price to $174 million, but the company said the new debentures would satisfy a final dispute remaining from the lawsuit over interest the plaintiffs contended was due to them.

The buyout saddled Cherokee with $164 million in debt. In an effort to reduce its debt, the company again sold stock to the public in June in an offering of 2.5 million shares, from which Cherokee netted $15 million.

Cherokee said it plans to use up to $5 million of the offering’s proceeds to make occasional purchases of the debentures on the open market.