Vari-L shareholder demands answers in
company's slide
By Jennifer Beauprez
Denver Post Business Writer
Sept. 12, 2000 - Shareholders who bet their dollars on
Denver-based Vari-L Co. are fuming after watching
the company's accounting woes spin out of control
and their investments evaporate.
Now, they're demanding answers. Or at least one
investor is.
Arbor Capital Management is hoping to organize a
shareholder committee to ask the company to
respond to unanswered questions and accept outside
advice.
"There are a lot of institutional shareholders who
don't want to get burned and could offer some
assistance," said Timothy Vick, senior analyst at
Arbor Capital, an investment firm in Munster,
Ind., that controls at least 100,000 shares of
Vari-L stock.
"Vari-L is a 747 with no pilot, no copilot, and
there's no one in the tower to talk them down to
land," Vick said. "There has to be stronger
leadership."
Pete Pappas, who was hired to turn around Vari-L
as its interim CEO, said the company has hired a
team of experts who are working to resolve the
company's accounting problems and restore investor
confidence. As a public company, Vari-L is
required to divulge information to all investors
at once, he said.
Vari-L makes components for cellular phone
manufacturers and has been on a downward spiral
since it announced in May that it would restate
its 1997 earnings. The company said it overstated
'97 revenue by $1.3 million and earnings by
$159,800. Vari-L also discovered that it
miscounted the number of shares outstanding and
underestimated earnings per share. The company has
a market capitalization of $84.8 million, with
7.07 million shares outstanding.
The company has since been the target of multiple
shareholder lawsuits that accuse four of Vari-L's
officers and former officers of insider trading
that allowed them to sell 583,000 shares of stock
for $10.4 million while share prices were
allegedly inflated.
The Securities and Exchange Commission has since
launched an investigation into the matter. The
company's accounting firm, Haugen, Springer & Co.,
resigned. Then came the resignations of the
company's chief financial officer, its president,
controller and two board members, including the
chairman of the board.
And last week, the Nasdaq delisted Vari-L from the
national market. The Nasdaq said Vari-L was behind
in its required filings since it halted trading in
the company on July 7. To the chagrin of
investors, the company's stock price has reflected
that turmoil, falling to $6 a share from a high of
$39 in December.
The stock now trades on the "bulletin board"
over-the-counter market, which often is associated
with high-risk penny stocks and snubbed by serious
investors and most analysts.
Walter Edwards, manager of the Westwood
Opportunity Fund in San Diego, said he's
considering joining Arbor Capital's shareholder
committee. He said shareholders are disappointed
by the stock drop and discouraged by the lack of
information being divulged by the company. "It's
been very difficult (to get information)," Edwards
said. "Regardless of how many shares you have or
if you're an institutional or individual investor,
the goal is to know as much as you can."
If the interests of Vari-L's shareholders aren't
respected, the issue could escalate into a proxy
war in which shareholders request a vote to
replace the current board of directors, said Gary
Lutin, a New York investment banker asked by Arbor
Capital to advise the shareholder committee.
"Shareholders are the ones who own the company,"
Lutin said. "They employ these people, and they're
the ones who have the ultimate right to hire and
fire them."
Pappas, who is a professional consultant typically
hired for turnaround situations like Vari-L, said
Vari-L has hired accounting firm KPMG to conduct
an internal audit of the company's financial
records. He expects the company to release by the
fourth quarter restated earnings for June 2000, as
well as financial statements for 1999 and 1998.
The remaining question will be whether the company
ultimately gets its house in order and survives.
"My sense is yes," said analyst Michael Shonstrom,
who used to follow the company for Shonstrom
Research Associates in Denver.
But he said years of "systematically and
pervasively wrong" information provided to
accountants will make figuring the company's
financial records a tough task. |
