Fight Over Irvine Defense Contractor : When Smoke Clears in Bankruptcy, Katz Holds Helionetics Rein
Helionetics Inc. has emerged from bankruptcy after a bitter 2 1/2-year reorganization battle with former director Bernard B. Katz firmly back in control of the Irvine defense contractor.
At one time, there were four groups vying for control of the company.
But under a plan approved in bankruptcy court in Santa Ana, Katz and his wife, Susan E. Barnes, and George de B. Bell, a Katz business associate and chairman of the Philadelphia investment bank Janney Montgomery Scott Inc., will have controlling interest in Helionetics.
They will own 3.5 million, or about two-thirds, of the firm’s approximately 5.25 million common shares outstanding, said Charles W. Jobbins, a former Helionetics president.
U.S. Bankruptcy Judge John E. Ryan on Friday approved the reorganization proposed by Jobbins and Katz, a Beverly Hills businessman.
Jobbins Chairman and CEO
Jobbins, who retired in 1983, was immediately named chairman and chief executive officer of the company. Stanley J. S. Emeterio will continue as chief financial officer, the post he has held during the reorganization.
The reorganized Helionetics is a much-changed company. Since filing for bankruptcy, Helionetics has divested most of its operations, including a promising unit that was developing high-energy laser communication systems for the Navy.
The principal remaining business is Delta Electronic Controls, a manufacturer of electronic power conversion equipment, primarily for military applications.
Ironically, Delta was Helionetics’ predecessor and itself was rescued from bankruptcy by Katz in 1980.
As part of the Helionetics reorganization, several lawsuits filed after the company went into bankruptcy in July 1986 have been settled.
The plan calls for Bank of America and Downey Savings & Loan Assn., Helionetics’ largest secured creditors and parties to all of the suits, to accept $7 million--about 41 cents on the dollar--to settle their claims against the company. The two financial institutions were owed $17 million.
Helionetics’ unsecured creditors will receive 500,000 shares of newly issued stock in the reorganized company. The value of the settlement to those creditors will depend on the future performance of Helionetics’ stock.
Existing shareholders will receive one share of stock in the new company for every 10 shares they own, said Don Rothman, an attorney for Katz.
Jobbins, who had headed Helionetics in 1980-83, said Tuesday that he is optimistic about the company’s prospects. He predicted sales of $6.8 million in 1989 and $9 million in 1990.
“We have close to a year’s business in backlogs, and that’s great for a company coming out of Chapter 11,” Jobbins said.
He also said Helionetics “will be on the alert” for buying other companies that complement its present business.
Jobbins said Helionetics is seeking approval to have its stock relisted on the Pacific Stock Exchange. The stock had been suspended from trading during the reorganization.
Well-Known Figures on Board
Helionetics gained national attention in the early 1980s when Katz recruited an impressive list of well-known military and government figures to the company’s board of directors. The list included Edward Teller, the Nobel Prize-winning physicist and principal developer of the hydrogen bomb; former Treasury Secretary William Simon, and David C. Jones, a retired Air Force general and former chairman of the Joint Chief of Staff.
Fueled by its prestigious board and the promise of its laser technology, Helionetics stock soared to nearly $30 per share in 1983. But the stock fell to less than $1 a share as the firm’s fortunes tumbled in 1985.
Former management blamed an overambitious expansion strategy, undertaken in 1984, for the company’s downfall.
But much of the attention was focused on Katz, not the company. The investor is a controversial figure who was the target of a 1977 Securities and Exchange Commission inquiry into his stock promotion activities.
Katz ran into problems at Helionetics in 1984, when Wendell Sell, a former Helionetics chairman, and Marvin Stern, a former consultant, accused him of violating federal securities laws and state fraud statutes.
Katz, who denied the accusations in court filings, agreed to settle the suit in May, 1988, by paying $475,000 to Sell and Stern.
Under the reorganization plan, several major shareholders, including Teller, who resigned as a director in 1986, will have their stock, which was being held as collateral by the company’s creditors, returned to them.
Teller will receive 33,700 shares, less than 1% of the total shares outstanding.
