Citing a potential conflict of interest, Bernard Katz, the controversial principal shareholder of Helionetics Inc., has resigned from the board of the Irvine defense contractor for the second time in 13 months, the company announced Thursday.
At the same time, Michael Mann, president and chief executive, revealed that in the last five months, Helionetics has laid off 190 employees, nearly one-third of its work force, to save money while it attempts to regroup and resume its once torrid growth rate.
Cost-cutting efforts were also cited for the company’s decision to abandon its opulent corporate headquarters in Santa Ana, a move that has prompted a breach-of-contract suit by the landlord.
The recent shake-ups are just the latest chapter in the topsy-turvy existence of the small and innovative electronics and laser maker. Although the company grew quickly in its early years, board room bickering, changing management and worries about its Wall Street image have plagued the company throughout most of the last five years. And as a result, Mann acknowledged Thursday, the company has suffered declining earnings.
Ironically, Katz, who owns about 19% of Helionetics’ stock, resigned from the board Wednesday afternoon, just hours after being reelected at the company’s annual meeting. Katz said Thursday that his resignation was prompted by the company’s decision to buy out his holdings in two Helionetics subsidiaries, HLX Laser and Marinco HLX.
“I thought it would be a conflict to negotiate with the board if I were a member,” Katz said. He said he would consider returning to the board after the negotiations are concluded “only if the board members insist that I do. It would not be of my own choosing.” Katz said he did not quit the board prior to the vote because ballots had already been printed when he decided to withdraw.
Although Katz has not been chief executive of Helionetics since he bought it at a bankruptcy sale in 1980, his involvement in the company was the source of many of its problems.
He resigned from the board in April, 1984, in an effort to distance the company from business controversies in his past that apparently bothered Wall Street investment firms.
But in January, Katz was recalled to serve on the board, a move he described as unsolicited and “very unexpected.”
In an interview Thursday, Katz said that for the first time in two years he feels comfortable about leaving the company to the management and oversight of others. Katz attributed his sense of security to the cost-cutting moves Mann has ordered since assuming the presidency in January.
Mann said the layoffs of 190 workers could save the company about $2 million annually.
Mann said Helionetics was “top heavy” with staff and was pursuing projects “of marginal value” when he took over the top job from Charles Missler, who resigned in December after what was reported to be a power struggle with Katz.
“The goal was to show that we could operate out of cash generated by our sales,” Mann said. “Before, we hired people, rented space and undertook marketing programs in anticipation of business. Now we’re operating as business materializes and that’s a more realistic approach.”
One cost that Mann had trouble trying to cut, however, was the company’s rent on its former 17,000-square-foot corporate headquarters in Hutton Center in Santa Ana. A year ago the company signed a five-year lease for one floor in the office complex at an approximate annual cost of $400,000, according to Mann. However, he said, after he trimmed the corporate staff to six members, the space was too great for the company.
Lease termination negotiations with Schneider/Hutton Associates, owners of the office complex, broke off recently and earlier this month Helionetics moved its corporate quarters to Irvine, where an operating division was already housed.
The move, coupled with Helionetics’ failure to pay its May rent, prompted Schneider/Hutton Associates to file a breach-of-contract suit this week.