Eight days after Flamemaster and its partners announced the purchase of 5% of Audiotronics stock, and left open the possibility that it would try to buy the company, Audiotronics announced it intends to sell $5 million worth of convertible subordinated debentures.
The bond sale will more than quadruple the long-term debt for Audiotronics, a North Hollywood-based audio-visual equipment maker. The move may also serve as "shark repellent" to make the company less attractive to potential suitor Joseph Mazin, president and chief executive of Sun Valley-based Flamemaster.
Audiotronics announced March 4 that proceeds from the 15-year bonds will be used to repay bank debt and that the balance will be used as working capital to retool for new products.
Typically, convertible subordinated debentures are exchangeable for shares of common stock at a preset price.
Audiotronics has not yet established what that conversion price for the bonds into stock would be. "We'll sit back and wait. If it's dilutive to shareholders we are going to try and stop it," Mazin said.
Audiotronics President Charles Musson would not comment on the offering. The company's stock closed Monday at $3.
On Feb. 24 Mazin disclosed to the Securities and Exchange Commission that Flamemaster heads an investor group which owns 5.2% of Audiotronics stock. The filing revealed that Flamemaster, which makes flame-retardant coatings for cables and sealants for aircraft fuel tanks, may try to gain a controlling interest in Audiotronics.
Previously, Mazin said that Audiotronics' stock was underpriced, in large part because of the company's strong balance sheet.
The investment bankers who are underwriting the bond deal, H. J. Meyers & Co. of Beverly Hills, dismissed the idea that Flamemaster intends to take over Audiotronics and said Mazin is simply making a prudent stock investment.
Mazin, however, said, "We are talking to some other companies to make a joint venture bid with us."
Audiotronics, which has turned a profit in only two of its past five fiscal years, is not the consistent moneymaker that Flamemaster is. For its fiscal year ended last June 30, Audiotronics lost $1.8 million, or $1.48 per share, on $5.7 million in sales.
Flamemaster reported net income of $311,020, or 22 cents per share, on sales of $4.7 million for the fiscal year ended Sept. 30.