Two former executives of the home video division of Lorimar-Telepictures Corp. who resigned this week said Thursday that they do not believe their financial interest in one of the division's suppliers amounted to a conflict of interest.
Meanwhile, industry analysts said Thursday that the resignations by the three key executives of the Irvine-based Karl-Lorimar Home Video unit make it far more likely that Lorimar will move its Orange County division to the company's Culver City lot.
The three executives who resigned Wednesday are Stuart Karl, president, chief executive and founder of the home video division; Court Shannon, executive vice president of the unit, and Gary Hunt, the unit's vice president of sales.
The resignations, announced by Lorimar-Telepictures, came after the parent company discovered possible "conflicts of interest" stemming from the executives' alleged financial relationship with a supplier, Continental Marketing Distributors of Torrance. Karl-Lorimar paid Continental to package and send promotional materials to home video distributors and retailers.
Karl, regarded by many observers as a leader in the video industry, remained unavailable for comment.
In a joint interview, however, Shannon and Hunt confirmed that they are directors and own "part" of Continental Marketing. Neither would comment on Karl's involvement in Continental, other than to say that he was not a director and did not have an ownership interest in the company.
Hunt and Shannon confirmed that Lorimar was never advised of their interest in Continental, although Shannon said that Karl knew of their interest in Continental. According to Hunt, he and Shannon had "no fiduciary duty" to disclose the relationship because "neither Court nor I were directors or officers of (Lorimar)."
Shannon and Hunt also said they both consulted legal counsel before making the investment and had been advised that no conflict of interest existed. They did not identify the counsel.
Furthermore, "All transactions (with the home video unit) were done completely at arm's length," said Hunt. He said representatives of Continental would contact product managers at Karl-Lorimar "who . . . basically make the decision" about what supplier to use.
Shannon and Hunt would not give a specific reason for resigning. "We felt it would be the best decision for us," said Shannon, who added that he, Hunt and Karl will make an announcement next week about their future plans.
A Lorimar spokesperson declined comment other than to say, "These three gentlemen had a financial interest in a company that we did business with. According to our code of ethics, that is a conflict of interest."
With the resignations, industry analysts believe, a transfer of the Orange County unit has become far more likely. "It's inevitable," said Jeffrey Logsden, an analyst with Crowell, Weedon & Co. in Los Angeles. "It doesn't make sense (for Lorimar) to have operations spread out in eight to 10 different locations. . . . The problems that were raised (by the resignations) only further strengthen the inevitability of control."
"It may be a predilection that (Karl Lorimar) got too far away," said Dennis McAlpine, an analyst in New York City with Oppenheimer & Co. Lorimar may want to "get the division close to home, where they can keep tabs on it," he said.
Barbara Brogliatti, a Lorimar senior vice president, denied rumors that the company plans to relocate about 100 Karl Lorimar employees. "It's just not true," she said. "Jerry Gottlieb (Karl Lorimar's acting chief executive officer) says it hasn't even been discussed."