Varco International shareholders voted Tuesday to give company President George Boyadjieff an interest-free loan of up to $430,000 in an attempt to bail him out of a soured investment in the Orange-based company's stock.
More than 77% of the votes cast at Tuesday's annual shareholders meeting favored providing the five-year loan, although several dissenting shareholders were vocal in their objections. One irate investor complained at the meeting that the gesture was an affront to others who have lost money.
The action came as Varco continues to lose money. Financial results for the first quarter of 1987, released at the meeting, show a net loss of $2.1 million, contrasted with net income of $68,000 in the first quarter of 1986. The company's first-quarter revenue was $7.8 million, 48% below the $14.9 million in revenue that it posted for the comparable period a year ago.
Walter B. Reinhold, Varco chairman, told shareholders that although oil-service industry analysts are predicting a 15% to 20% upturn in oil drilling next year, Varco has yet to see an increase in orders for its drilling equipment.
Despite the recent cash crunch, Reinhold said it was important for Varco to rescue its president from a financial predicament stemming from the downward spiral of Varco stock prices since 1980-81. It was in that period that Boyadjieff borrowed funds from a bank to exercise stock purchase options granted him by the company. The bank loan was collateralized by the Varco stock that Boyadjieff acquired. When the stock plunged, the bank demanded additional backing.
According to Varco's proxy statement, Boyadjieff sold some of his pledged shares and gave the bank a $130,000 second-trust deed on his home in an attempt to satisfy the bank's requirements. When that was not enough, Reinhold and Reinhold's sister Charlotte R. Lorenz--both major Varco shareholders--personally guaranteed repayment of the bank loan and provided additional company stock for collateral.
Approval of the corporate loan to Boyadjieff will enable him to pay off the bank loan and release Reinhold and Lorenz from their personal obligations to the bank.
Reinhold said in an interview that Boyadjieff deserved assistance because he is a "brilliant" inventor and engineer who has developed Varco's most innovative and promising products, including its top drive drilling system.
Moreover, Reinhold said, Varco was responsible for Boyadjieff's financial misfortune. "George didn't ask for the stock options. The board (of directors) gave it to him. Then we told him to exercise them. Then instead of being incentives, they became a penalty for him."
James Crandell, an oil-service industry analyst with Salomon Brothers, said that although the loan to Boyadjieff was unusual, he believes that it was warranted. He said Boyadjieff is "probably the top drilling engineer in the country in oil services and whatever it takes for Varco to make him whole or make it attractive for him to remain they should do."
Crandell predicted the company "will be in a positive cash flow by the end of the year and have positive earnings by the end of '88."