Helionetics Fires Chief 4 Days After Bankruptcy Filing

Just four days after filing for bankruptcy protection, Helionetics Inc. on Monday fired its president for his role in the ailing defense contractor’s financial crisis.

“We just didn’t think he was up to the job,” H. Alfred Sklar, a Berkeley businessman and Helionetics board member, said of Michael Mann, the defense contractor’s president and chief executive for the last 19 months. “We didn’t feel all the steps were taken to avoid the Chapter 11 bankruptcy filing last Thursday.”

Hours after his dismissal, Mann issued a blistering attack on his chief detractor--Beverly Hills investor Bernard Katz. He claimed that Katz, Helionetics’ founder, largest single shareholder and a former board member, had engineered his ouster for personal financial reasons. Mann said a rift with Katz developed over the future disposition of Helionetics’ laser subsidiary, the operation considered to hold the most promise for the company. In exchange for giving the company a patent that is the basis of the laser operation, Katz was given a 45% ownership stake in the subsidiary.

Mann contended that Katz has wanted to spin the laser subsidiary off as a separate entity and make it a publicly owned company. Mann said he opposed the move because he felt that it is not in the best interest of Helionetics’ shareholders to have their most valuable holding sold off.

“It would have been good for Bernie, but I thought there were better options,” Mann said. “That’s what led to the rift. . . . Katz wanted me out of the company.”

Katz, however, said the directors voted earlier last month to make the subsidiary public and could have raised the money necessary to prevent the bankruptcy if the sale had been arranged quickly. “The company could have raised the money it needed to stave off bankruptcy,” contended Katz, who owns about 7% of Helionetics’ stock.

Mann’s dismissal and the ensuing charges threaten to plunge Helionetics back into the turmoil and public squabbling that have plagued it for the last several years. A new round of bickering could come as the company--which lost more than $22 million in the last 18 months--is trying to reorganize its operations.

Mann was replaced immediately by William Duke, a Helionetics board member and longtime Southern California businessman. Duke once served as president of Compucorp, a Santa Monica office automation maker controlled by Katz. Duke was appointed to the Helionetics board last week, at about the same time the directors started discussing the possibility of replacing Mann.

Katz declined to comment on Mann’s ouster and Helionetics Chairman John Shelton said that Katz had no role in Mann’s firing or Duke’s hiring.

However, Shelton acknowledged that Katz talked to him and other board members about the possibility of dismissing Mann. “But it doesn’t mean he had any effect,” Shelton said. “Sure, he tried to use his influence, but in no way did he.”

Instead, Shelton said that he and other board members found Mann’s leadership deficient and did not think he could handle the additional responsibilities of managing Helionetics through its bankruptcy proceedings.

“We had six quarters of losses since he took over,” Shelton said of Mann, “and our net worth went from positive to negative. The record speaks for itself.” Further, Shelton said that Duke, who most recently worked as a consultant for troubled high-technology companies, has far more experience than Mann in leading companies through a bankruptcy turnaround.

One director who asked not to be identified said the board was upset that Mann had directed the company into bankruptcy last week without apparently considering alternatives, such as a compromise with the lender who had been demanding repayment of an overdue $4.5-million loan.

The director said that Downey Savings & Loan Assn. of Costa Mesa, which had scheduled a July 31 foreclosure sale on the loan’s collateral, offered at the last minute to accept less than full repayment of the loan if Helionetics would pay $100,000 for an extra week’s negotiating time.

Mann rejected the offer, contending that the deal would not have worked. He then authorized the bankruptcy filing.

However, the board, according to Director Sklar, felt that Mann had not taken all possible steps to avoid bankruptcy, adding that directors had lost confidence in his management.