<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VARIFLEX, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
<PAGE>
VARIFLEX, INC.
5152 NORTH COMMERCE AVENUE
MOORPARK, CALIFORNIA 93021
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 6, 1996 AT 10:00 A.M., LOCAL TIME
----------------
Notice is hereby given that the 1996 Annual Meeting of Stockholders of
Variflex, Inc. (the "Company") will be held at the Rancho Las Palmas Marriott,
Rancho Mirage, California, on Friday, December 6, 1996 at 10:00 a.m., local
time, for the following purposes:
1. To elect six directors for terms expiring in 1997.
2. To consider and take action upon a proposal to ratify the selection of
Ernst & Young LLP, independent certified public accountants, as auditors
for the Company for the year ending July 31, 1997.
3. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Holders of common stock of the Company are entitled to vote for the election
of directors and on each of the other matters set forth above.
The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on October 30, 1996 as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournments thereof.
You are cordially invited to be present. Stockholders who do not expect to
attend in person are requested to sign and return the enclosed form of proxy
in the envelope provided. At any time prior to their being voted, proxies are
revocable by written notice to the Secretary of the Company or by voting at
the meeting in person.
By order of the Board of Directors
/s/ Barbara Losi
Barbara Losi, Secretary
November 4, 1996
<PAGE>
VARIFLEX, INC.
5152 NORTH COMMERCE AVENUE
MOORPARK, CALIFORNIA 93021
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 6, 1996
----------------
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Variflex, Inc. (the "Company") from holders of
the Company's outstanding shares of common stock ("Common Stock") entitled to
vote at the 1996 Annual Meeting of Stockholders of the Company (and at any and
all adjournments thereof) for the purposes referred to below and set forth in
the accompanying Notice of Annual Meeting of Stockholders. These proxy
materials are first being mailed to stockholders on or about November 4, 1996.
The Board of Directors has fixed the close of business on October 30, 1996
as the record date for the determination of stockholders entitled to notice
of, and to vote at, said meeting. Holders of Common Stock are entitled to one
vote for each share held of record on the record date with respect to each
matter to be acted on at the 1996 Annual Meeting.
On October 30, 1996, there were outstanding and entitled to vote 6,025,397
shares of Common Stock.
1. ELECTION OF DIRECTORS
The Company's By-Laws permit the Board of Directors to fix the number of
Board members between three and nine directors. At present, the Board of
Directors consist of six members. The directors are elected at each annual
meeting of the stockholders of the Company for a term of office running until
the next annual meeting of the Company's stockholders and until their
successors have been elected.
The Board of Directors recommends a vote FOR the election of each of the
nominees named below. Proxies in the enclosed form received from holders of
Common Stock will be voted for the election of the six nominees named below as
directors of the Company unless stockholders indicate otherwise. Directors
will be elected by an affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote at the
1996 Annual Meeting. Shares with respect to which authority to vote for any
nominee or nominees is withheld will not be counted in the total number of
shares voted for such nominee or nominees. If any of the foregoing nominees
should be unable or unwilling to serve, the persons authorized by the proxy to
vote shall, pursuant to the authority granted to them by the Board of
Directors, have the discretion to select and vote for substituted nominees
(unless shareholders indicate otherwise, as noted above). The Board of
Directors has no reason to believe that the nominees will be unable or
unwilling to serve.
The following information includes the age, the year in which first elected
a director of the Company, the principal occupation, and other directorships
of each of the nominees named for election as directors.
NOMINEES FOR ELECTION AS DIRECTORS
GERALD I. BOYCE, age 64, a member of the Company's Board of Directors since
1990, currently serves as a Consultant to the Company. Mr. Boyce joined the
Company in 1989 as its President and served in that capacity until 1992. Mr.
Boyce was a private business consultant to certain venture capital groups from
1983 to 1990. From 1978 to 1983, Mr. Boyce was Senior Vice President of Huffy
Corp. in charge of non-bicycle acquisitions and, from 1973 to 1977, was
President of two divisions at Huffy Corp. Mr. Boyce received a Bachelor of
Arts degree in Business Administration as well as a Doctorate of Law degree,
both from the University of Wisconsin.
<PAGE>
LOREN HILDEBRAND, age 56, was appointed to the Company's Board of Directors
in February 1994. Mr. Hildebrand presently is the President and sole director
and stockholder of Creative Consultants, a company he founded in 1992 to
render consulting services to the toy industry and is also, since May 1994,
Executive Vice President of Lewis Galoob Toys, Inc., a toy manufacturer. From
1989 through 1992 Mr. Hildebrand was Executive Vice President of Toy Soldiers,
Inc., a closely held toy company he co-founded which was sold in 1992. From
1987 through 1989 Mr. Hildebrand was Executive Vice President of Sales and
Marketing for World of Wonder, a publicly traded manufacturer of toys. In 1987
Mr. Hildebrand retired as Executive Vice President of Sales, Merchandising and
Distribution and a member of the Executive Committee of Mattel Toy Company,
Inc., a publicly traded manufacturer of toys, with whom he had been employed
since 1964. Mr. Hildebrand also served as a director of ARCO Industries, Inc.,
a wholly owned subsidiary of Mattel. Mr. Hildebrand earned his Bachelor of
Arts degree in Economics from Pacific Lutheran University and his Masters of
Business Administration degree from the University of Washington Graduate
School of Business.
RAYMOND (RAY) H. LOSI, age 73, has served as Chairman of the Board and
director of the Company since its inception in August 1977. Mr. Losi served as
President of the Company from 1977 until 1989, at which time he became Chief
Executive Officer. Mr. Losi has 54 years of experience in the junior sporting
goods and bulk toys market. Mr. Losi attended Yale University and the
University of Connecticut. Mr. Losi is married to Barbara Losi and is the
father of Raymond (Jay) H. Losi II, each of whom is also an officer and
director of the Company.
RAYMOND (JAY) H. LOSI II, age 44, has served as President and Chief
Operating Officer of the Company since 1992 and as a director since 1985.
Prior to 1992, Mr. Losi served as Vice President in charge of Procurement from
1984 and as Vice President in charge of International Sales from 1981. Mr.
Losi has directed product development for the Company since its inception in
August 1977. Mr. Losi is the son of Raymond (Ray) H. Losi, who is also an
officer and director of the Company.
BARBARA LOSI, age 58, has served as Secretary of the Company since 1980, and
as a director since 1981. From 1977 through 1990 she also served as Chief
Financial Officer for the Company. Prior to her employment with the Company in
1977, Mrs. Losi had experience in merchandising with Dayton Hudson. Mrs. Losi
is married to Raymond (Ray) H. Losi, who is also an officer and director of
the Company.
MARVIN G. MURPHY, age 59, was appointed to the Company's Board of Directors
in February 1994. Mr. Murphy was co-founder, Executive Vice President of
Manufacturing and a member of the Board of Directors of IOLAB Corporation, a
privately held company which was founded in 1977. IOLAB Corporation is a
manufacturer of intraocular lenses and was sold to Johnson & Johnson, Inc. in
March 1980. In 1984 Mr. Murphy founded Varitek Research, Inc., which is a
company devoted to research and development of medical devices and
manufacturing processes. Varitek thereafter merged into Vision Technologies
International, which was also co-founded by Mr. Murphy. Vision Technologies
International (since renamed Med Plus) is a publicly traded corporation which
manufactures intraocular lenses. Mr. Murphy served as Executive Vice President
of Manufacturing and as a member of the Board of Directors of Vision
Technologies International until his retirement in 1989. Mr. Murphy presently
serves on the Board of two privately held corporations, M.H.C.I., Inc., a
manufacturer of sunglasses, which Mr. Murphy founded and has served as a
director for since 1983, and VariMed Associates Incorporated, a manufacturer
of medical alert products, with whom he has served as a director since January
1993.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR ELECTION OF EACH OF THE ABOVE NOMINEES
2
<PAGE>
Directors who are employees of the Company receive no compensation for
service as members of the Board. Each non-employee director receives an annual
retainer of $5,000, plus $1,000 for each Board meeting attended and $500 for
each committee meeting attended. All directors are reimbursed for expenses
incurred in connection with attendance at meetings. The Company may grant
awards to the directors under the Company's 1994 Stock Plan.
In March 1994, the Board of Directors established a Compensation Committee
and an Audit Committee. The Compensation Committee, on which Messrs. Boyce,
Hildebrand and Murphy serve, establishes salaries, incentive and other forms
of compensation for officers and other employees, administers the various
incentive compensation and benefit plans, and recommends policies relating to
such plans. The Audit Committee, on which Messrs. Raymond (Ray) H. Losi,
Murphy and Boyce serve, is responsible for meeting periodically with
representatives of the Company's independent public accountants to review the
general scope of audit coverage, including consideration of the Company's
accounting practices and procedures and system of internal accounting
controls, and to report to the Board with respect thereto. The Audit Committee
also recommends to the Board of Directors the appointment of the Company's
independent auditors.
The Board of Directors held three meetings in fiscal 1996, each of which was
attended by all the Directors, and took various actions by unanimous written
consent. The Audit Committee and the Compensation Committee each had one
meeting in fiscal 1996, each of which was fully attended.
The following table sets forth the beneficial ownership of Common Stock as
of October 30, 1996 of each of the nominees named for election as a director,
each person (and certain related individuals) known by the Company to own
beneficially more than 5% of the Common Stock and each of the executive
officers named in the Summary Compensation Table below.
<TABLE>
<CAPTION>
OFFICERS, DIRECTORS SHARES BENEFICIALLY
AND 5% STOCKHOLDERS(1) OWNED(2)
---------------------- -------------------------
NUMBER PERCENT
----------- ----------
<S> <C> <C>
Raymond (Ray) H. Losi(3)..................... 1,050,575(4) 17.44%
Raymond (Jay) H. Losi II(3).................. 1,974,082(5) 32.76%
Eileen Losi(3)............................... 120,000(6) 1.99%
Barbara Losi(3).............................. 406,438(7) 6.75%
Warren F. Marr............................... 23,271 0.39%
William B. Ogden............................. 10,000 0.17%
Gerald I. Boyce.............................. -0- --
Loren Hildebrand............................. 2,000 0.07%
Marvin G. Murphy............................. 1,000 0.04%
All directors and executive officers
as a group (11 persons)..................... 3,477,566 57.72%
</TABLE>
- --------
(1) Unless otherwise indicated, the address of persons listed in this column
is c/o Variflex, Inc., 5152 N. Commerce Avenue, Moorpark, California
93021.
(2) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under Rule 13d-3(d), shares not
outstanding which are subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding for the
purpose of calculating the number and percentage owned by such person, but
not deemed outstanding for the purpose of calculating the percentage owned
by each other person listed. Shares of common stock which may be acquired
within 60 days of October 30, 1996, through the exercise of options, or
otherwise, is as follows: Mr. Raymond (Jay) H. Losi II, 120,000 shares;
Mr. Warren F. Marr, 23,271; Mr. William B. Ogden, 10,000; Mr. Rocco
Attolico, 5,000; and Ms. Paula Coffman, 5,000.
3
<PAGE>
(3) Mr. Raymond (Ray) H. Losi and Mrs. Barbara Losi are married. Mr. Raymond
(Jay) H. Losi II is the son of Mr. Raymond (Ray) H. Losi and his prior
spouse, Ms. Eileen Losi.
(4) Includes 246,575 shares held by Mr. Raymond H. Losi as Trustee of the 1989
Raymond H. Losi Revocable Trust under declaration of trust dated January
23, 1989, for benefit of Raymond (Ray) H. Losi. Although Mr. Losi is
married to Mrs. Barbara Losi, the shares retain their identity as the sole
and separate property of the beneficiary of the trust (Mr. Raymond (Ray)
H. Losi). Also includes 804,000 shares owned by The RHL Limited
Partnership of which RHL Holdings, Inc., a corporation owned solely by Mr.
Raymond (Ray) H. Losi, is a general partner.
(5) Includes 807,507 shares held by Losi Enterprises Limited Partnership, of
which Losi Properties, Inc., a corporation whose sole stockholder is the
1989 Raymond H. Losi II Revocable Trust, of which Mr. Raymond (Jay) H.
Losi II is a trustee, is a general partner. Also includes 120,000 shares
held by the Jay and Kathy Losi Revocable Trust dated January 1, 1989, for
which Mr. Raymond (Jay) H. Losi II and his spouse are beneficiaries. Also
includes 926,575 shares held by EML Enterprises Limited Partnership, of
which Mr. Raymond (Jay) H. Losi II is a trustee of the general partner.
(6) Shares held by Mrs. Eileen Losi as Trustee of the Eileen Losi Revocable
Trust under declaration of trust dated October 13, 1993 for benefit of
Eileen Losi.
(7) Includes 106,438 shares held by Mrs. Barbara Losi as Trustee of the 1989
Barbara Losi Revocable Trust under declaration of trust dated January 31,
1989, for benefit of Barbara Losi. Although Mrs. Losi is married to
Mr. Raymond (Ray) H. Losi, the shares retain their identity as the sole
and separate property of the beneficiary of the trust (Mrs. Barbara Losi).
Also includes 300,000 shares owned by The BL 1995 Limited Partnership, of
which BL Holdings, Inc., a corporation owned solely by Barbara Losi, is a
general partner.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the executive officers of the Company as of
October 30, 1996, are listed below, except in the case of those who are also
members of the Board of Directors, whose biographies appear above under the
caption: "NOMINEES FOR ELECTION AS DIRECTORS". Executive officers will be
appointed each year by the Board of Directors at its annual meeting following
the annual meeting of shareholders and serve for one year or until their
successors are chosen and qualify in their stead.
ROCCO ATTOLICO, age 55, has served as Vice-President of Manufacturing since
January 1994. Mr. Attolico has been an employee of the Company since July 1991
when he was hired to supervise and direct the Company's shipping, warehousing
and order processing functions. Prior to his employment with the Company, Mr.
Attolico was employed as Director of Distribution Services with Everest &
Jennings from January 1990 to September 1990, and from September 1978 to
January 1990 was Director of Distribution Services with Allegretti & Company.
PAULA COFFMAN, age 32, has been an employee of the Company since June 1984.
Since January 1993, she has served as Vice-President of Administrative
Services. Prior to her appointment as Vice President, Ms. Coffman served the
Company as Product and Sales Planning Manager, Sales Administration Manager
and Sales Coordinator.
WARREN F. MARR, age 55, has served as Vice President of Sales since he
joined the Company in January 1990. Mr. Marr has a long history in marketing
and sales of consumer products. From July 1988 until he joined the Company, he
was Vice President of Marketing and Sales for Kare-Free Company, a marketer of
home improvement wood products. Prior to his position with Kare-Free Company,
Mr. Marr was General Sales Manager for Professional Marketing Associates,
Inc., an independent manufacturers' sales agency servicing the sporting goods
and marine industries. Mr. Marr also worked in executive capacities for Fortel
Corporation, a manufacturer of consumer electronics marketed through mass
merchandisers and for Daiwa Corporation.
4
<PAGE>
WILLIAM B. OGDEN, age 36, has served as Chief Financial Officer of the
Company since February 1994. From April 1987 until he joined the Company, Mr.
Ogden served as Chief Financial Officer with Cooke Media Group, Inc., a
closely held company which owns and operates newspapers and cable television
systems. From 1981 until he joined Cooke Media Group, Inc., Mr. Ogden was
employed by the international accounting firms of Ernst & Whinney and
Deloitte, Haskins & Sells. Mr. Ogden is a certified public accountant.
EXECUTIVE COMPENSATION
The following table sets forth, with respect to the Company's fiscal year
ended July 31, 1996, compensation paid by the Company to its principal
executive officer, its Chief Executive Officer and the Company's other
executive officers whose total annual salary and bonuses exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ -------------------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL NUMBER OF ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
------------------ ------ -------- -------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi,
II..................... 1996 $300,000 $ -- $ * -- $ 3,997
President and Chief 1995 300,000 180,000 * -- 3,077
Operating Officer 1994 199,167 200,000 * 180,000 13,044
(Principal Executive
Officer)
Raymond (Ray) H. Losi... 1996 $150,000 $ -- $ * -- $ --
Chief Executive Officer 1995 150,000 -- * -- --
1994 150,000 -- * -- 27,460
Warren F. Marr.......... 1996 $133,757 $ 7,500 $ * 2,424 $ 8,200
Vice President of Sales 1995 125,171 75,000 * 1,250 4,749
1994 125,747 80,000 * 41,290 16,501
William B. Ogden........ 1996 $127,382 $ 2,500 $ * -- $ 7,790
Chief Financial Officer 1995 118,963 39,000 * -- --
1994 49,686 15,000 * 25,000 --
</TABLE>
- --------
* Any perquisites and other personal benefits, securities or property are
less than $50,000 and less than 10% of total annual salary and bonus.
(1) Amounts represent Company annual contributions to the Defined Benefit
Pension Plan and Trust.
5
<PAGE>
INDIVIDUAL OPTION GRANTS TO EXECUTIVE OFFICERS DURING FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED ANNUAL
OF TOTAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR OPTION
NUMBER OF GRANTED TO TERMS
NAME OF EXECUTIVE OPTIONS EMPLOYEES EXERCISE EXPIRATION -----------------------
OFFICER GRANTED(1) IN FY 1996 PRICE DATE(2) 0% 5% 10%
- ----------------- ---------- ---------- -------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Raymond (Jay) H.
Losi, II............... -- -- -- -- -- -- --
Raymond (Ray) H. Losi... -- -- -- -- -- -- --
Warren F. Marr.......... 2,424 100% $0.0004 4/1/05 $20,000 $32,577 $51,874
William B. Ogden........ -- -- -- -- -- -- --
</TABLE>
- --------
(1) Mr. Marr's 2,424 shares vest in twenty percent cumulative increments
beginning on April 1, 1997.
(2) The options were granted subject to earlier termination in certain events
related to termination of employment.
FY-1996 OPTIONS EXERCISE AND FY-1996 YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY-OPTIONS
AT END-FY 1996 AT END-FY 1996
------------------------- -------------------------
ACQUIRED
NAME OF EXECUTIVE OFFICER ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi,
II..................... -- 120,000 60,000 $ 0 $ 0
Raymond (Ray) H. Losi... -- -- -- -- --
Warren F. Marr.......... -- 23,271 32,535 43,623 51,207
William B. Ogden........ -- 10,000 15,000 0 0
</TABLE>
6
<PAGE>
PENSION PLAN TABLES
In 1979 the Company established the Variflex, Inc. Defined Benefit Pension
Plan and Trust (the "Defined Benefit Plan") which provides retirement,
disability and death benefits to the Company's eligible employees. All
employees of the Company who are at least age twenty-one and who have
completed one year of service may participate in the Defined Benefit Plan.
Benefits under the Defined Benefit Plan are based upon a participant's years
of service (not to exceed 35 years) and his or her average monthly
compensation during the three year period in which he or she earned his or her
highest average monthly compensation (but not to exceed $150,000, as such
figure may be adjusted for inflation). Benefits payable to a participant under
the Defined Benefit Plan may not, with certain exceptions, exceed $7,500 per
month, or $90,000 per year, as such figures may be adjusted for inflation.
Assuming the Defined Benefit Plan is not terminated, each participant's
benefits vest at the cumulative rate of 20% per year of service after the
completion of such participant's second year of service. Defined Benefit Plan
assets are invested and managed by a trustee. The trustee has, under certain
circumstances, the authority to make loans to participants and beneficiaries.
The Company's policy is to contribute the minimum amount that is required to
be contributed by law and can be deducted for federal income tax purposes. Set
forth below is a chart showing estimated annual benefits payable upon
retirement with respect to the Defined Benefit Plan.
<TABLE>
<CAPTION>
REMUNERATION
------------
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000-- $15,200 $30,400 $45,600 $60,800 $76,000 $90,000 $107,000
--
125,000-- 12,300 24,700 37,000 49,400 61,700 74,100 86,400
--
100,000-- 9,500 19,000 28,400 37,900 47,400 56,900 66,400
--
75,000-- 6,600 13,200 19,900 26,500 33,100 39,700 46,300
--
50,000-- 4,100 8,200 12,300 16,400 20,500 24,600 28,700
--
25,000-- 2,100 4,100 6,200 8,200 10,300 12,300 14,400
--
0--
------------------------------------------------------------------
5 10 15 20 25 30 35
</TABLE>
Years of Service
----------------
7
<PAGE>
The compensation covered by the Pension Plan is based on the combined
amounts set forth under the headings "salary" and "bonuses" of the Summary
Compensation Table for each of the named executives. The years of credited
service as of October 30, 1996 for the executive officers named in the Summary
Compensation Table are as follows: Raymond (Ray) H. Losi--18 years; Raymond
(Jay) H. Losi, II--18 years; Warren F. Marr--6 years; and William B. Ogden--2
years.
COMPENSATION ARRANGEMENTS UPON RESIGNATION, RETIREMENT OR OTHER TERMINATION;
EMPLOYMENT AGREEMENTS
EMPLOYMENT RELATED AGREEMENTS. In April 1994, the Company entered into
employment agreements with Mr. Raymond (Ray) H. Losi as Chief Executive
Officer, Mr. Raymond (Jay) H. Losi II as President and Chief Operating
Officer, Mr. William B. Ogden as Chief Financial Officer, Mr. Rocco Attolico
as Vice-President of Manufacturing, Mr. Warren Marr as Vice-President of
Sales, and Ms. Paula Coffman as Vice-President of Administrative Services. The
employment agreements for Messrs. Raymond (Ray) H. Losi and Raymond (Jay) H.
Losi II provide for three year initial terms, while the employment agreements
for Messrs. Ogden, Attolico and Marr and Ms. Coffman provide for one year
initial terms. Each employment agreement renews automatically following the
expiration of its initial term unless 60 days prior written notice is given.
Pursuant to such automatic renewal provisions, the Company's agreement with
Mr. Raymond (Jay) H. Losi II renews for one additional three year period,
while the Company's agreements with Messrs. Raymond (Ray) H. Losi, Ogden,
Attolico and Marr and Ms. Coffman each renew for one additional one year
period. Each employment agreement requires that the employee devote his or her
entire time to the performance of his or her executive obligations.
Each of the employment agreements includes the following provisions relating
to termination for cause: (i) the Company may terminate the employment of an
executive if the executive willfully breaches or habitually neglects his
duties or commits such acts of dishonesty, fraud or misrepresentation as would
prevent the effective performance of his duties; (ii) the executive may
terminate his or her employment with the Company if the Company breaches or
fails to fulfill any representations, warranties or covenants entered into
with the executive, demotes the executive, requires the executive to
participate in any felony or other crime, commits any act which adversely
reflects upon the name and reputation of the executive, if there is a change
in control of the Company or if the Company engages in other conduct
constituting legal cause for termination. Except for the employment agreement
with Raymond (Jay) H. Losi II, each of the employment agreements includes the
following provisions relating to termination without cause: (i) the employment
of an executive shall terminate automatically upon the death of the executive;
(ii) the employment of an executive may terminate at the Company's election if
the executive is prevented from discharging his duties under the agreement for
a period of 60 days due to any physical or mental disability; or (iii) the
employment of the executive may be terminated at the executive's election upon
90 days written notice to the Company. If Mr. Losi II terminates the agreement
for cause pursuant to clause (ii) of the first sentence of this paragraph, he
is entitled to receive, in lieu of any other remedy, three years base salary.
The employment of Raymond (Jay) H. Losi II terminates without cause upon his
death, at the Company's election if he is unable to discharge his duties due
to any physical or mental disability for a period of 30 days, or at Mr. Losi's
election, if he provides 180 days written notice to the Company.
As base compensation under their respective employment agreements, Mr.
Raymond (Ray) H. Losi receives $150,000 per year, Mr. Raymond (Jay) H. Losi II
receives $300,000 per year, Mr. Ogden receives $131,652 per year, Mr. Attolico
receives $79,500 per year, Mr. Marr receives $137,376 per year and Ms. Coffman
receives $64,212 per year. Base compensation for each employee is reviewed at
least once per year and may be increased at the discretion of the Board of
Directors. Messrs. Raymond (Ray) H. Losi, Raymond (Jay) H. Losi II, Marr and
Attolico, and Ms. Coffman, are also entitled under their employment agreements
to auto allowances of $1,000, $1,000, $500, $400 and $500 per month,
respectively.
8
<PAGE>
The Company entered into a consulting agreement with Mr. Gerald I. Boyce, a
director of the Company and its past President, for a one-year term stated to
expire December 31, 1994. Since that date, Mr. Boyce has continued to perform
the duties provided for under that agreement and the Company has continued to
compensate Mr. Boyce at the rate of $50,000 per year and provide health
insurance as provided for in that agreement.
The employees and consultants who have entered into the agreements noted
above have, pursuant to the terms of such agreements, covenanted that they
shall not, for specified periods, compete with the Company within certain
specified geographic areas, or solicit the Company's employees or customers.
Messrs. Raymond (Ray) H. Losi and Boyce have so covenanted for a period of two
years following the termination of each of their employment or services, with
Messrs. Raymond (Jay) H. Losi II, Ogden, Attolico and Marr, and Ms. Coffman
have so covenanted for a period of one year following the termination of each
of their employment or services. In addition, these employees have covenanted
to return all proprietary information to the Company following the termination
of their respective employment agreements, and not use or disclose any
confidential information of the Company.
Mrs. Barbara Losi received $25,000 in fiscal 1996 and will receive $25,000
in fiscal 1997, as compensation for her services as an officer. In addition,
the Company has agreed to provide her with health insurance for life in
connection with her previous rendering of services to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Boyce, Hildebrand and Murphy, the three non-employee directors,
served as members of the Compensation Committee of the Board of Directors of
the Company (the "Compensation Committee") during fiscal 1996. None of the
executive officers or directors is a director on any other board which
relationship would be construed to constitute a compensation committee
interlock within the meaning of the proxy rules of the Securities and Exchange
Commission.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement in whole or in part, the following
Report of the Compensation Committee and Performance Graph for Variflex, Inc.,
on Executive Compensation shall not be incorporated by reference in any such
filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee was established by the Board of Directors in
March 1994 and this report discloses the Compensation Committee's compensation
policies applicable to the Company's executive officers since that time.
The Company's compensation program for executive officers is primarily
comprised of base salary, an annual incentive based on the achievement of
financial performance objectives, and long-term incentives in the form of
stock option grants. Executives also participate in various other benefits
plans, including a health insurance plan generally available to all employees
of the Company.
It is the Company's philosophy to pay base salaries and annual incentives to
executives at or above medium competitive levels for similarly-situated
companies based on the achievement of stretch performance objectives. Stock
option grants are intended to result in minimal or no rewards if the stock
price does not appreciate, but may provide substantial rewards to executives
as stockholders benefit from stock price appreciation. An important objective
of the Compensation Committee is to ensure that the compensation practices of
the Company are competitive and effectively designed to attract, retain and
motivate highly-qualified personnel. In that regard, the Company's executive
compensation program is designed to reward and retain executives who are
capable of leading the Company in achieving its strategic and financial
objectives.
9
<PAGE>
Base Salary
Base salaries for executive positions are established relative to comparable
positions in similarly-sized consumer goods manufacturing and distribution
companies. The Committee has access to salary surveys and outside compensation
consultants to help determine the relevant competitive pay levels. In
determining salaries the Compensation Committee also takes into account
individual experience and performance, equity relative to other positions
within the Company, and specific issues particular to the Company. The Company
has determined that base salaries for the six top officers are between the
50th and 75th percentile levels of comparative companies.
Annual Incentives
The top six executive officers are eligible for annual incentives based on
the achievement of predetermined after-tax net income and individual
objectives. These objectives are established by the Board annually and
represent stretch levels of achievement. The performance measures and levels
are reviewed annually to ensure that the plan supports the objectives of the
strategic plan and is consistent with the competitive labor market.
Stock Option Grant
The Company strongly believes in tying employee rewards directly to the
long-term success of the Company and increases in shareholder value through
grants of executive stock options. Stock grants will also enable employees to
develop and maintain a significant stock ownership position in the Company's
common stock. The Company did not grant any stock options during fiscal 1996.
Other Benefits
Executive officers are eligible to participate in benefits programs designed
for all full-time employees of the Company. Other all-employee benefits
programs include medical, dental, long-term disability and life insurance
coverage.
CEO Compensation
As with the other executive officers of the Company, total compensation for
the President, Mr. Raymond (Jay) H. Losi II, is delivered through a
combination of base salary, annual incentive, stock options, and standard
benefits afforded to all employees. Mr. Losi's base pay and annual incentive
awards of $300,000 and $0 respectively, result in total cash at between the
50th and 75th percentile of similar sized consumer goods manufacturing and
distribution companies.
With respect to the above matters, the Compensation Committee submits this
report.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Gerald I. Boyce
Loren Hildebrand
Marvin G. Murphy
10
<PAGE>
PERFORMANCE GRAPH
The following is a graph which compares the Company's cumulative total
stockholder return on the Common Stock with the cumulative total return on the
NASDAQ Stock Market-U.S. Index and the NASDAQ Non-Financial Stock Index from
June 17, 1994, the date of the Company's initial public offering, through
July 31, 1996, the last day of fiscal 1996. The cumulative total shareholder
return is based on $100 invested in Common Stock of the Company and in the
respective indices on June 17, 1994 (including reinvestment of dividends).
COMPARISON OF 25 MONTH CUMULATIVE TOTAL RETURN*
AMONG VARIFLEX, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ NON-FINANCIAL INDEX
[GRAPH APPEARS HERE]
* $100 INVESTED ON 6/17/94 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JULY 31.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------------------------------------------------------------------
JUNE 17, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31,
1994 1994 1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- ----------- ----------- --------- -------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Company..... 100 110 132 98 103 92 54 50 53 39
NASDAQ STOCK
MRKT-US........ 100 99 107 104 117 139 144 147 166 151
NASDAQ NON--
FINANCIAL...... 100 99 109 105 119 143 146 148 170 151
</TABLE>
11
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent stockholders are also
required to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, during the fiscal year ended July 31, 1996,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent stockholders were complied with, except certain
inadvertent filing delinquencies relating to two stock transfers which have
since been corrected, as set forth below:
Mr. Raymond (Jay) H. Losi II did not timely make reports on Form 3 on behalf
of (i) Losi Enterprises, Limited Partnership, and its general partner, Losi
Properties, Inc., in respect of a transfer of common stock to Losi
Enterprises, Limited Partnership, from the Jay and Kathy Losi Revocable Trust
and (ii) EML Enterprises, Limited Partnership, and one of its general
partners, DKL Trust, in respect of a transfer of common stock to EML
Enterprises, Limited Partnership, by the Eileen Losi Revocable Trust. Diane K.
Losi-Coletti did not timely make reports on Form 3 on behalf of RHL Trust, in
its capacity as a general partner of EML Enterprises Limited Partnership, and
for herself, as Trustee of RHL Trust, in respect of the transfer of common
stock to EML Enterprises Limited Partnership by the Eileen Losi Revocable
Trust. Eileen Losi, in her capacity as trustee of the Eileen Losi Revocable
Trust, did not timely make a report on Form 4 in respect of its transfer of
common stock to EML Enterprises, Limited Partnership. As noted, as of the date
of this Proxy Statement, these 16(a) reporting delinquencies have been
corrected.
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP independent certified
public accountants, as independent auditors for the Company for the fiscal
year ending July 31, 1997. A resolution will be submitted to stockholders at
the meeting for ratification of such selection. Although ratification by
stockholders is not a prerequisite to the ability of the Board of Directors to
select Ernst & Young LLP as the Company's independent auditors, the Company
believes such ratification to be desirable. If the stockholders do not ratify
the selection of Ernst & Young LLP, the selection of independent auditors will
be reconsidered by the Board of Directors; however, the Board of Directors may
select Ernst & Young LLP notwithstanding the failure of the stockholders to
ratify its selection.
The Board of Directors recommends a vote "FOR" this resolution. Proxies
solicited by the Board of Directors will be so voted unless stockholders
specify a contrary vote. The resolution may be adopted by a majority of the
votes cast with respect thereto.
Ernst & Young LLP have been the Company's auditors since 1992.
It is expected that a representative of Ernst & Young LLP will be present at
the meeting, will have an opportunity to make a statement if he desires to do
so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE RATIFICATION OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS.
SHAREHOLDERS' PROPOSAL
Proposals of shareholders which are intended to be presented at the 1997
Annual Meeting must be received by the Company at its principal executive
offices no later than August 1, 1997 for inclusion in the Company's proxy
materials for that meeting.
12
<PAGE>
OTHER MATTERS
The Proxy and Proxy Statement have been approved by the Board of Directors
and sent to shareholders by its authority. The matters referred to in the
Notice of Meeting and in the Proxy Statement are, to management's knowledge,
the only matters which will be presented for consideration at the Meeting. If
any other matters properly come before the Meeting, the persons named in the
enclosed Proxy intend to vote said Proxy on any such matters in accordance
with their best judgment.
This Proxy Statement incorporates certain Financial Statements and other
information from the Company's Annual Report on Form 10-K delivered herewith
for the fiscal year ending July 31, 1996.
Solicitation of proxies will be made by mail, telephone and, to the extent
necessary, by telegrams and personal interviews. Expenses in connection with
the solicitation of proxies will be borne by the Company. Brokers, custodians
and fiduciaries will be requested to transmit proxy material to the beneficial
owners of Common Stock held of record by such persons, at the expense of the
Company.
By Order of the Board of Directors
/s/ Barbara Losi
Barbara Losi, Secretary
October 30, 1996
13
<PAGE>
PROXY PROXY
COMMON STOCK PROXY
VARIFLEX, INC.
5152 NORTH COMMERCE AVENUE, MOORPARK, CA 93021
REVOCABLE PROXY FOR ANNUAL MEETING ON DECEMBER 6, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Raymond H. Losi II and William B. Ogden, and
each of them jointly and severally, as attorneys and proxies of the
undersigned, with full power of substitution, and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
Variflex, Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Shareholders to be held at the Rancho Las Palmas Marriott, Rancho
Mirage, California, on December 6, 1996, and at all adjournments thereof with
all powers the undersigned would possess if personally present and voting
thereat.
The Board of Directors recommends a vote FOR:
1. ELECTION OF DIRECTORS:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all
nominees listed below
(Instruction: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name below:)
GERALD I. BOYCE LOREN HILDEBRAND RAYMOND (RAY) H. LOSI
RAYMOND (JAY) H. LOSI II BARBARA LOSI MARVIN G. MURPHY
2. The proposal to ratify the appointment of Ernst & Young LLP
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Stockholders planning to attend the Annual Meeting are requested to indicate
the number of persons attending in the block. [_]
Stockholders may attend the meeting whether or not the block is filled in.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS IN THIS PROXY. IF INSTRUCTIONS ARE NOT INCLUDED HEREIN, THIS PROXY
WILL BE VOTED FOR ITEMS 1 AND 2.
---
Date _______________________, 1996
Number of Shares
----------------------------------
(Signature)
----------------------------------
(Signature if held jointly)
(Please sign as name(s) appear(s)
on this proxy card. If joint
account, each joint owner should
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporation
name by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.)
PLEASE MARK, DATE, SIGN AND MAIL
THIS PROXY CARD PROMPTLY IN THE
ENVELOPE ENCLOSED--NO POSTAGE IS
REQUIRED
