Computer Automation Acts to Halt Stock Conversion

Computer Automation Inc., an Irvine electronics manufacturer, said Wednesday it has arranged a short-term bank loan to prevent a company creditor from acquiring a large block of stock at a steep discount from its market value.

Computer Automation Chairman George Pratt said the company will use a significant portion of the $1.5 million it is borrowing from Sanwa Bank California to exercise its option to retire a $1.5-million debenture held by Kansas businessman Larry Doskocil.

Unless the debenture is retired by July 31, Doskocil will have the right to convert the note into 600,000 newly issued shares of Computer Automation stock.

By converting, Doskocil would acquire a stake of more than 20% in the company at an effective price of just $2.50 per share, more than 75% below Wednesday’s closing price of $11.50 per share.

The 600,000 shares would have a value of nearly $7 million based on recent trading prices, although the stock would probably decline in value as a result of the conversion.

If Doskocil exercised his conversion right, the number of Computer Automation shares outstanding would increase from 2.1 million to 2.7 million. Pratt noted that the 28% increase would result in a significant dilution for existing shareholders.

Doskocil’s debenture is a legacy of Computer Automation’s troubled financial history. A manufacturer of electronics test equipment, the company lost money for four consecutive years before returning to profitability this year.

In 1985, Computer Automation sold $3 million in subordinated debentures to Doskocil, who owns a pizza-topping manufacturing operation in Hutchison, Kan. Doskocil later sued Computer Automation for $16 million, alleging he was misled about the company’s financial condition.

Computer Automation settled with Doskocil in 1986. Half of the $3 million debt was repaid last year, and the remaining $1.5 million is due by Aug. 30 unless Doskocil exercises his conversion right.

Computer Automation’s stock was trading at about $3.50 per share when the $2.50 conversion right was negotiated with Doskocil, Pratt said. The stock fell to an all-time low of $1.375 per share during 1985.

Pratt, who has directed Computer Automation’s turnaround efforts since 1985, said the company will soon report its first annual profit since 1982. Computer Automation’s 1987 fiscal year ended June 30.