UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Variflex, Inc.
(Name of Issuer)
Common Stock
(Title of Class and Securities)
922242-10-2
(CUSIP Number of Class of Securities)
Mark S. Siegel
1801 Century Park East, Suite 1111
Los Angeles, CA 90067
(310) 843-0050
Copy to:
Kendall R. Bishop
O'Melveny & Myers LLP
1999 Avenue of the Stars, 7th Floor
Los Angeles, CA 90067
(310) 553-6700
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
November 18, 1997
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D and is filing this schedule because of Rule 13D-
1(b)(3) or (4), check the following box: [ ]
(Continued on following pages)
Page 1 of 12 Pages
<PAGE>
(1) NAME OF REPORTING PERSON
Remy Capital Partners IV, L.P.
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(a) [X]
(b) [ ]
(3) SEC USE ONLY
(4) SOURCE OF FUNDS
WC
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e)
[ ]
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
________________________________________________________________
: (7) SOLE VOTING POWER
: -0- shares of Common Stock
:
: (8) SHARED VOTING POWER
Number Of Shares : 4,175,396 shares of Common Stock
Beneficially Owned :
By Each Reporting : (9) SOLE DISPOSITIVE POWER
Person With : 2,066,667 shares of Common Stock
:
: (10) SHARED DISPOSITIVE POWER
: -0- shares of Common Stock
_________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,175,396 shares of Common Stock
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
61.9%
(14) TYPE OF REPORTING PERSON
PN
<PAGE>
(1) NAME OF REPORTING PERSON
Remy Investors, LLC
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(a) [X]
(b) [ ]
(3) SEC USE ONLY
(4) SOURCE OF FUNDS
AF
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e)
[ ]
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
________________________________________________________________
: (7) SOLE VOTING POWER
: -0- shares of Common Stock
:
: (8) SHARED VOTING POWER
Number Of Shares : 4,175,396 shares of Common Stock
Beneficially Owned :
By Each Reporting : (9) SOLE DISPOSITIVE POWER
Person With : 2,066,667 shares of Common Stock
:
: (10) SHARED DISPOSITIVE POWER
: -0- shares of Common Stock
_________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,175,396 shares of Common Stock
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
61.9%
(14) TYPE OF REPORTING PERSON
OO
<PAGE>
(1) NAME OF REPORTING PERSON
Mark S. Siegel
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(a) [X]
(b) [ ]
(3) SEC USE ONLY
(4) SOURCE OF FUNDS
AF
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e)
[ ]
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
_________________________________________________________________
: (7) SOLE VOTING POWER
: -0- shares of Common Stock
:
: (8) SHARED VOTING POWER
Number Of Shares : 4,175,396 shares of Common Stock
Beneficially Owned :
By Each Reporting : (9) SOLE DISPOSITIVE POWER
Person With : 2,066,667 shares of Common Stock
:
: (10) SHARED DISPOSITIVE POWER
: -0- shares of Common Stock
_________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,175,396 shares of Common Stock
(12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
61.9%
(14) TYPE OF REPORTING PERSON
IN
<PAGE>
Item 1. Security and Issuer
The equity securities to which this statement relates
are Common Stock, par value $.001 per share (the "Common Stock")
of Variflex, Inc. ("Variflex"), a Delaware corporation with its
principal executive offices at 5152 North Commerce Avenue,
Moorpark, California 93021. As of November 20, 1997, Variflex
had 6,025,397 shares of Common Stock outstanding.
Item 2. Identity and Background
(a) This statement is filed by (i) Remy Capital
Partners IV, L.P., a Delaware limited partnership ("Remy"), (ii)
Remy Investors, LLC, a Delaware limited liability company
("Investors"), and (iii) Mark S. Siegel, an individual
("Siegel"), (collectively, the "Reporting Persons"). In
addition, the information set forth in Items (b) through (f)
below is included with respect to (1) Randall L. Bishop
("Bishop"), an individual, a member of Investors and a Director
of Variflex; and (2) Kenneth N. Berns ("Berns"), an individual
and a member of Investors.
Remy is a private investment and consulting
partnership formed for the purpose of (i) the purchase and sale
of securities for its own account; and (ii) the provision of
consulting services. Investors is the sole general partner of
Remy. Siegel is the president and sole managing member of
Investors. Siegel is in a position to determine the investment
and voting decisions made by Investors and, consequently, by
Remy. Therefore, Siegel is the beneficial owner of the shares of
Common Stock of Variflex acquired by Remy, and the Reporting
Persons may be deemed to be a "group" within the meaning of Rule
13d-5 under the Securities and Exchange Act of 1934 (the
"Exchange Act") with respect to such shares. In addition,
pursuant to the Voting Agreement (as defined below), the
Reporting Persons and the Losi Entities (as defined below) may
also be deemed to be a "group" within the meaning of Rule 13d-5
under the Exchange Act with respect to the shares acquired by
Remy.
(b) The business address of each of Remy, Investors,
Siegel, Bishop and Berns is:
1801 Century Park East, Suite 1111
Los Angeles, California 90067
(c) The present principal occupation or employment of
each of the Reporting Persons, Bishop and Berns is as follows:
Remy: private investment and
consulting partnership
Investors: general partner of Remy
Siegel: President of Investors and its
affiliates
Bishop: Member of Investors and employee of
its affiliates
Berns: Member of Investors and
employee of its affiliates
(d) During the last five years, none of the Reporting
Persons or, to the knowledge of the Reporting Persons, neither
Bishop nor Berns, has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
(e) During the last five years, none of the Reporting
Persons, or, to the knowledge of the Reporting Persons, neither
Bishop nor Berns, has been a party in a civil proceeding of a
judicial or administrative body of competent jurisdiction
resulting in its or his being subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
(f) Each of Siegel, Bishop and Berns is a citizen of
the United States of America.
Item 3. Source and Amount of Funds or Other Consideration
Pursuant to that certain Stock Purchase Agreement dated
as of November 18, 1997 (the "Stock Purchase Agreement") by and
among Remy, The RHL Limited Partnership, a California limited
partnership ("RHL"), EML Enterprises, L.P., a California limited
partnership ("EML"), and The BL 1995 Limited Partnership, a
California limited partnership ("BL"; RHL, EML and BL are
sometimes collectively referred to herein as the "Sellers"), Remy
acquired 1,666,667 shares of Common Stock of Variflex for
$9,166,668.50 in cash. Such shares were purchased with working
investment capital.
As compensation for the services to be provided to
Variflex under that certain Consulting Agreement dated as of
November 18, 1997 by and between Remy and Variflex (the "Remy
Consulting Agreement"), Variflex granted to Remy a warrant (the
"Remy Warrant") to acquire 400,000 shares of the Common Stock of
Variflex. Such warrant may be exercised at any time on or prior
to November 18, 2004, and on such additional terms as are
contained in the Remy Warrant.
In consideration of the mutual covenants and agreements
contained in that certain Voting Agreement dated as of November
18, 1997 by and among Remy, Raymond H. Losi ("Ray Losi"), Raymond
H. Losi, II ("Jay Losi"), Ray Losi, as Trustee of the 1989
Raymond H. Losi Revocable Trust under Declaration of Trust dated
January 23, 1989 (the "Ray Trust"), Losi Enterprises Limited
Partnership, a California limited partnership ("Enterprises"),
Jay Losi and Kathy Losi, as Co-Trustees of the Jay and Kathy Losi
Revocable Trust dated January 1, 1989 (the "Jay and Kathy
Trust"), EML, Eileen Losi, as Trustee of the Eileen Losi
Revocable Trust under Declaration of Trust dated October 13, 1993
(the "Eileen Trust"), Barbara Losi, as Trustee of the 1989
Barbara Losi Revocable Trust under Declaration of Trust dated
January 31, 1989 (the "Barbara Trust"), BL, and Ray Losi, as
Trustee of the Diane K. Losi Voting Trust (the "Diane Trust")
(the "Voting Agreement"), Remy acquired shared voting power with
respect to 2,108,729 shares (including 200,000 shares issuable
pursuant to the Ray Losi Warrant (as defined below), 100,000
shares issuable pursuant to the Jay Losi Warrant (as defined
below) and 18,000 shares issuable pursuant to certain options
granted to Jay Losi (as described in Variflex's Form 10-K/A,
Amendment No. 1 for the fiscal year ended July 31, 1997) (the
"Jay Losi Options"), which warrants and options are presently
exercisable or exercisable within 60 days, as the case may be) of
the Common Stock of Variflex with the Losi Entities. For
purposes hereof, Ray Losi, Jay Losi, Enterprises, Kathy Losi,
Eileen Losi, Barbara Losi, EML and BL are sometimes collectively
referred to herein as the "Losi Entities" and individually as a
"Losi Entity".
Item 4. Purpose of Transaction
The shares of Common Stock reported herein as
beneficially owned by the Reporting Persons were acquired
primarily for investment purposes, however the Reporting Persons
expect to be actively involved influencing the management and
strategic direction of Variflex.
In connection with the transaction described in the
Stock Purchase Agreement, the following changes in Variflex's
Board of Directors and executive officers have occurred: (i)
Barbara Losi, Gerald I. Boyce and Marvin G. Murphy resigned from
their positions as directors of Variflex; (ii) Siegel and Randall
L. Bishop, a Remy nominee, have been elected to the Board of
Directors of Variflex; (iii) Ray Losi resigned as Chairman of the
Board of Directors of Variflex and Siegel has been elected to
fill such position; and (iv) Ray Losi resigned from his position
as Chief Executive Officer of the Company and Jay Losi has been
elected to fill such position. Further, pursuant to the terms of
the Voting Agreement, Remy and each of the Losi Entities have
agreed to vote all of the shares of Variflex stock owned by them
or which they have a right to vote and to take all such other
action as may be necessary so that each of the following occurs
and remains in effect throughout the term of the Voting
Agreement: (1) Variflex's Board of Directors shall have no more
than 6 members; and (2) 2 of such directors shall be individuals
selected by Remy, 2 of such directors shall be individuals
selected by a majority vote of the Losi Entities and 2 of such
directors shall be "independent" directors.
Depending upon the Reporting Persons' continuing
evaluation of Variflex's business and prospects, alternative
investment opportunities and any other factors Reporting Persons
deem relevant, the Reporting Persons may, from time to time,
purchase additional shares of Common Stock of Variflex on the
open market or in privately negotiated transactions or otherwise.
The Reporting Persons have no present intention of selling any
shares of Common Stock of Variflex, but reserve the right to do
so, in whole or in part, at any time, in open market
transactions, privately negotiated transactions or otherwise.
Subject to the foregoing, the Reporting Persons have no other
plans or proposals which relate to, or could result in, any of
the matters referred to in paragraphs (a) through (j), inclusive,
of Item 4 of Schedule 13D. However, as a part of their ongoing
review of investment alternatives, the Reporting Persons have not
excluded the possibility of considering such matters in the
future, and, from time to time, the Reporting Persons may seek to
hold discussions with other stockholders of Variflex and other
third parties, including competitors or potential competitors of
Variflex, regarding possible transactions of the types described
in paragraphs (a) through (j) of Item 4 of Schedule 13D. The
Reporting Persons may also seek to have discussions with
management of Variflex and may make suggestions and/or
recommendations to management of Variflex with respect to the
business of Variflex. The Reporting Persons may, at any time and
from time to time, review or reconsider their position with
respect to Variflex, and formulate plans or proposals with
respect to any of such matters.
Item 5. Interest in Securities of the Issuer
To the extent that the responses in this Item 5 relate
to persons other than the Reporting Persons, said responses are
qualified in that they are made to the best knowledge of the
Reporting Persons.
(a) As of the date hereof, Remy and each of the Losi
Entities is the direct, beneficial owner of 4,175,396 shares of
Common Stock of Variflex (the "Shares"). Of such Shares, (i)
400,000 (the "Remy Warrant Shares") (ii) 200,000 (the "Ray Losi
Warrant Shares") and (iii) 100,000 (the "Jay Losi Warrant
Shares") are deemed to be beneficially owned by Remy and each of
the Losi Entities pursuant to the Remy Warrant, that certain
warrant dated as of November 18, 1997 by and between Ray Losi and
Variflex (the "Ray Losi Warrant") and that certain warrant dated
as of November 18, 1997 by and between Jay Losi and Variflex (the
"Jay Losi Warrant"), respectively, which warrants, subject to
certain terms and conditions contained therein, are presently
exercisable. Additionally, 18,000 of such Shares are deemed to
be beneficially owned by Remy and each of the Losi Entities
pursuant to the Jay Losi Options, which options are exercisable
within 60 days. The Shares represent approximately 61.9% of the
outstanding shares of Common Stock of Variflex (based upon the
number of shares that were reported to be outstanding by Variflex
as of November 20, 1997, as reported in Variflex's Form 10-K/A
Amendment No. 1 for the fiscal year ended July 31, 1997).
Investors does not directly own any shares of the Common Stock of
Variflex; however, by virtue of its position as the sole general
partner of Remy, Investors may be deemed to own beneficially the
Shares held by Remy. Similarly, Siegel does not directly own any
shares of the Common Stock of Variflex; however, by virtue of his
control over the investment and voting decisions of Investors,
and therefore, Remy, Siegel may be deemed to own beneficially the
Shares held by Remy. Therefore, Siegel is the indirect
beneficial owner of 4,175,396 shares of Common Stock of Variflex,
which constitutes approximately 61.9% of the outstanding shares
of the Common Stock of Variflex.
(b) Remy, Investors and Siegel have the sole power to
dispose or to direct the disposition of 2,066,667 shares
(including 400,000 shares issuable pursuant to the Remy Warrant)
of the Common Stock of Variflex held by Remy. Enterprises has
the sole power to dispose or to direct the disposition of 807,507
shares of the Common Stock of Variflex held by it. EML has the
sole power to dispose or to direct the disposition of 263,908
shares of the Common Stock of Variflex held by it. BL has the
sole power to dispose or to direct the disposition of 100,000
shares of the Common Stock of Variflex held by it. Ray Losi,
individually, and as Trustee of the Ray Trust and the Diane
Trust, has the sole power to dispose or to direct the disposition
of 472,876 shares (including 200,000 shares issuable pursuant to
the Ray Losi Warrant) of the Common Stock of Variflex held by Ray
Losi and such trusts. Jay Losi has the sole power to dispose of
or to direct the disposition of 118,000 shares issuable pursuant
to the Jay Losi Warrant and the Jay Losi Options, while Jay Losi
and Kathy Losi, as Co-Trustees of the Jay and Kathy Trust, share
the power to dispose or to direct the disposition of 120,000
shares of the Common Stock of Variflex held by such trust.
Eileen Losi, as Trustee of the Eileen Trust, has the sole power
to dispose or to direct the disposition of 120,000 shares of the
Common Stock of Variflex held by such trust. Barbara Losi, as
Trustee of the Barbara Trust, has the sole power to dispose or to
direct the disposition of 106,438 shares of the Common Stock of
Variflex held by such trust.
Remy, Investors, Siegel and the Losi Entities may
be deemed to share the power to vote or to direct the vote of
4,175,396 shares of the Common Stock of Variflex held by Remy and
certain of the Losi Entities.
The following information is given in response to Item
5(b) of Schedule 13D with respect to each of the following
persons with whom the power to vote or to direct the vote of the
shares of Common Stock of Variflex acquired by Remy is shared
pursuant to the Voting Agreement: (i) Ray Losi, an individual
and a Director of Variflex and the Trustee of certain trusts
party to the Voting Agreement; (ii) Jay Losi, an individual and a
Director, Chief Executive Officer, President, and Chief Operating
Officer of Variflex and the Co-Trustee of a trust party to the
Voting Agreement; (iii) Enterprises, a California limited
partnership; (iv) Kathy Losi, an individual and Co-Trustee of a
trust party to the Voting Agreement; (v) Eileen Losi, an
individual and Trustee of a trust party to the Voting Agreement;
(vi) Barbara Losi, a former Director of Variflex and a Trustee of
a trust party to the Voting Agreement; (vii) EML, a California
limited partnership; and BL, a California limited partnership.
The business address of each of the Losi Entities
is:
5152 North Commerce Avenue
Moorpark, California 93021
The present principal occupation or employment of
each of the Losi Entities is as follows:
Ray Losi: Director of Variflex and Consultant
to Variflex
Jay Losi: Director, Chief Executive Officer,
President and Chief Operating
Officer of Variflex
Barbara Losi: private investor
Eileen Losi: private investor
Kathy Losi: private investor, controller
of insurance brokerage firm
Enterprises: family limited partnership
EML: family limited partnership
BL: family limited partnership
During the last five years, none of the Losi
Entities has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
During the last five years, none of the Losi
Entities has been a party in a civil proceeding of a judicial or
administrative body of competent jurisdiction resulting in its or
his being subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any
violation with respect to such laws.
Ray Losi, Jay Losi, Barbara Losi, Eileen Losi and
Kathy Losi are all citizens of the United States of America.
(c) Pursuant to the Stock Purchase Agreement, on
November 18, 1997, Remy purchased 1,666,667 shares of the Common
Stock of Variflex from the Sellers at a purchase price of $5.50
per share by means of a privately negotiated transaction.
Pursuant to the Remy Warrant, on November 18, 1997, Remy acquired
a warrant to purchase 400,000 shares of the Common Stock of
Variflex from Variflex at an exercise price of $5.10 per share.
Said warrant may be exercised at any time on or prior to November
18, 2004. Pursuant to the Ray Losi Warrant, on November 18,
1997, Ray Losi acquired a warrant to purchase 200,000 shares of
the Common Stock of Variflex from Variflex at an exercise price
of $5.10 per share. Said warrant may be exercised at any time on
or prior to November 18, 2004. Pursuant to the Jay Losi Warrant,
on November 18, 1997, Jay Losi acquired a warrant to purchase
100,000 shares of the Common Stock of Variflex from Variflex at
an exercise price of $5.10 per share. Said warrant may be
exercised at any time on or prior to November 18, 2004.
(d) To the best of the Reporting Persons' knowledge,
no other person has the right to receive or the power to direct
the receipt of dividends from, or the proceeds from the sale of,
any shares of Variflex which the Reporting Persons may be deemed
to own beneficially.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings of
Relationships with Respect to Securities of Issuer
The responses set forth in Items 3 and 4 are
incorporated herein by reference in their entirety.
1. Voting Agreement: Pursuant to the Voting
Agreement, Remy and each of the Losi Entities agreed to vote all
of the shares of Variflex stock owned by them or which they have
a right to vote and to take all such other action as may be
necessary so that each of the following occurs and remains in
effect throughout the term of the agreement: (i) Variflex's
Board of Directors shall have no more than 6 members; and (ii) 2
of such directors shall be individuals selected by Remy, 2 of
such directors shall be individuals selected by a majority vote
of the Losi Entities and 2 of such directors shall be
"independent" directors. Each of Remy and the Losi Entities also
granted to each other certain rights of first offer in the event
that Remy or any of the Losi Entities desire to sell or transfer
any of the shares of stock of Variflex owned by them to anyone
other than a "Permitted Transferee". The Voting Agreement shall
terminate on the earlier to occur of December 31, 2007 or the
date in which Remy transfers all of the shares of stock of
Variflex owned by it to its partners.
The description of the Voting Agreement is qualified in
its entirety by reference to the full text thereof, filed as
Exhibit 4 attached hereto and incorporated herein by reference.
Except as described herein, none of the Reporting
Persons has any contracts, arrangements, understandings or
relationships (legal or otherwise) with any person with respect
to any securities of Variflex, including, without limitation, any
contracts, arrangements, understandings or relationships
concerning the transfer or voting of such securities, finder's
fees, joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits or losses, or the
giving or withholding of proxies.
Item 7. Material to be filed as Exhibits
1. Joint Acquisition Statement.
2. Stock Purchase Agreement dated as of November 18,
1997 by and among Remy, RHL, EML and BL.
3. Warrant dated as of November 18, 1997 by and
between Remy and Variflex.
4. Voting Agreement dated as of November 18, 1997 by
and among Remy, Ray Losi, Jay Losi, Ray Losi, as Trustee of the
Ray Trust, Enterprises, Jay Losi and Kathy Losi, as Co-Trustees
of the Jay and Kathy Losi Trust, EML, Eileen Losi, as Trustee of
the Eileen Losi Trust, Barbara Losi, as Trustee of the Barbara
Losi Trust, BL, and Ray Losi, as Trustee of the Diane Trust.
5. Warrant dated as of November 18, 1997 by and
between Ray Losi and Variflex.
6. Warrant dated as of November 18, 1997 by and
between Jay Losi and Variflex.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of each of the
undersigned's knowledge and belief, each of the undersigned
certifies that the information set forth in this statement is
true, complete and correct.
Dated: November 26, 1997
REMY CAPITAL PARTNERS IV, L.P.
By: Remy Investors, LLC
General Partner
By:/s/ Mark S. Siegel
Mark S. Siegel
President
REMY INVESTORS, LLC
By:/s/ Mark S. Siegel
Mark S. Siegel
President
/s/ Mark S. Siegel
MARK S. SIEGEL
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
1. Joint Acquisition Statement
2. Stock Purchase Agreement
3. Warrant
4. Voting Agreement
5. Warrant
6. Warrant
<PAGE>
EXHIBIT 1
JOINT ACQUISITION STATEMENT
PURSUANT TO RULE 13d-1(f)(1)
The undersigned acknowledge and agree that the
foregoing statement on Schedule 13D is filed on behalf of each of
the undersigned and that all subsequent amendments to this
statement on Schedule 13D shall be filed on behalf of each of the
undersigned without the necessity of filing additional joint
acquisition statements. The undersigned acknowledge that each
shall be responsible for the timely filing of such amendments,
and for the completeness and accuracy of the information
concerning him or it contained herein, but shall not be
responsible for the completeness and accuracy of the information
concerning the other, except to the extent that he or it knows or
has reason to believe that such information is inaccurate.
Dated: November 26, 1997
REMY CAPITAL PARTNERS IV, L.P.
By: Remy Investors, LLC
General Partner
By: /s/ Mark S. Siegel
Mark S. Siegel
President
REMY INVESTORS, LLC
By: /s/ Mark S. Siegel
Mark S. Siegel
President
/s/ Mark S. Siegel
MARK S. SIEGEL
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered
into as of November 18, 1997, among Remy Capital Partners IV,
L.P., a Delaware limited partnership ("Buyer"), The RHL Limited
Partnership, a California limited partnership ("RHL"), EML
Enterprises, L.P., a California limited partnership ("EML") and
The BL 1995 Limited Partnership, a California limited partnership
("BL"). RHL, EML and BL are collectively referred to herein as
the "Sellers" and each individually as a "Seller".
WHEREAS, each Seller owns and desires to sell the
number of shares of Common Stock, par value $0.001 per share of
Variflex, Inc., a Delaware corporation (the "Company") as set
forth on Exhibit A attached hereto, and collectively, the Sellers
desire to sell One Million Six Hundred Sixty-Six Thousand Six
Hundred Sixty-Seven (1,666,667) of the outstanding shares of
Common Stock of the Company (the "Stock"), representing
approximately twenty-seven percent (27%) of the Company's
outstanding shares of Common Stock.
WHEREAS, Buyer desires to acquire all of the Stock.
NOW, THEREFORE, in consideration of the mutual
promises contained herein and intending to be legally bound, the
parties agree as follows:
Section I. Purchase and Sale of Stock; Warrants; Registration
Rights Agreement.
A. Subject to the terms and conditions of this
Agreement, on the date hereof and concurrently with the execution
of this Agreement, Buyer shall purchase the Stock from the
Sellers and the Sellers shall sell the Stock to Buyer (the
"Closing"). At the Closing, which will occur at the offices of
O'Melveny & Myers, 1999 Avenue of the Stars, Suite 700, Los
Angeles, California 90067, the Sellers shall deliver the
certificates evidencing the Stock to Buyer, properly endorsed for
transfer to, or accompanied by a duly executed stock power in
favor of, Buyer or its nominee and otherwise in a form acceptable
for transfer on the books of the Company.
B. The total purchase price for the Stock (the "Purchase
Price") to be paid by Buyer at the Closing shall be Nine Million
One Hundred Sixty-Six Thousand Six Hundred Sixty-Eight and 50/100
Dollars ($9,166,668.50) in cash (Five and 50/100 Dollars ($5.50)
per share). The Purchase Price shall be paid by wire transfer or
other immediately available funds to such account as the Sellers
have designated prior to the date hereof.
C. In connection with the purchase and sale of the Stock
hereunder, Buyer is entering into a consulting agreement with the
Company (the "Remy Consulting Agreement") and acquiring a warrant
from the Company that will enable Buyer to purchase Four Hundred
Thousand (400,000) shares of Common Stock of the Company at a
price of Five and 10/100 Dollars ($5.10) per share and on such
additional terms as are contained in that certain warrant
agreement (the "Remy Warrant") of even date herewith.
D. In connection with the purchase and sale of the Stock
hereunder, (a) Raymond H. Losi ("Losi") is terminating his
employment agreement with the Company and entering into a
consulting agreement with the Company (the "Losi Consulting
Agreement"); (b) Raymond H. Losi, II ("Jay Losi") is amending his
employment agreement with the Company to restrict his ability to
terminate his employment with the Company on six (6) months'
notice (the "Jay Losi Employment Agreement Amendment"); and (c)
the Company is issuing each of Losi and Jay Losi a warrant to
purchase Two Hundred Thousand (200,000) shares and One Hundred
Thousand (100,000) shares, respectively, of Common Stock of the
Company at a price of Five and 10/100 Dollars ($5.10) per share
and on such additional terms as are contained in those certain
warrant agreements (the "Losi Warrants") of even date herewith.
E. In connection with the purchase and sale of the Stock
hereunder, the execution of the Remy Consulting Agreement and the
execution of the Jay Losi Employment Agreement Amendment, the
Company has agreed to grant to each of Buyer and Jay Losi certain
registration rights with respect to shares of the Company's
Common Stock as set forth in that certain registration rights
agreement (the "Registration Rights Agreement") of even date
herewith.
Section II. Representations and Warranties of the Sellers.
Sellers jointly and severally represent and warrant to Buyer as
follows:
A. Each Seller is a limited partnership duly organized,
validly existing and in good standing under the laws of the State
of California with all necessary partnership power and authority
to execute, deliver and perform this Agreement. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with all necessary
corporate power and authority to own its properties and assets
and to carry on its businesses as now conducted.
B. (a) The execution, delivery and performance of this
Agreement have been duly and validly authorized by all necessary
partnership actions on the part of each Seller.
(b) Each Seller has duly executed and delivered
this Agreement. This Agreement constitutes the legally valid and
binding obligation of each Seller, enforceable against such
Seller in accordance with its terms except as such enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles
relating to or limit- ing creditors' rights generally.
(c) The execution, delivery and performance of this
Agreement by each Seller will not violate or constitute a breach
or default (whether upon lapse of time or the occurrence of any
act or event or otherwise) under (i) the partnership agreement of
such Seller; or (ii) any material law to which such Seller is
subject.
(d) Except as set forth in clauses (ii), (iii),
(iv) and (v) of Section 4.2 hereof and assuming the accuracy of
the matters set forth in Section 3.3 hereof, the execution,
delivery and performance of this Agreement by each Seller will
not require filing or registration with, or the issuance of any
permit by, or receipt of any approval or other consent from, any
other person or entity.
(e) The execution, delivery and performance of this
Agreement will not cause the acceleration of any payment or
trigger any other right under any agreement, arrangement,
commitment or understanding to which the Company is a party or by
which the Company is bound.
C. Since June 17, 1994, the Company has filed with the
Securities and Exchange Commission all Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, proxy materials and registration statements required to be
filed by it pursuant to the federal securities laws and has made
all other filings required to be made by it with the Securities
and Exchange Commission (collectively, the "SEC Filings"). The
SEC Filings did not (as of the respective filing dates, mailing
dates or effective dates, as the case may be) contain any untrue
statements of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under
which they were made, not misleading.
D. Exhibit A is a true and complete statement of the
number of shares of Common Stock of the Company owned by each
Seller. The Sellers own all of the shares of Stock beneficially
and of record. The Stock is free and clear of any claim, charge,
encumbrance, security interest, lien, option, pledge, right of
others, or restriction (whether on voting, sale, transfer,
disposition or other- wise), whether imposed by agreement,
understanding, law, equity or otherwise, except for any
restrictions on transfer by affiliates arising under the federal
securities laws. The Stock is duly authorized, validly issued
and outstanding and fully paid and nonassessable. Except as set
forth in the SEC Filings, there are no outstanding contracts or
other rights to subscribe for or purchase, or contracts or other
obligations to issue or grant any rights to acquire, any capital
stock of the Company, or to restructure or recapitalize the
Company, and there are no outstanding contracts of any Seller or
the Company to repurchase, redeem, or otherwise acquire any
capital stock of the Company.
E. Exhibit B is a true and complete list of all
agreements, arrangements, commitments or understandings between
the Company and its management employees, true, correct and
complete copies of which have been delivered to Buyer by the
Sellers prior to the date hereof.
F. The Board of Directors of the Company has approved
the sale of the Stock to Buyer in accordance with Section
203(a)(1) of the Delaware General Corporation Law.
G. Since July 31, 1997, there has not been (a) any
change in the assets, liabilities, condition, financial or
otherwise, earnings or operations of the Company (other than
changes in the ordinary course of business and the changes listed
on Exhibit C attached hereto) which individually or in the
aggregate has had or is expected to have a material adverse
effect on such assets, liabilities, condition, financial or
otherwise, earnings or operations of the Company; (b) any change,
except in the ordinary course of business or as disclosed on
Exhibit C attached hereto, in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty, or
otherwise, none of which individually or in the aggregate has had
or is expected to have a material adverse effect on the assets,
liabilities, condition, financial or otherwise, earnings or
operations of the Company; (c) any declaration or payment of any
dividend or other distribution by the Company; or (d) any direct
or indirect loans made by the Company to any shareholder,
employee, officer, or director of the Company, other than
advances made in the ordinary course of business.
H. No agent, broker, investment or commercial banker,
person or firm acting on behalf of the Sellers or the Company or
under the authority of any of them is or will be entitled to any
broker's or finder's fee or any other commission or similar fee
directly or indirectly in connection with any of the transactions
contemplated by this Agreement.
Section III. Representations and Warranties of Buyer. Buyer
represents and warrants to the Sellers as follows:
A. Buyer is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of
Delaware and has all necessary partnership power and authority to
execute, deliver and perform this Agreement.
B. (a) The execution, delivery and performance of this
Agreement by Buyer have been duly and validly authorized by all
necessary partnership actions on the part of Buyer.
(b) Buyer has duly executed and delivered this
Agreement. This Agreement constitutes the legally valid and
binding obligation of Buyer, enforceable against Buyer in
accordance with its terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and
other similar laws and equitable principles relating to or
limiting creditors' rights generally.
(c) The execution, delivery and performance of this
Agreement by Buyer will not violate or constitute a breach or
default (whether upon lapse of time or the occurrence of any act
or event or otherwise) under (i) the partnership agreement of
Buyer, or (ii) any material law to which Buyer is subject.
(d) The execution, delivery and performance of this
Agreement by Buyer will not require filing or registration with,
or the issuance of any permit by, or receipt of any approval or
other consent from, any other person or entity.
C. The Stock is being purchased by Buyer as principal
solely for its own account, for investment purposes only and not
with a view to the distribution thereof in violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any
applicable state securities law, and Buyer has such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment represented by
its purchase of the Stock. Buyer acknowledges that the Stock has
not been registered under the Securities Act or any other
securities law and may not be sold, and Buyer hereby covenants
that the Stock will not be sold, in whole or in part, in the
United States of America except pursuant to a registration
statement effective under the Securities Act or pursuant to an
exemption from registration under the Securities Act, and in
compliance with all other applicable securities laws.
D. No agent, broker, investment or commercial banker,
person or firm acting on behalf of Buyer or under its authority
is or will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly in
connection with any of the transactions contemplated by this
Agreement.
Section IV. Conditions of Purchase.
A. The obligation of the Sellers to effect the Closing
shall be subject to the following conditions: (i) the
representations and warranties of Buyer made herein are true in
all material respects as of the Closing; (ii) Jay Losi shall have
been appointed as Chief Executive Officer of the Company; (iii)
receipt by Losi and Jay Losi of the Losi Warrants executed by the
Company as described in Section 1.4; (iv) receipt by Losi of the
Losi Consulting Agreement executed by the Company as described in
Section 1.4; and (v) receipt by Jay Losi of the Registration
Rights Agreement executed by the Company as described in Section
1.5.
B. The obligations of Buyer to effect the Closing shall
be subject to the following conditions: (i) the representations
and warranties of each Seller made herein are true in all
material respects as of the Closing; (ii) two of the directors
nominated by Buyer shall have been elected to the Company's Board
of Directors; (iii) Losi shall have resigned as Chairman of the
Company's Board of Directors and Buyer shall have received
satisfactory evidence of the termination of Losi's employment
agreement with the Company; (iv) receipt by the Company of the
executed Losi Consulting Agreement as described in Section 1.4;
(v) receipt by the Company of the executed Jay Losi Employment
Agreement Amendment as described in Section 1.4; (vi) Mark Siegel
shall have been elected to the position of Chairman of the
Company's Board of Directors; (vii) receipt of a certified copy
of the resolutions adopted by the Company's Board of Directors
approving the sale of the Stock to Buyer in accordance with
Section 203(a)(1) of the Delaware General Corporation Law; (viii)
receipt by Buyer of the Remy Consulting Agreement and the Remy
Warrant executed by the Company as described in Section 1.3; and
(ix) receipt by Buyer of the Registration Rights Agreement
executed by the Company as described in Section 1.5.
Section V. Survival of Representation and Warranties;
Indemnification.
A. The representations, warranties and indemnities
contained in or made pursuant to this Agreement shall expire one
year after the Closing, except that the representations and
warranties set forth in Sections 2.2, 2.3, 2.4, 2.7 and 3.2 shall
continue indefinitely or until the earlier expiration of the
applicable statute of limitations. Any matter as to which a
claim for indemnification has been asserted by notice to the
other party that is pending or unresolved at the end of any
limitation period shall continue to be covered by this Section 5
until such matter is finally terminated or otherwise resolved by
the parties and settled under this Agreement and any amounts
payable hereunder are finally determined and paid.
B. The Sellers agree to indemnify and hold harmless
Buyer from and against any and all costs, damages, expenses,
liabilities or obligations of any kind or nature, including but
not limited to interest, penalties, reasonable legal and other
professional fees and expenses incurred in the investigation,
collection, prosecution, and defense of claims, and amounts paid
in settlement (collectively, "Losses"), of Buyer, directly or
indirectly, as a result of, or based upon or arising from any
inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by any
Seller in or pursuant to this Agreement.
C. Buyer agrees to indemnify and hold harmless the
Sellers from and against any and all Losses of the Sellers,
directly or indirectly, as a result of, or based upon or arising
from any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by
Buyer in or pursuant to this Agreement.
Section VI. General.
A. Amendments, waivers, demands, consents and approvals
under this Agreement must be in writing and designated as such.
No failure or delay in exercising any right will be deemed a
waiver of such right.
B. This Agreement is the entire agreement between the
parties pertaining to its subject matter, and supersedes all
prior agreements and understandings of the parties in connection
with such subject matter.
C. This Agreement is to be construed as a whole and in
accordance with its fair meaning. This Agreement shall be
governed by, and construed and enforced in accordance with, the
laws of the State of California, without regard to conflicts of
laws principles.
D. Headings of Sections and subsections are for
convenience only and are not a part of this Agreement.
E. This Agreement may be executed in one or more
counterparts, all of which constitute one agreement.
F. This Agreement is binding upon and inures to the
benefit of each party and such party's respective heirs, personal
representatives, successors and assigns. Nothing in this
Agreement, express or implied, is intended to confer any rights
or remedies upon any other person.
G. Each party will pay its own expenses in the
negotiation, preparation and performance of this Agreement.
H. Each party acknowledges that it has been represented
by counsel in connection with this Agreement. Any rule of law,
including, but not limited to, Section 1654 of the California
Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement
against the party that drafted it, has no application and is
expressly waived.
I. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any
other of its provisions. If one or more provisions hereof shall
be so declared invalid or unenforceable, the remaining provisions
shall remain in full force and effect and shall be construed in
the broadest possible manner to effectuate the purposes hereof.
The parties further agree to replace such void or unenforceable
provisions of this Agreement with valid and enforceable
provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or
unenforceable provisions.
J. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been
given for all purposes (i) upon personal delivery, (ii) one (1)
business day after being sent, when sent by professional
overnight courier service for next business day delivery from and
to locations within the continental United States, (iii) five (5)
days after posting when sent by registered or certified mail, or
(iv) on the date of receipt by the sending party of confirmation
of the successful transmission of the facsimile, as printed by
the facsimile machine, when sent by facsimile. Any party hereto
may from time to time by notice in writing served upon the others
as provided herein, designate a different mailing address or a
different party to which such notices or demands are thereafter
to be addressed or delivered.
K. (a) Any and all disputes of any nature (whether
sounding in contract or in tort) arising out of or relating to
this Agreement shall be initiated, maintained and determined
exclusively by binding arbitration in the County of Los Angeles,
State of California, pursuant to Section 6.11(c). The parties
agree irrevocably to submit themselves, in any suit to confirm
the judgment or finding of such arbitrator, to the jurisdiction
of the United States District Court for the Central District of
California and the jurisdiction of any court of the State of
California located in Los Angeles County and waive any and all
objections to jurisdiction that they may have under the laws of
the State of California or the United States.
(b) In case of a dispute, any party may commence
the arbitration by giving written notice to the other pursuant to
Section 6.10. The Arbitrator will be a retired judge of the
United States District Court for the Central District of
California or of the Superior Court of the State of California in
and for the County of Los Angeles. The arbitration proceeding
will be conducted by means of a reference pursuant to California
Code of Civil Procedure Section 638(1). Within ten (10) business
days after receipt of the notice requesting arbitration, the
parties shall attempt in good faith to agree upon the Arbitrator
to whom the dispute will be referred and on a joint statement of
contentions. Unless agreement as to an Arbitrator is theretofore
reached, within ten (10) business days after receipt of the
notice requesting arbitration, each party shall submit the names
of three (3) retired judges who have served at least five (5)
years as trial judges in the Superior Court of the State of
California or in the United States District Court. Either party
may then file a petition seeking the appointment by the presiding
Judge of the Superior Court of one of the persons so named as
"referee" in accordance with said Code of Civil Procedure 638(1),
which petition shall recite in a clear and meaningful manner the
factual basis of the controversy between the parties and the
issues to be submitted to the referee for decision. Each party
hereby consents to the jurisdiction of the Superior Court in and
for the County of Los Angeles for such action and agrees that
service of process will be deemed completed when a notice
similarly sent would be deemed received under Section 6.10.
(c) The hearing before the Arbitrator shall be held
within thirty (30) days after the parties reach agreement as to
the identity of the Arbitrator (or within thirty (30) days after
the appointment by the court). Unless more extensive discovery
is expressly permitted by the Arbitrator, each party shall have
only the right to one document production request, shall serve
but one set of interrogatories and shall only be entitled to
depose those witnesses which the Arbitrator expressly permits, it
being the parties' intention to minimize discovery procedures and
to hold the hearing on an expedited basis. The Arbitrator shall
establish the discovery schedule promptly following submission of
the joint statement of intentions (or the filing of the answer to
the petition), which schedule shall be strictly adhered to. All
decisions of the Arbitrator shall be in writing and shall not be
subject to appeal. The Arbitrator shall make all substantive
rulings in accordance with California law and shall have
authority equal to that of a Superior Court Judge to grant
equitable relief in an action pending in Los Angeles Superior
Court in which all parties have appeared. The Arbitrator shall
use its best efforts to hear the dispute on consecutive days and
to render a decision and award within thirty (30) days. Unless
otherwise agreed to by the parties to the dispute being
arbitrated, a court reporter shall be present at and record the
proceedings of the hearing. All motions shall be heard at the
time of the hearing. The Arbitrator shall determine which rules
of evidence, and which procedural rules, shall apply. In the
absence of a determination thereof by the Arbitrator, the rules
of the American Arbitration Association, not inconsistent with
this Section 6.11, shall apply to the conduct of the proceeding.
(d) The fees and costs of the Arbitrator shall be
shared equally by all disputing parties. The Arbitrator shall
award legal fees, disbursements and other expenses to the
prevailing party or parties for such amounts as determined by the
Arbitrator to be appropriate. Judgment upon the Arbitrator's
award may be entered as if after trial in accordance with
California law. Should a party fail to pay fees as required, the
other party or parties may advance the same and shall be entitled
to a judgment from the Arbitrator in the amount of such fees plus
interest at the prime rate as determined by the Bank of America.
Any award issued by the Arbitrator shall bear interest at the
judgment rate in effect in the State of California from the date
determined by the Arbitrator.
L. To the extent permitted by law, all rights and
remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available under
applicable law.
(remainder of page intentionally left blank)
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed by its duly authorized
officers as of the day and year first above written.
BUYER:
REMY CAPITAL PARTNERS IV, L.P.,
a Delaware limited partnership
By: REMY INVESTORS, LLC, a Delaware
limited liability company
Its: General Partner
By:__________________________
Name: Mark Siegel
Title: Managing Member
Address: 1801 Century Park East
Suite 1111
Los Angeles, California
90067
Facsimile: (310) 843-0010
<PAGE>
SELLERS:
THE RHL LIMITED PARTNERSHIP,
a California limited partnership
By: RHL HOLDINGS, INC., a California
corporation
Its: General Partner
By:__________________________
Name: _________________
Title: _______________
By:__________________________
RAYMOND H. LOSI, II
Its: General Partner
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
<PAGE>
EML ENTERPRISES, L.P.,
a California limited partnership
By:__________________________
RAYMOND H. LOSI, II, as Trustee
of the DKL Trust
Its: General Partner
By:__________________________
DIANE K. LOSI COLETTI, as Trustee
of the RHL Trust
Its: General Partner
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
<PAGE>
THE BL 1995 LIMITED PARTNERSHIP,
a California limited partnership
By: BL HOLDINGS, INC., a California
corporation
Its: General Partner
By:__________________________
Name: Barbara Losi
Title: President
By:__________________________
LORI L. GRUNEWALD, f/k/a
LORI L. SHORT
Its: General Partner
By:__________________________
JODI A. BATCHELLER
Its: General Partner
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
<PAGE>
EXHIBIT A
Share Ownership
<TABLE>
<CAPTION>
Shares to be
Name Shares Owned
Sold
<S> <C>
<C>
The RHL Limited Partnership 804,000
804,000
EML Enterprises, L.P. 926,575
662,667
The BL 1995 Limited Partnership 300,000
200,000
</TABLE>
<PAGE>
EXHIBIT B
Agreements With Management Employees
1. Employment Agreements with each of the following
individuals:
Raymond H. Losi
Raymond H. Losi, II
William B. Ogden
Warren F. Marr
Rocco Attolico
Paula Coffman (formerly Montez)
2. Indemnification Agreements with each of the following
individuals:
Raymond H. Losi
Raymond H. Losi, II
Barbara Losi
Gerald I. Boyce
Loren Hildebrand
Marvin G. Murphy
3. Incentive Stock Option Agreements with each of the
following individuals:
Raymond H. Losi, II
William B. Ogden
Warren F. Marr
Rocco Attolico
Paula Coffman
Charlotte Bright
Peter Wagonhurst
4. Non-Qualified Stock Option Plan dated April 16, 1993
between Variflex, Inc. and Warren Marr.
5. Consulting Agreement dated may 16, 1994 between
Variflex, Inc. and Gerald Boyce.
6. Letter Agreement between Static Snowboards, Inc. and
Michael Plunkett for an advance of $60,000 to Plunkett.
7. Condominium Lease dated July 1, 1993 between Raymond
H. Losi, II (as Lessor) and Variflex, Inc. (as Lessee) for the
lease of a condominium in Snowmass Village, Colorado.
<PAGE>
EXHIBIT C
Changes in Assets, Liabilities, Condition, etc.
Attached
<PAGE>
NEITHER THIS WARRANT NOR THE WARRANT SHARES HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT
NOR THE WARRANT SHARES MAY BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT IN COMPLIANCE, AS EVIDENCED (UPON THE
COMPANY'S REASONABLE REQUEST) BY A LEGAL OPINION FROM SUCH
TRANSFEROR'S COUNSEL, WITH THE REQUIREMENTS OF SUCH ACT AND OF
ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT
to Purchase Common Stock
of
Variflex, Inc.,
a Delaware corporation
THIS IS TO CERTIFY THAT: Remy Capital Partners IV, L.P., a
Delaware limited partnership or registered transferees
(collectively, the "Holder") is entitled to purchase from
Variflex, Inc., a Delaware corporation (the "Company"), at any
time and from time to time on and after the date hereof an
aggregate of Four Hundred Thousand (400,000) shares of Common
Stock (defined below), exercisable in whole or in part, at a
purchase price of Five and 10/100 Dollars ($5.10) per share, all
on the terms and conditions and subject to the adjustments
provided herein.
Section I. Certain Definitions. The following
capitalized terms as used in this Warrant shall have the
following meanings:
"Additional Shares of Common Stock" means all shares
of Common Stock issued by the Company after the date hereof,
other than shares of Common Stock issued or issuable at any time
pursuant to a stock consolidation, subdivision, dividend,
acquisition, employee stock option plan or employee stock bonus
plan.
"Business Day" means any day on which commercial
banks are not authorized or required to close in Los Angeles,
California. "Common Stock" means
the Company's authorized Common Stock, par value $0.001 per
share, or any securities of any Person the Holder is entitled to
purchase as a result of adjustments under Section 3.3.
"Exercise Price" means a price per share of Common
Stock equal to Five and 10/100 Dollars ($5.10), as adjusted
pursuant to Section 3 hereof.
"Expiration Date" means the date which is seven years
from the date hereof.
"Market Price" means, if the Warrant Shares are
publicly traded, the closing price per share for the date in
question. The closing price will be the last sales price regular
way or, if no such sale takes place on such day, the average of
the closing bid and ask prices regular way on the principal
United States trading market on which the Warrant Shares are
listed or admitted to trading. If the Warrant Shares are not
listed or admitted to trading on a recognized United States
trading market, the Market Price will be the price per Warrant
Share implied from the Company's most recent issuances of Common
Stock for securities convertible into or exchangeable for Common
Stock, if any such issuance has occurred in the six (6) months
prior to the date in question. If no such issuance has occurred,
the Market Price will be the fair market value per Warrant Share,
on an enterprise theory of valuation, determined by the Company's
Board of Directors acting in good faith with advice from a
recognized valuation expert.
"Person" means a corporation, an association, a
trust, a partnership, a joint venture, a limited liability
company, an organization, a business, an individual, a government
or political subdivision thereof or a governmental body.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and
regulations of the Securities and Exchange Commission promulgated
thereunder, all as the same shall be in effect at the time.
"Warrant Shares" means the number of shares of Common
Stock that may be acquired upon exercise of this Warrant.
Section II. Exercise of Warrant.
A. Exercise of Warrant. The Holder may, at any
time on and after the date hereof, but not later than the
Expiration Date, exercise this Warrant in whole or in part.
B. Method of Exercise.
1. Cash/Exchange of Shares. The Holder may
exercise this Warrant for cash by delivering to the Company prior
to the Expiration Date (a) this Warrant, (b) a Subscription Form
in the form of Exhibit A and (c) the Exercise Price for the
Warrant Shares so acquired, which may be paid in cash or by the
delivery of shares of Common Stock with a Market Price equal to
the aggregate Exercise Price for the Warrant Shares so acquired.
2. Cashless Exercise. This Warrant can also be
exercised, in whole or in part, in a "cashless" exercise, upon
delivery to the Company of (a) this Warrant and (b) a Cashless
Exercise Form in the form of Exhibit B. In a cashless exercise,
the right to purchase each Warrant Share may be exchanged for
that number of Shares of Common Stock determined by multiplying
the number one (1) by a fraction, the numerator of which will be
the excess of (y) the then current Market Price over (z) the
Exercise Price, and the denominator of which will be the then
current Market Price.
C. Issuance of Warrant Shares. Upon the Holder's
exercise of the Warrant, the Company shall, within five (5)
Business Days, issue the Warrant Shares so purchased to the
Holder.
Section III. Adjustment of Warrant Shares;
Anti-Dilution Provisions.
If any of the following events occurs at any time
hereafter prior to the full exercise of this Warrant, then the
Exercise Price and/or the number of remaining Warrant Shares to
be purchased hereunder immediately prior to such event shall be
adjusted as described below:
A. Stock Subdivisions or Stock Consolidations. If
at any time the outstanding shares of Common Stock are subdivided
into a greater number of shares, whether by stock split, stock
dividend or otherwise, then the number of Warrant Shares
remaining to be purchased hereunder will be increased
proportionately and the Exercise Price will be reduced
proportionately. Conversely, if at any time the outstanding
shares of Common Stock are consolidated into a smaller number of
shares, then the number of Warrant Shares remaining to be
purchased hereunder will be reduced proportionately and the
Exercise Price will be increased proportionately. Each
adjustment to the Exercise Price and the number of Warrant Shares
shall be effective on the record date, or if there is no record
date, the effective date for such subdivision or consolidation.
B. Dividends. Following the date hereof, if the
Company proposes to declare a dividend on or make a distribution
of any kind (other than in Common Stock) with respect to the
Common Stock, the Company will deliver written notice of such
proposed event, in reasonable detail, to the Holder not less than
ten (10) Business Days prior to the record date, to enable the
Holder to decide whether to exercise this Warrant prior to the
record date.
C. Reclassification or Reorganization. If the
Company engages in a reorganization, a reclassification of its
Common Stock, or in a merger or other combination with another
Person in which the other Person survives, upon exercise of this
Warrant, the Holder will be entitled to receive the number of
shares, securities or property the Holder would have been
entitled to receive if this Warrant had been exercised
immediately prior to the record date for such event. The
aggregate exercise price applicable to such new shares,
securities or property will be the aggregate exercise price of
all Warrant Shares remaining to be purchased hereunder. If
necessary, the rights and interests of the Holder will be
appropriately adjusted so as to be applicable, as nearly as
reasonably possible, to any such shares, securities or property
thereafter deliverable upon exercise of this Warrant.
D. Issuance of Additional Shares of Common Stock.
In the event that the Company shall issue Additional Shares of
Common Stock without consideration or for a consideration per
share less than the Exercise Price in effect on the date of and
immediately prior to such issue, then and in each such event,
such Exercise Price shall be reduced concurrently with such issue
of shares to a price equal to the consideration per share for
which the Additional Shares of Common Stock are issued.
E. Computations and Adjustments. Upon each
computation of an adjustment under this Section 3, the Exercise
Price shall be computed to the nearest 1/1000 cent and the number
of Warrant Shares shall be calculated to the nearest whole share
(i.e., fractions of less than one-half shall be disregarded and
fractions of one-half or greater shall be treated as being the
next greater integer). However, the fractional amount shall be
used in calculating any future adjustments.
F. Notices. When any adjustments are required to
be made under this Section 3, the Company shall as promptly as
practicable (i) determine such adjustments, (ii) prepare a
statement describing in reasonable detail the method used in
arriving at the adjustment and setting forth the calculation
thereof; and (iii) cause a copy of such statement to be given to
the Holder in accordance with Section 8.10.
Section IV. Securities Laws. The Holder of this
Warrant, by acceptance hereof, acknowledges that this Warrant has
not been and the Warrant Shares that may be issued pursuant
hereto have not been and may not be registered under the
Securities Act or applicable state securities laws. The Holder
of this Warrant, by acceptance hereof, represents that it is
fully informed as to the applicable limitations upon any
distribution or resale of this Warrant and any Warrant Shares
under the Securities Act and any applicable state securities laws
and agrees not to distribute or sell this Warrant or any Warrant
Shares if such distribution or resale would constitute a
violation of the Securities Act or any applicable state
securities laws or would cause the issuance of this Warrant or
the Warrant Shares, in the opinion of counsel, to be in violation
of the Securities Act or any applicable state securities laws.
The Holder of this Warrant agrees that it will not transfer or
sell this Warrant or the Warrant Shares unless and until the
Holder provides the Company with an opinion of its counsel that
such transfer or sale can be made without violation of the
Securities Act or any applicable state securities laws. Any
exercise hereof by the Holder shall constitute a representation
by the Holder that the Warrant Shares are not being acquired with
the view to, or for resale in connection with, any distribution
or public offering thereof in violation of the Securities Act or
applicable state securities laws.
Section V. Reservation of Warrant Shares. The
Company will cause to be kept available, out of the authorized
and unissued shares of Common Stock, the full number of shares
sufficient to provide for the exercise of the rights of purchase
represented by this Warrant. Upon issuance and delivery against
payment pursuant to the terms of this Warrant, all Warrant Shares
will be validly issued, fully paid and nonassessable.
Section VI. Loss, Destruction of Warrant. Upon
receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of the Warrant and, in the
case of any such loss, theft or destruction, upon receipt of an
indemnity satisfactory to the Company or, in the case of any such
mutilation, upon surrender and cancellation of such Warrant, the
Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of
Warrant Shares.
Section VII. Assignment. This Warrant and the
rights hereunder are not assignable by the Holder to any
transferee until February 1, 1998. Thereafter, any Holder may
assign this Warrant and the rights hereunder to a transferee, and
upon such assignment, such transferee will become the "Holder"
under this Warrant.
Section VIII. Miscellaneous Provisions.
A. Amendments; Waivers. Amendments, waivers,
demands, consents and approvals under this Warrant must be in
writing and designated as such. No failure or delay in
exercising any right will be deemed a waiver of such right.
B. Governing Law. This Warrant shall be governed
by, and con- strued and enforced in accordance with, the laws of
the State of California, without regard to conflicts of laws
principles.
C. Jurisdiction; Venue; Service of Process. Each
of the parties irrevocably submits to the jurisdiction of any
California State or United States Federal court sitting in Los
Angeles County in any action or proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby,
and irrevocably agrees that any such action or proceeding may be
heard and determined only in such California State or Federal
court. Each of the parties irrevocably waives, to the fullest
extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of any such action or proceeding.
D. Headings. Headings of Sections and subsections
are for convenience only and are not a part of this Warrant.
E. Counterparts. This Warrant may be executed in
one or more counterparts, all of which constitute one agreement.
F. Successors and Assigns. This Warrant is
binding upon and inures to the benefit of each party and such
party's respective heirs, personal representatives, successors
and assigns. Nothing in this Warrant, express or implied, is
intended to confer any rights or remedies upon any other person.
G. Expenses; Legal Fees. Each party will pay its
own expenses in the negotiation, preparation and performance of
this Warrant. The prevailing party in any action relating to
this Warrant will be entitled to recover, in addition to other
appropriate relief, reasonable legal fees, costs and expenses
incurred in such action.
H. Representation by Counsel; Interpretation.
Each party acknowledges that it has been represented by counsel
in connection with this Warrant. Any rule of law, including, but
not limited to, Section 1654 of the California Civil Code, or any
legal decision that would require interpretation of any claimed
ambiguities in this Warrant against the party that drafted it,
has no application and is expressly waived.
I. Specific Performance. In view of the
uniqueness of the matters contemplated by this Warrant, the
parties hereto would not have an adequate remedy at law for money
damages if this Warrant is not being performed in accordance with
its terms. The parties therefore agree that each party will be
entitled to specific enforcement of the terms hereof in addition
to any other remedy to which such party may be entitled.
J. Notices. All notices, demands and requests
required by this Warrant shall be in writing and shall be deemed
to have been given for all purposes (i) upon personal delivery,
(ii) one (1) business day after being sent, when sent by
professional overnight courier service for next business day
delivery from and to locations within the continental United
States, (iii) five (5) days after posting when sent by registered
or certified mail, or (iv) on the date of receipt by the sending
party of confirmation of the successful transmission of the
facsimile, as printed by the facsimile machine, when sent by
facsimile. Any party hereto may from time to time by notice in
writing served upon the others as provided herein, designate a
different mailing address or a different party to which such
notices or demands are thereafter to be addressed or delivered.
(remainder of page intentionally left blank)
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have
caused this Warrant to be signed in its name by an officer or
authorized representative.
Dated: November 18, 1997
VARIFLEX, INC., a Delaware corporation
By:__________________________
Name: ________________
Title: ________________
Address: 5152 North Commerce Avenue
Moorpark, California 93021
Facsimile: (805) 523-7384
The foregoing is acknowledged
by and agreed to as of the
18th day of November, 1997
REMY CAPITAL PARTNERS, IV, L.P.,
a Delaware limited partnership
By: REMY INVESTORS, LLC, a Delaware
limited liability company
Its: General Partner
By:__________________________
Name: Mark Siegel
Title: Managing Member
Address: 1801 Century Park East
Suite 1111
Los Angeles, California 90067
Facsimile: (310) 843-0010
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
To Be Executed
Upon Exercise of Warrant
The undersigned exercises the right to purchase
_________ Warrant Shares, evidenced by the enclosed Warrant, and
makes payment of the Purchase Price in cash
_________________________________________________________________
($_______) or by the exchange of _________ shares of Common
Stock. Certificate(s) for such shares are to be issued and
delivered as set forth below.
Date: (HOLDER)
By: ___________________________
Its: __________________________
<TABLE>
<S> <C>
Name to appear on
the stock certificate:
____________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
If the foregoing exercise is not for all of the
Warrant Shares purchasable under this Warrant, please
register and deliver a new Warrant for the unexercised
portion as follows:
<TABLE>
<S> <C>
Name: __________________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
<PAGE>
EXHIBIT B
CASHLESS EXERCISE FORM
The undersigned Holder exercises the right to
purchase _________ Warrant Shares, evidenced by the enclosed
Warrant and requests that the Company exchange the Warrant
for Warrant Shares as provided in Section 2.2.2 of the
Warrant. Certificate(s) for such shares are to be issued and
delivered as set forth below.
Date:
(HOLDER)
By: ___________________________
Its: __________________________
Name to appear on
the stock certificate:
___________________________
(Please Print)
<TABLE>
<S> <C>
Name to appear on
the stock certificate:
____________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
If the foregoing exercise is not for all of the
Warrant Shares purchasable under the Warrant, please register
and deliver a new Warrant for the unexercised portion as
follows:
<TABLE>
<S> <C>
Name: __________________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
Calculation of Cashless Exercise:
A = Current Market Price: ________________________
B = Exercise Price: ______________________________
X = Number of Shares of Common Stock to be issued for each
right to purchase one Warrant Share exchanged:_____________
A - B (___________)
1 x __________________ = X (________________)
A (____________)
Total number of Warrant Shares issuable: ___________________
Total number of Warrant Shares to be issued: _______________
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is
entered into as of November 18, 1997, among Raymond H. Losi
("Ray"), Raymond H. Losi, II ("Jay"), Raymond H. Losi, as
Trustee of the 1989 Raymond H. Losi Revocable Trust under
Declaration of Trust dated January 23, 1989 (the "Ray
Trust"), Losi Enterprises Limited Partnership, a California
limited partnership ("Enterprises"), Raymond H. Losi, II and
Kathy Losi, as Co-Trustees of the Jay and Kathy Losi
Revocable Trust dated January 1, 1989 (the "Jay Trust"), EML
Enterprises, L.P., a California limited partnership ("EML"),
Eileen Losi, as Trustee of the Eileen Losi Revocable Trust
under Declaration of Trust dated October 13, 1993 (the
"Eileen Trust"), Barbara Losi, as Trustee of the 1989 Barbara
Losi Revocable Trust under Declaration of Trust dated January
31, 1989 (the "Barbara Trust"), The BL 1995 Limited
Partnership, a California limited partnership ("BL"), Raymond
H. Losi, as Trustee of the Diane K. Losi Voting Trust (the
"Diane Trust") and Remy Capital Partners IV, L.P., a Delaware
limited partnership ("Remy"). Ray, Jay, the Ray Trust,
Enterprises, the Jay Trust, EML, the Eileen Trust, the
Barbara Trust, BL and the Diane Trust are sometimes
collectively referred to herein as the "Losi Entities" and
individually as a "Losi Entity".
B A C K G R O U N D
A. Pursuant to that certain Stock Purchase
Agreement, dated as of the date hereof (the "Purchase
Agreement"), among Remy, The RHL Limited Partnership, a
California limited partnership, EML and BL (collectively, the
"Sellers"), Remy has agreed to purchase from the Sellers One
Million Six Hundred Sixty-Six Thousand Six Hundred
Sixty-Seven (1,666,667) shares of Common Stock of Variflex,
Inc., a Delaware corporation (the "Company"), which shares
represent approximately twenty-seven percent (27%) of the
outstanding shares of Common Stock of the Company.
B. As of the Effective Date (defined below),
each Losi Entity owns the number of shares of Common Stock of
the Company as set forth on Exhibit A attached hereto, and
collectively, the Losi Entities own One Million Seven Hundred
Ninety Thousand Seven Hundred Twenty-Nine (1,790,729) shares
of Common Stock of the Company, which shares represent
approximately twenty-nine percent (29%) of the outstanding
shares of the Company.
C. In order to induce Remy to purchase the
shares of Common Stock from the Sellers under the Purchase
Agreement, the parties hereto have agreed to enter into this
Agreement upon the terms and conditions set forth below.
<PAGE>
A G R E E M E N T
In consideration of the mutual promises contained
herein and intending to be legally bound, the parties agree
as follows:
1. Election of Directors. Each of the parties
agrees to vote all of the Company's stock owned by it or
which it has a right to vote (the "Stock") and to take all
such other action as may be necessary so that each of the
following occurs and remains in effect from the first
stockholders' meeting of the Company held after the date
hereof throughout the term of this Agreement:
(a) The Company's Board of Directors shall have
no more than six (6) members.
(b) Subject to subsections (c) and (d), two (2)
of such directors shall be individuals selected by Remy, two
(2) of such directors shall be individuals selected by a
"majority vote" of the Losi Entities and two (2) of such
directors shall be "independent directors" approved by each
of the Losi Entities and by Remy.
(c) If at any time during the term hereof
either Remy, on the one hand, or the Losi Entities,
collectively, on the other hand, owns more than thirty-three
and one-third percent (33 1/3%) but less than or equal to
sixty-six and two-thirds percent (66 2/3%) of the number of
shares of Common Stock of the Company owned by it on the
Effective Date (as defined below) (for purposes of this
subsection only, such party shall be referred to as the
"One-Third Selling Party"), such One-Third Selling Party
shall only be entitled to select one (1) director to the
Company's Board of Directors such that the Board of Directors
will consist of one (1) individual selected by the One-Third
Selling Party (or by a "majority vote" of the One-Third
Selling Party if the One-Third Selling Party is the Losi
Entities), three (3) individuals selected by Remy or a
"majority vote" of the Losi Entities (whichever is not the
One-Third Selling Party) and two (2) individuals selected to
be the "independent directors" approved by each of the Losi
Entities and by Remy.
(d) If at any time during the term hereof
either Remy, on the one hand, or the Losi Entities,
collectively, on the other hand, owns less than or equal to
thirty-three and one-third percent (33 1/3%) of the number of
shares of Common Stock of the Company owned by it on the
Effective Date (as defined below) (for purposes of this
subsection only, such party shall be referred to as the
"Two-Thirds Selling Party"), such Two-Thirds Selling Party
shall not be entitled to select a director to the Company's
Board of Directors such that the Board of Directors will
consist of four (4) individuals selected by Remy or a
"majority vote" of the Losi Entities (whichever is not the
Two-Thirds Selling Party) and two (2) individuals selected to
be the "independent directors" approved by each of the Losi
Entities and by Remy.
Each of the parties hereto agrees that it shall use its
best efforts to reach an agreement as to the selection of the
individuals who will serve as independent directors.
Beginning in 1998, if, despite these best efforts, the
parties cannot agree on the selection of both individuals who
will serve as independent directors on or before July 31 in
any year during the term of this Agreement, Remy shall submit
a list to the Losi Entities of not less than five (5) and not
more than ten (10) individuals who constitute Remy's nominees
for the position of independent director, from which list,
the Losi Entities shall, by majority vote, be entitled to
select one (1) individual to serve as an independent
director. Similarly, the Losi Entities shall submit a list
to Remy of the names of not less than five (5) and not more
than ten (10) individuals who constitute the Losi Entities'
nominees for the position of independent director, from which
list, Remy shall be entitled to select one (1) individual to
serve as an independent director. Beginning in 1998, if on
or before July 31 in any year during the term of this
Agreement, the parties hereto have agreed on the selection of
one (1) individual to serve as an independent director (the
"Agreed Nominee") and cannot agree on the selection of a
second individual, then either Remy or the Losi Entities,
collectively (whichever party originally nominated or
suggested the Agreed Nominee), shall be entitled to select
the second independent director from a list of not less than
five (5) and not more than ten (10) individuals chosen by
either Remy or the Losi Entities (whichever party did not
originally nominate or suggest the Agreed Nominee). In the
event that an individual selected under this paragraph to
serve as an independent director declines to serve on the
Company's Board of Directors, then the party who selected
said individual from the list of nominees provided to it by
the other party shall be entitled to select another
individual from the same list of nominees.
For purposes hereof, the term "independent directors"
shall mean (i) such individuals who have not been employed
by, or consulted with, any of the Losi Entities or Remy for
the past five (5) years; and (ii) such individuals who will
be considered independent for purposes of NASDAQ and/or the
American Stock Exchange. The term "majority vote" shall mean
a vote by the Losi Entities in which a majority of the number
of shares of Common Stock owned by all of the Losi Entities
are voted in favor of an individual or individuals to serve
as a director of the Company's Board of Directors.
Notwithstanding the foregoing, for purposes of
paragraphs 1(c) and 1(d) above, the term "Remy" and the term
"Losi Entities" shall be expanded to include any Permitted
Transferees of either Remy or any of the Losi Entities who
agree to be bound by the provisions hereof. For purposes of
this Agreement, the term "Permitted Transferee" shall mean
(i) a transferor's spouse and lineal descendants; (ii) a
transferor's successors, personal representatives and heirs;
(iii) any trustee of any trust created primarily for the
benefit of any or all of such spouse and lineal descendants
(but that may include beneficiaries that are charities) or of
any revocable trust created by a transferor; (iv) following
the death of a transferor, all beneficiaries under any such
trust; (v) the transferor, in the case of a transfer from any
Permitted Transferee back to its transferor; (vi) any entity
all of the equity of which is directly or indirectly owned by
the transferor or any of the foregoing; and (vii) in the case
of Remy, Remy's partners.
2. Stock Splits, Stock Dividends, etc. In the
event of any stock split, stock dividend, recapitalization,
reorganization, or the like, any securities issued with
respect to the Stock shall become Stock for purposes of this
Agreement.
3. Termination. This Agreement and the
obligations of the parties hereunder shall become effective
upon consummation of Remy's acquisition of shares under the
Purchase Agreement (the "Effective Date") and shall terminate
on the earlier to occur of December 31, 2007, or the date on
which Remy transfers all of the Stock owned by it to its
partners; provided, however, that in no event shall Remy
transfer all of the Stock owned by it to its partners until
the earlier to occur of: (a) five (5) years from the
Effective Date; or (b) the date on which Remy ceases to exist
as a partnership.
4. Right of First Offer. Each of the Losi
Entities and Remy agree that beginning with the Effective
Date and continuing until termination:
(a) If any of the Losi Entities (for purposes
of this Section 4(a), the "Offeror") desires to sell or
transfer any of its Stock to anyone other than a Permitted
Transferee, the Offeror shall follow the procedures set forth
below:
(i) The Offeror shall deliver a written notice
(a "First Offer Notice") to Remy, which notice shall set
forth all material terms and conditions, including, but not
limited to, the number of shares offered (the "Offered
Shares") and the purchase price on which the Offeror desires
to sell the Offered Shares.
(ii) During the fifteen (15) day period after a
First Offer Notice is duly given (the "Remy Offer Period"),
Remy shall have an option to purchase all of the Offered
Shares on the terms contained in the First Offer Notice. If
Remy exercises said option, Remy shall deliver a written
notice to the Offeror indicating said exercise and the number
of shares it desires to purchase (the "Acceptance"). Payment
with respect to the Offered Shares so purchased shall be due
within five (5) business days of delivery of the Acceptance.
(iii) If Remy has not exercised its option to
purchase all of the Offered Shares on the terms contained in
the First Offer Notice by the end of the Remy Offer Period,
the Offeror shall be free during the thirty (30) day period
thereafter to dispose of the Offered Shares to any other Losi
Entity or to any third party pursuant to terms and conditions
no more favorable (including, but not limited to, price and
payment terms) to the Offeror than as set forth in the First
Offer Notice. If the Offeror has not disposed of all of the
Offered Shares within this thirty (30) day period, the
remaining Offered Shares will again be subject to this
Section 4(a).
(b) If Remy desires to sell or transfer any of
its Stock to anyone other than a Permitted Transferee, Remy
shall follow the procedures set forth below:
(i) Remy shall deliver a First Offer Notice to
each of the Losi Entities, which notice shall set forth all
material terms and conditions, including, but not limited to,
the Offered Shares and the purchase price on which Remy
desires to sell the Offered Shares.
(ii) During the fifteen (15) day period after a
First Offer Notice is duly given (the "Losi Offer Period"),
each of the Losi Entities shall have an option to purchase at
least that portion of the Offered Shares equal to a fraction,
the numerator of which shall be the percentage interest in
the Company then owned by such Losi Entity and the
denominator of which shall be the total percentage interest
in the Company then owned by all other Losi Entities (the
"Percentage Interest"), or more than its Percentage Interest,
if available, on the terms contained in the First Offer
Notice. Each Losi Entity desiring to exercise such option
shall deliver an Acceptance to Remy, which Acceptance shall
indicate the number of shares such party desires to purchase.
If each Losi Entity delivers an Acceptance to Remy indicating
that it would like to purchase its Percentage Interest of the
Offered Shares, then each Losi Entity shall be entitled to
purchase Offered Shares based on its Percentage Interest. If
one (1), or more than one (1), Losi Entity desires to
purchase more than its Percentage Interest of the Offered
Shares and there are not a sufficient number of Offered
Shares to satisfy all Acceptances, each Losi Entity that has
delivered an Acceptance shall first be entitled to purchase
Offered Shares based on its Percentage Interest, and the
remainder of the Offered Shares shall be allocated among
those Losi Entities desiring to purchase in excess of their
Percentage Interest pro-rata in proportion to such Losi
Entities' respective interests. If Remy does not receive
Acceptances for all of the Offered Shares by the end of the
Losi Offer Period, none of the Acceptances received shall be
given effect and Remy shall be free to proceed under
paragraph (iii), below. Payment with respect to the Offered
Shares shall be due within five (5) business days of delivery
of the Acceptance.
(iii) If Remy does not receive Acceptances for
all of the Offered Shares by the end of the Losi Offer
Period, Remy shall be free during the thirty (30) day period
thereafter to dispose of the Offered Shares to any third
party pursuant to terms and conditions no more favorable
(including, but not limited to, price and payment terms) to
Remy than as set forth in the First Offer Notice.
If Remy has not disposed of all of the Offered Shares within
this thirty (30) day period, the remaining Offered Shares
will again be subject to this Section 4(b).
5. Stock Ownership. Each of the Losi Entities
represents and warrants to Buyer that as of the Effective
Date, Exhibit A is a true and complete statement of the
number of shares of Common Stock owned by it and that no
other members of the Losi family, nor any entities owned or
controlled by them, own any additional shares of Common Stock
of the Company.
6. Amendments; Waivers. Amendments, waivers,
demands, consents and approvals under this Agreement must be
in writing and designated as such. No failure or delay in
exercising any right will be deemed a waiver of such right.
7. Integration. This Agreement is the entire
agreement between the parties pertaining to its subject
matter, and supersedes all prior agreements and
understandings of the parties in connection with such subject
matter.
8. Interpretation; Governing Law. This
Agreement is to be construed as a whole and in accordance
with its fair meaning. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of
the State of California, without regard to conflicts of laws
principles.
9. Headings. Headings of Sections and
subsections are for convenience only and are not a part of
this Agreement.
10. Counterparts. This Agreement may be
executed in one or more counterparts, all of which constitute
one agreement.
11. Successors and Assigns. This Agreement is
binding upon and inures to the benefit of each party and such
party's respective heirs, personal representatives,
successors and assigns. Nothing in this Agreement, express
or implied, is intended to confer any rights or remedies upon
any other person.
12. Expenses. Each party will pay its own
expenses in the negotiation, preparation and performance of
this Agreement.
13. Representation by Counsel; Interpretation.
Each party acknowledges that it has been represented by
counsel in connection with this Agreement. Any rule of law,
including, but not limited to, Section 1654 of the California
Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement
against the party that drafted it, has no application and is
expressly waived.
14. Severability. The provisions of this
Agreement are severable. The invalidity, in whole or in
part, of any provision of this Agreement shall not affect the
validity or enforceability of any other of its provisions.
If one or more provisions hereof shall be so declared invalid
or unenforceable, the remaining provisions shall remain in
full force and effect and shall be construed in the broadest
possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable
provisions of this Agreement with valid and enforceable
provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or
unenforceable provisions.
15. Specific Performance. In view of the
uniqueness of the matters contemplated by this Agreement, the
parties hereto would not have an adequate remedy at law for
money damages if this Agreement is not being performed in
accordance with its terms. The parties therefore agree that
each party will be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which such
party may be entitled.
16. Notices. All notices, demands and requests
required by this Agreement shall be in writing and shall be
deemed to have been given for all purposes (i) upon personal
delivery, (ii) one (1) business day after being sent, when
sent by professional overnight courier service for next
business day delivery from and to locations within the
continental United States, (iii) five (5) days after posting
when sent by registered or certified mail, or (iv) on the
date of receipt by the sending party of confirmation of the
successful transmission of the facsimile, as printed by the
facsimile machine, when sent by facsimile. Any party hereto
may from time to time by notice in writing served upon the
others as provided herein, designate a different mailing
address or a different party to which such notices or demands
are thereafter to be addressed or delivered.
17. Legends. A legend in substantially the
following form (or containing substantially the same
information as set forth in the following form) shall be
inscribed on all the certificates representing shares of
stock subject to this Agreement:
"The shares represented by this certificate are
subject to a Voting Agreement, dated as of November 18, 1997,
among certain of the stockholders of the Company. The
Company will furnish a copy of such Agreement to any person
without charge upon written request to the Company at its
principal office."
Notwithstanding the foregoing, the parties hereto
agree to cooperate with the Company in the removal of such
restrictive legend if required pursuant to the terms of that
certain Registration Rights Agreement of even date herewith
between the Company and Remy.
18. Further Actions. Subject to the terms and
conditions of this Agreement, each of the parties agrees to
use all commercially reasonable efforts to take, or cause to
be taken, all action necessary, proper or advisable to
consummate and make effective the transactions contemplated
by this Agreement.
19. Arbitration. (a) Any and all disputes of
any nature (whether sounding in contract or in tort) arising
out of or relating to this Agreement shall be initiated,
maintained and determined exclusively by binding arbitration
in the County of Los Angeles, State of California, pursuant
to Section 19(c). The parties agree irrevocably to submit
themselves, in any suit to confirm the judgment or finding of
such arbitrator, to the jurisdiction of the United States
District Court for the Central District of California and the
jurisdiction of any court of the State of California located
in Los Angeles County and waive any and all objections to
jurisdiction that they may have under the laws of the State
of California or the United States.
(b) In case of a dispute, any party may
commence the arbitration by giving written notice to the
other pursuant to Section 16. The Arbitrator will be a
retired judge of the United States District Court for the
Central District of California or of the Superior Court of
the State of California in and for the County of Los Angeles.
The arbitration proceeding will be conducted by means of a
reference pursuant to California Code of Civil Procedure
Section 638(1). Within ten (10) business days after receipt
of the notice requesting arbitration, the parties shall
attempt in good faith to agree upon the Arbitrator to whom
the dispute will be referred and on a joint statement of
contentions. Unless agreement as to an Arbitrator is
theretofore reached, within ten (10) business days after
receipt of the notice requesting arbitration, each party
shall submit the names of three (3) retired judges who have
served at least five (5) years as trial judges in the
Superior Court of the State of California or in the United
States District Court. Either party may then file a petition
seeking the appointment by the presiding Judge of the
Superior Court of one of the persons so named as "referee" in
accordance with said Code of Civil Procedure 638(1), which
petition shall recite in a clear and meaningful manner the
factual basis of the controversy between the parties and the
issues to be submitted to the referee for decision. Each
party hereby consents to the jurisdiction of the Superior
Court in and for the County of Los Angeles for such action
and agrees that service of process will be deemed completed
when a notice similarly sent would be deemed received under
Section 16.
(c) The hearing before the Arbitrator shall be
held within thirty (30) days after the parties reach
agreement as to the identity of the Arbitrator (or within
thirty (30) days after the appointment by the court). Unless
more extensive discovery is expressly permitted by the
Arbitrator, each party shall have only the right to one
document production request, shall serve but one set of
interrogatories and shall only be entitled to depose those
witnesses which the Arbitrator expressly permits, it being
the parties' intention to minimize discovery procedures and
to hold the hearing on an expedited basis. The Arbitrator
shall establish the discovery schedule promptly following
submission of the joint statement of intentions (or the
filing of the answer to the petition), which schedule shall
be strictly adhered to. All decisions of the Arbitrator
shall be in writing and shall not be subject to appeal. The
Arbitrator shall make all substantive rulings in accordance
with California law and shall have authority equal to that of
a Superior Court Judge to grant equitable relief in an action
pending in Los Angeles Superior Court in which all parties
have appeared. The Arbitrator shall use its best efforts to
hear the dispute on consecutive days and to render a decision
and award within thirty (30) days. Unless otherwise agreed
to by the parties to the dispute being arbitrated, a court
reporter shall be present at and record the proceedings of
the hearing. All motions shall be heard at the time of the
hearing. The Arbitrator shall determine which rules of
evidence, and which procedural rules, shall apply. In the
absence of a determination thereof by the Arbitrator, the
rules of the American Arbitration Association, not
inconsistent with this Section 19, shall apply to the conduct
of the proceeding.
(d) The fees and costs of the Arbitrator shall
be shared equally by all disputing parties. The Arbitrator
shall award legal fees, disbursements and other expenses to
the prevailing party or parties for such amounts as
determined by the Arbitrator to be appropriate. Judgment
upon the Arbitrator's award may be entered as if after trial
in accordance with California law. Should a party fail to
pay fees as required, the other party or parties may advance
the same and shall be entitled to a judgment from the
Arbitrator in the amount of such fees plus interest at the
prime rate as determined by the Bank of America. Any award
issued by the Arbitrator shall bear interest at the judgment
rate in effect in the State of California from the date
determined by the Arbitrator.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the date first above written.
________________________________
RAYMOND H. LOSI
Address: _________________________
_________________________
_________________________
Facsimile: _______________________
________________________________
RAYMOND H. LOSI, II
Address: c/o Variflex, Inc.
5152 North Commerce Ave.
Moorpark, California
93021
Facsimile: (805) 523-7384
________________________________
RAYMOND H. LOSI, as Trustee of the
1989 Raymond H. Losi Revocable Trust
under Declaration of Trust dated
January 23, 1989
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
________________________________
RAYMOND H. LOSI, as Trustee of the
Diane K. Losi Voting Trust
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
<PAGE>
LOSI ENTERPRISES LIMITED PARTNERSHIP,
a California limited partnership
By: LOSI PROPERTIES, INC., a
California
corporation
Its: General Partner
By:__________________________
Name: _________________
Title: _______________
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
_________________________________
RAYMOND H. LOSI, II, as Co-Trustee
of the Jay and Kathy Losi Revocable
Trust dated January 1, 1989
_________________________________
KATHY LOSI, as Co-Trustee of the Jay
and Kathy Losi Revocable Trust
dated January 1, 1989
Address: _________________________
_________________________
_________________________
Facsimile: _______________________
<PAGE>
EML ENTERPRISES, L.P.,
a California limited partnership
By:__________________________
RAYMOND H. LOSI, II, as Trustee
of the DKL Trust
Its: General Partner
By:__________________________
DIANE K. LOSI COLETTI, as Trustee
of the RHL Trust
Its: General Partner
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
________________________________
EILEEN LOSI, as Trustee of the
Eileen Losi Revocable Trust
under Declaration of Trust dated
October 13, 1993
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
<PAGE>
________________________________
BARBARA LOSI, as Trustee of the
1989 Barbara Losi Revocable Trust
under Declaration of Trust dated
January 31, 1989
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
THE BL 1995 LIMITED PARTNERSHIP,
a California limited partnership
By: BL HOLDINGS, INC., a California
corporation
Its: General Partner
By:__________________________
Name: Barbara Losi
Title: President
By:_________________________
LORI L. GRUNEWALD, f/k/a
LORI L. SHORT
Its: General Partner
By:_________________________
JODI A. BATCHELLER
Its: General Partner
Address: _________________________
_________________________
_________________________
Facsimile: _________________________
<PAGE>
REMY CAPITAL PARTNERS IV, L.P.,
a Delaware limited partnership
By: REMY INVESTORS, LLC, a Delaware
limited liability company
Its: General Partner
By:__________________________
Name: Mark Siegel
Title: Managing Member
Address: 1801 Century Park East
Suite 1111
Los Angeles, California
90067
Facsimile: (310)
843-0010
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of
Shares Owned
Losi Entity As of the
Effective Date
<S> <C>
Raymond H. Losi
0
Raymond H. Losi, II
0
Losi Enterprises Limited Partnership
807,507
The Jay and Kathy Losi Revocable Trust
120,000
EML Enterprises, L.P.
263,908
The 1989 Raymond H. Losi Revocable Trust
246,575
The Eileen Losi Revocable Trust
120,000
The 1989 Barbara Losi Revocable Trust
106,438
The BL 1995 Limited Partnership
100,000
Diane K. Losi Voting Trust
26,301
TOTAL 1,790,729
</TABLE>
<PAGE>
NEITHER THIS WARRANT NOR THE WARRANT SHARES HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE WARRANT SHARES MAY BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE, AS
EVIDENCED (UPON THE COMPANY'S REASONABLE REQUEST) BY A LEGAL
OPINION FROM SUCH TRANSFEROR'S COUNSEL, WITH THE REQUIREMENTS
OF SUCH ACT AND OF ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT
TO PURCHASE COMMON STOCK
OF
VARIFLEX, INC.,
A DELAWARE CORPORATION
THIS IS TO CERTIFY THAT: Raymond H. Losi or registered
transferees (collectively, the "HOLDER") is entitled to
purchase from Variflex, Inc., a Delaware corporation (the
"COMPANY"), at any time and from time to time on and after
the date hereof an aggregate of Two Hundred Thousand
(200,000) shares of Common Stock (defined below), exercisable
in whole or in part, at a purchase price of Five and 10/100
Dollars ($5.10) per share, all on the terms and conditions
and subject to the adjustments provided herein.
SECTION 1. CERTAIN DEFINITIONS. The following
capitalized terms as used in this Warrant shall have the
following meanings:
"ADDITIONAL SHARES OF COMMON STOCK" means all
shares of Common Stock issued by the Company after the date
hereof, other than shares of Common Stock issued or issuable
at any time pursuant to a stock consolidation, subdivision,
dividend, acquisition, employee stock option plan or employee
stock bonus plan.
"BUSINESS DAY" means any day on which commercial
banks are not authorized or required to close in Los Angeles,
California. "COMMON STOCK" means
the Company's authorized Common Stock, par value $0.001 per
share, or any securities of any Person the Holder is entitled
to purchase as a result of adjustments under Section 3.3.
"EXERCISE PRICE" means a price per share of Common
Stock equal to Five and 10/100 Dollars ($5.10), as adjusted
pursuant to Section 3 hereof.
"EXPIRATION DATE" means the date which is seven
years from the date hereof.
"MARKET PRICE" means, if the Warrant Shares are
publicly traded, the closing price per share for the date in
question. The closing price will be the last sales price
regular way or, if no such sale takes place on such day, the
average of the closing bid and ask prices regular way on the
principal United States trading market on which the Warrant
Shares are listed or admitted to trading. If the Warrant
Shares are not listed or admitted to trading on a recognized
United States trading market, the Market Price will be the
price per Warrant Share implied from the Company's most
recent issuances of Common Stock for securities convertible
into or exchangeable for Common Stock, if any such issuance
has occurred in the six (6) months prior to the date in
question. If no such issuance has occurred, the Market Price
will be the fair market value per Warrant Share, on an
enterprise theory of valuation, determined by the Company's
Board of Directors acting in good faith with advice from a
recognized valuation expert.
"PERSON" means a corporation, an association, a
trust, a partnership, a joint venture, a limited liability
company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental
body.
"SECURITIES ACT" means the Securities Act of 1933,
as amended, or any similar federal statute, and the rules and
regulations of the Securities and Exchange Commission
promulgated thereunder, all as the same shall be in effect at
the time.
"WARRANT SHARES" means the number of shares of
Common
Stock that may be acquired upon exercise of this Warrant.
SECTION 2. EXERCISE OF WARRANT.
2.1 EXERCISE OF WARRANT. The Holder may, at any
time on and after the date hereof, but not later than the
Expiration Date, exercise this Warrant in whole or in part.
2.2 METHOD OF EXERCISE.
2.2.1 CASH/EXCHANGE OF SHARES. The Holder may
exercise this Warrant for cash by delivering to the Company
prior to the Expiration Date (a) this Warrant, (b) a
Subscription Form in the form of Exhibit A and (c) the
Exercise Price for the Warrant Shares so acquired, which may
be paid in cash or by the delivery of shares of Common Stock
with a Market Price equal to the aggregate Exercise Price for
the Warrant Shares so acquired.
2.2.2 CASHLESS EXERCISE. This Warrant can also be
exercised, in whole or in part, in a "cashless" exercise,
upon delivery to the Company of (a) this Warrant and (b) a
Cashless Exercise Form in the form of Exhibit B. In a
cashless exercise, the right to purchase each Warrant Share
may be exchanged for that number of Shares of Common Stock
determined by multiplying the number one (1) by a fraction,
the numerator of which will be the excess of (y) the then
current Market Price over (z) the Exercise Price, and the
denominator of which will be the then current Market Price.
2.3 ISSUANCE OF WARRANT SHARES. Upon the Holder's
exercise of the Warrant, the Company shall, within five (5)
Business Days, issue the Warrant Shares so purchased to the
Holder.
SECTION 3. ADJUSTMENT OF WARRANT SHARES;
ANTI-DILUTION PROVISIONS.
If any of the following events occurs at any time
hereafter prior to the full exercise of this Warrant, then
the Exercise Price and/or the number of remaining Warrant
Shares to be purchased hereunder immediately prior to such
event shall be adjusted as described below:
3.1 STOCK SUBDIVISIONS OR STOCK CONSOLIDATIONS.
If at any time the outstanding shares of Common Stock are
subdivided into a greater number of shares, whether by stock
split, stock dividend or otherwise, then the number of
Warrant Shares remaining to be purchased hereunder will be
increased proportionately and the Exercise Price will be
reduced proportionately. Conversely, if at any time the
outstanding shares of Common Stock are consolidated into a
smaller number of shares, then the number of Warrant Shares
remaining to be purchased hereunder will be reduced
proportionately and the Exercise Price will be increased
proportionately. Each adjustment to the Exercise Price and
the number of Warrant Shares shall be effective on the record
date, or if there is no record date, the effective date for
such subdivision or consolidation.
3.2 DIVIDENDS. Following the date hereof, if the
Company proposes to declare a dividend on or make a
distribution of any kind (other than in Common Stock) with
respect to the Common Stock, the Company will deliver written
notice of such proposed event, in reasonable detail, to the
Holder not less than ten (10) Business Days prior to the
record date, to enable the Holder to decide whether to
exercise this Warrant prior to the record date.
3.3 RECLASSIFICATION OR REORGANIZATION. If the
Company engages in a reorganization, a reclassification of
its Common Stock, or in a merger or other combination with
another Person in which the other Person survives, upon
exercise of this Warrant, the Holder will be entitled to
receive the number of shares, securities or property the
Holder would have been entitled to receive if this Warrant
had been exercised immediately prior to the record date for
such event. The aggregate exercise price applicable to such
new shares, securities or property will be the aggregate
exercise price of all Warrant Shares remaining to be
purchased hereunder. If necessary, the rights and interests
of the Holder will be appropriately adjusted so as to be
applicable, as nearly as reasonably possible, to any such
shares, securities or property thereafter deliverable upon
exercise of this Warrant.
3.4 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
In the event that the Company shall issue Additional Shares
of Common Stock without consideration or for a consideration
per share less than the Exercise Price in effect on the date
of and immediately prior to such issue, then and in each such
event, such Exercise Price shall be reduced concurrently with
such issue of shares to a price equal to the consideration
per share for which the Additional Shares of Common Stock are
issued.
3.5 COMPUTATIONS AND ADJUSTMENTS. Upon each
computation of an adjustment under this Section 3, the
Exercise Price shall be computed to the nearest 1/1000 cent
and the number of Warrant Shares shall be calculated to the
nearest whole share (i.e., fractions of less than one-half
shall be disregarded and fractions of one-half or greater
shall be treated as being the next greater integer).
However, the fractional amount shall be used in calculating
any future adjustments.
3.6 NOTICES. When any adjustments are required to
be made under this Section 3, the Company shall as promptly
as practicable (i) determine such adjustments, (ii) prepare a
statement describing in reasonable detail the method used in
arriving at the adjustment and setting forth the calculation
thereof; and (iii) cause a copy of such statement to be given
to the Holder in accordance with Section 8.10.
SECTION 4. SECURITIES LAWS. The Holder of this
Warrant, by acceptance hereof, acknowledges that this Warrant
has not been and the Warrant Shares that may be issued
pursuant hereto have not been and may not be registered under
the Securities Act or applicable state securities laws. The
Holder of this Warrant, by acceptance hereof, represents that
it is fully informed as to the applicable limitations upon
any distribution or resale of this Warrant and any Warrant
Shares under the Securities Act and any applicable state
securities laws and agrees not to distribute or sell this
Warrant or any Warrant Shares if such distribution or resale
would constitute a violation of the Securities Act or any
applicable state securities laws or would cause the issuance
of this Warrant or the Warrant Shares, in the opinion of
counsel, to be in violation of the Securities Act or any
applicable state securities laws. The Holder of this Warrant
agrees that it will not transfer or sell this Warrant or the
Warrant Shares unless and until the Holder provides the
Company with an opinion of its counsel that such transfer or
sale can be made without violation of the Securities Act or
any applicable state securities laws. Any exercise hereof by
the Holder shall constitute a representation by the Holder
that the Warrant Shares are not being acquired with the view
to, or for resale in connection with, any distribution or
public offering thereof in violation of the Securities Act or
applicable state securities laws.
SECTION 5. RESERVATION OF WARRANT SHARES. The
Company will cause to be kept available, out of the
authorized and unissued shares of Common Stock, the full
number of shares sufficient to provide for the exercise of
the rights of purchase represented by this Warrant. Upon
issuance and delivery against payment pursuant to the terms
of this Warrant, all Warrant Shares will be validly issued,
fully paid and nonassessable.
SECTION 6. LOSS, DESTRUCTION OF WARRANT. Upon
receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of the Warrant
and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity satisfactory to the Company or, in
the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated
Warrant, a new Warrant of like tenor and representing the
right to purchase the same aggregate number of Warrant
Shares.
SECTION 7. ASSIGNMENT. This Warrant and the
rights hereunder are not assignable by the Holder to any
transferee until February 1, 1998. Thereafter, any Holder
may assign this Warrant and the rights hereunder to a
transferee, and upon such assignment, such transferee will
become the "Holder" under this Warrant.
SECTION 8. MISCELLANEOUS PROVISIONS.
8.1 AMENDMENTS; WAIVERS. Amendments, waivers,
demands, consents and approvals under this Warrant must be in
writing and designated as such. No failure or delay in
exercising any right will be deemed a waiver of such right.
8.2 GOVERNING LAW. This Warrant shall be governed
by, and construed and enforced in accordance with, the laws
of the State of California, without regard to conflicts of
laws principles.
8.3 JURISDICTION; VENUE; SERVICE OF PROCESS. Each
of the parties irrevocably submits to the jurisdiction of any
California State or United States Federal court sitting in
Los Angeles County in any action or proceeding arising out of
or relating to this Warrant or the transactions contemplated
hereby, and irrevocably agrees that any such action or
proceeding may be heard and determined only in such
California State or Federal court. Each of the parties
irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the
maintenance of any such action or proceeding.
8.4 HEADINGS. Headings of Sections and
subsections are for convenience only and are not a part of
this Warrant.
8.5 COUNTERPARTS. This Warrant may be executed in
one or more counterparts, all of which constitute one
agreement.
8.6 SUCCESSORS AND ASSIGNS. This Warrant is
binding upon and inures to the benefit of each party and such
party's respective heirs, personal representatives,
successors and assigns. Nothing in this Warrant, express or
implied, is intended to confer any rights or remedies upon
any other person.
8.7 EXPENSES; LEGAL FEES. Each party will pay its
own expenses in the negotiation, preparation and performance
of this Warrant. The prevailing party in any action relating
to this Warrant will be entitled to recover, in addition to
other appropriate relief, reasonable legal fees, costs and
expenses incurred in such action.
8.8 REPRESENTATION BY COUNSEL; INTERPRETATION.
Each party acknowledges that it has been represented by
counsel in connection with this Warrant. Any rule of law,
including, but not limited to, Section 1654 of the California
Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Warrant
against the party that drafted it, has no application and is
expressly waived.
8.9 SPECIFIC PERFORMANCE. In view of the
uniqueness of the matters contemplated by this Warrant, the
parties hereto would not have an adequate remedy at law for
money damages if this Warrant is not being performed in
accordance with its terms. The parties therefore agree that
each party will be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which such
party may be entitled.
8.10 NOTICES. All notices, demands and requests
required by this Warrant shall be in writing and shall be
deemed to have been given for all purposes (i) upon personal
delivery, (ii) one (1) business day after being sent, when
sent by professional overnight courier service for next
business day delivery from and to locations within the
continental United States, (iii) five (5) days after posting
when sent by registered or certified mail, or (iv) on the
date of receipt by the sending party of confirmation of the
successful transmission of the facsimile, as printed by the
facsimile machine, when sent by facsimile. Any party hereto
may from time to time by notice in writing served upon the
others as provided herein, designate a different mailing
address or a different party to which such notices or demands
are thereafter to be addressed or delivered.
(remainder of page intentionally left blank)
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have
caused this Warrant to be signed in its name by an officer or
authorized representative.
Dated: November 18, 1997
VARIFLEX, INC., a Delaware corporation
By:__________________________
Name: ________________
Title: ________________
Address: 5152 North Commerce Avenue
Moorpark, California 93021
Facsimile: (805) 523-7384
The foregoing is acknowledged
by and agreed to as of the
18th day of November, 1997
_______________________________
RAYMOND H. LOSI
Address: _____________________________
_____________________________
_____________________________
Facsimile: _________________
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
TO BE EXECUTED
UPON EXERCISE OF WARRANT
The undersigned exercises the right to purchase
_________ Warrant Shares, evidenced by the enclosed Warrant,
and makes payment of the Purchase Price in cash ($ ) or
by the exchange of shares of Common Stock.
Certificate(s) for such shares are to be issued and delivered
as set forth below.
(HOLDER)
By: ___________________________
Its: __________________________
Name to appear on
the stock certificate:
___________________________
(Please Print)
Name to appear on
the stock certificate:
____________________________
(Please Print)
Address: ____________________________
____________________________
____________________________
Employer Identification Number, Social
Security Number or other identifying
number: ________________________________
If the foregoing exercise is not for all of the
Warrant Shares purchasable under the Warrant, please register
and deliver a new Warrant for the unexercised portion as
follows:
Name: __________________________________
(Please Print)
Address: ____________________________
____________________________
____________________________
Employer Identification Number, Social
Security Number or other identifying
number: ________________________________
<PAGE>
EXHIBIT B
CASHLESS EXERCISE FORM
The undersigned Holder exercises the right to
purchase _________ Warrant Shares, evidenced by the enclosed
Warrant and requests that the Company exchange the Warrant
for Warrant Shares as provided in SECTION 2.2.2 of the
Warrant. Certificate(s) for
such shares are to be issued and delivered as set forth
below.
Date:
(HOLDER)
By: ___________________________
Its: __________________________
<TABLE>
<S> <C>
Name to appear on
the stock certificate:
____________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
If the foregoing exercise is not for all of the
Warrant Shares purchasable under the Warrant, please register
and deliver a new Warrant for the unexercised portion as
follows:
<TABLE>
<S> <C>
Name: __________________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
Calculation of Cashless Exercise:
A = Current Market Price: ___________________
B = Exercise Price: ________________________
X = Number of Shares of Common Stock to be issued for each
right to purchase one Warrant Share exchanged: ____________
A - B ( )
1 x = X ( )
A ( )
Total number of Warrant Shares issuable: __________________
Total number of Warrant Shares to be issued: _______________
<PAGE>
NEITHER THIS WARRANT NOR THE WARRANT SHARES HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE WARRANT SHARES MAY BE SOLD,
TRANS- FERRED, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE,
AS EVIDENCED (UPON THE COMPANY'S REASONABLE REQUEST) BY A
LEGAL OPINION FROM SUCH TRANSFEROR'S COUNSEL, WITH THE
REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS.
WARRANT
to Purchase Common Stock
of
Variflex, Inc.,
a Delaware corporation
THIS IS TO CERTIFY THAT: Raymond H. Losi, II or
registered transferees (collectively, the "Holder") is
entitled to purchase from Variflex, Inc., a Delaware
corporation (the "Company"), at any time and from time to
time on and after the date hereof an aggregate of One Hundred
Thousand (100,000) shares of Common Stock (defined below),
exercisable in whole or in part, at a purchase price of Five
and 10/100 Dollars ($5.10) per share, all on the terms and
conditions and subject to the adjustments provided herein.
Section I. Certain Definitions. The following
capitalized terms as used in this Warrant shall have the
following meanings:
"Additional Shares of Common Stock" means all
shares of Common Stock issued by the Company after the date
hereof, other than shares of Common Stock issued or issuable
at any time pursuant to a stock consolidation, subdivision,
dividend, acquisition, employee stock option plan or employee
stock bonus plan.
"Business Day" means any day on which commercial
banks are not authorized or required to close in Los Angeles,
California.
"Common Stock" means the Company's authorized
Common Stock, par value $0.001 per share, or any securities
of any Person the Holder is entitled to purchase as a result
of adjustments under Section 3.3.
"Exercise Price" means a price per share of
Common Stock equal to Five and 10/100 Dollars ($5.10), as
adjusted pursuant to Section 3 hereof.
"Expiration Date" means the date which is seven
years from the date hereof.
"Market Price" means, if the Warrant Shares are
publicly traded, the closing price per share for the date in
question. The closing price will be the last sales price
regular way or, if no such sale takes place on such day, the
average of the closing bid and ask prices regular way on the
principal United States trading market on which the Warrant
Shares are listed or admitted to trading. If the Warrant
Shares are not listed or admitted to trading on a recognized
United States trading market, the Market Price will be the
price per Warrant Share implied from the Company's most
recent issuances of Common Stock for securities convertible
into or exchangeable for Common Stock, if any such issuance
has occurred in the six (6) months prior to the date in
question. If no such issuance has occurred, the Market Price
will be the fair market value per Warrant Share, on an
enterprise theory of valuation, determined by the Company's
Board of Directors acting in good faith with advice from a
recognized valuation expert.
"Person" means a corporation, an association, a
trust, a partnership, a joint venture, a limited liability
company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental
body.
"Securities Act" means the Securities Act of
1933, as amended, or any similar federal statute, and the
rules and regulations of the Securities and Exchange
Commission promulgated thereunder, all as the same shall be
in effect at the time.
"Warrant Shares" means the number of shares of
Common Stock that may be acquired upon exercise of this
Warrant.
Section II. Exercise of Warrant.
A. Exercise of Warrant. The Holder may, at
any time on and after the date hereof, but not later than the
Expiration Date, exercise this Warrant in whole or in part.
B. Method of Exercise.
1. Cash/Exchange of Shares. The Holder may
exercise this Warrant for cash by delivering to the Company
prior to the Expiration Date (a) this Warrant, (b) a
Subscription Form in the form of Exhibit A and (c) the
Exercise Price for the Warrant Shares so acquired, which may
be paid in cash or by the delivery of shares of Common Stock
with a Market Price equal to the aggregate Exercise Price for
the Warrant Shares so acquired.
2. Cashless Exercise. This Warrant can also be
exercised, in whole or in part, in a "cashless" exercise,
upon delivery to the Company of (a) this Warrant and (b) a
Cashless Exercise Form in the form of Exhibit B. In a
cashless exercise, the right to purchase each Warrant Share
may be exchanged for that number of Shares of Common Stock
determined by multiplying the number one (1) by a fraction,
the numerator of which will be the excess of (y) the then
current Market Price over (z) the Exercise Price, and the
denominator of which will be the then current Market Price.
C. Issuance of Warrant Shares. Upon the
Holder's exercise of the Warrant, the Company shall, within
five (5) Business Days, issue the Warrant Shares so purchased
to the Holder.
Section III. Adjustment of Warrant Shares;
Anti-Dilution Provisions.
If any of the following events occurs at any time
hereafter prior to the full exercise of this Warrant, then
the Exercise Price and/or the number of remaining Warrant
Shares to be purchased hereunder immediately prior to such
event shall be adjusted as described below:
A. Stock Subdivisions or Stock Consolidations.
If at any time the outstanding shares of Common Stock are
subdivided into a greater number of shares, whether by stock
split, stock dividend or otherwise, then the number of
Warrant Shares remaining to be purchased hereunder will be
increased proportionately and the Exercise Price will be
reduced proportionately. Conversely, if at any time the
outstanding shares of Common Stock are consolidated into a
smaller number of shares, then the number of Warrant Shares
remaining to be purchased hereunder will be reduced
proportionately and the Exercise Price will be increased
proportionately. Each adjustment to the Exercise Price and
the number of Warrant Shares shall be effective on the record
date, or if there is no record date, the effective date for
such subdivision or consolidation.
B. Dividends. Following the date hereof, if
the Company proposes to declare a dividend on or make a
distribution of any kind (other than in Common Stock) with
respect to the Common Stock, the Company will deliver written
notice of such proposed event, in reasonable detail, to the
Holder not less than ten (10) Business Days prior to the
record date, to enable the Holder to decide whether to
exercise this Warrant prior to the record date.
C. Reclassification or Reorganization. If the
Company engages in a reorganization, a reclassification of
its Common Stock, or in a merger or other combination with
another Person in which the other Person survives, upon
exercise of this Warrant, the Holder will be entitled to
receive the number of shares, securities or property the
Holder would have been entitled to receive if this Warrant
had been exercised immediately prior to the record date for
such event. The aggregate exercise price applicable to such
new shares, securities or property will be the aggregate
exercise price of all Warrant Shares remaining to be
purchased hereunder. If necessary, the rights and interests
of the Holder will be appropriately adjusted so as to be
applicable, as nearly as reasonably possible, to any such
shares, securities or property thereafter deliverable upon
exercise of this Warrant.
D. Issuance of Additional Shares of Common
Stock. In the event that the Company shall issue Additional
Shares of Common Stock without consideration or for a
consideration per share less than the Exercise Price in
effect on the date of and immediately prior to such issue,
then and in each such event, such Exercise Price shall be
reduced concurrently with such issue of shares to a price
equal to the consideration per share for which the Additional
Shares of Common Stock are issued.
E. Computations and Adjustments. Upon each
computation of an adjustment under this Section 3, the
Exercise Price shall be computed to the nearest 1/1000 cent
and the number of Warrant Shares shall be calculated to the
nearest whole share (i.e., fractions of less than one-half
shall be disregarded and fractions of one-half or greater
shall be treated as being the next greater integer).
However, the fractional amount shall be used in calculating
any future adjustments.
F. Notices. When any adjustments are required
to be made under this Section 3, the Company shall as
promptly as practicable (i) determine such adjustments, (ii)
prepare a statement describing in reasonable detail the
method used in arriving at the adjustment and setting forth
the calculation thereof; and (iii) cause a copy of such
statement to be given to the Holder in accordance with
Section 8.10.
Section IV. Securities Laws. The Holder of
this Warrant, by acceptance hereof, acknowledges that this
Warrant has not been and the Warrant Shares that may be
issued pursuant hereto have not been and may not be
registered under the Securities Act or applicable state
securities laws. The Holder of this Warrant, by acceptance
hereof, represents that it is fully informed as to the
applicable limitations upon any distribution or resale of
this Warrant and any Warrant Shares under the Securities Act
and any applicable state securities laws and agrees not to
distribute or sell this Warrant or any Warrant Shares if such
distribution or resale would constitute a violation of the
Securities Act or any applicable state securities laws or
would cause the issuance of this Warrant or the Warrant
Shares, in the opinion of counsel, to be in violation of the
Securities Act or any applicable state securities laws. The
Holder of this Warrant agrees that it will not transfer or
sell this Warrant or the Warrant Shares unless and until the
Holder provides the Company with an opinion of its counsel
that such transfer or sale can be made without violation of
the Securities Act or any applicable state securities laws.
Any exercise hereof by the Holder shall constitute a
representation by the Holder that the Warrant Shares are not
being acquired with the view to, or for resale in connection
with, any distribution or public offering thereof in
violation of the Securities Act or applicable state
securities laws.
Section V. Reservation of Warrant Shares. The
Company will cause to be kept available, out of the
authorized and unissued shares of Common Stock, the full
number of shares sufficient to provide for the exercise of
the rights of purchase represented by this Warrant. Upon
issuance and delivery against payment pursuant to the terms
of this Warrant, all Warrant Shares will be validly issued,
fully paid and nonassessable.
Section VI. Loss, Destruction of Warrant. Upon
receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of the Warrant
and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity satisfactory to the Company or, in
the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated
Warrant, a new Warrant of like tenor and representing the
right to purchase the same aggregate number of Warrant
Shares.
Section VII. Assignment. This Warrant and the
rights hereunder are not assignable by the Holder to any
transferee until February 1, 1998. Thereafter, any Holder
may assign this Warrant and the rights hereunder to a
transferee, and upon such assignment, such transferee will
become the "Holder" under this Warrant.
Section VIII. Miscellaneous Provisions.
A. Amendments; Waivers. Amendments, waivers,
demands, consents and approvals under this Warrant must be in
writing and designated as such. No failure or delay in
exercising any right will be deemed a waiver of such right.
B. Governing Law. This Warrant shall be
governed by, and construed and enforced in accordance with,
the laws of the State of California, without regard to
conflicts of laws principles.
C. Jurisdiction; Venue; Service of Process.
Each of the parties irrevocably submits to the jurisdiction
of any California State or United States Federal court
sitting in Los Angeles County in any action or proceeding
arising out of or relating to this Warrant or the
transactions contemplated hereby, and irrevocably agrees that
any such action or proceeding may be heard and determined
only in such California State or Federal court. Each of the
parties irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to
the maintenance of any such action or proceeding.
D. Headings. Headings of Sections and
subsections are for convenience only and are not a part of
this Warrant.
E. Counterparts. This Warrant may be executed
in one or more counterparts, all of which constitute one
agreement.
F. Successors and Assigns. This Warrant is
binding upon and inures to the benefit of each party and such
party's respective heirs, personal representatives,
successors and assigns. Nothing in this Warrant, express or
implied, is intended to confer any rights or remedies upon
any other person.
G. Expenses; Legal Fees. Each party will pay
its own expenses in the negotiation, preparation and
performance of this Warrant. The prevailing party in any
action relating to this Warrant will be entitled to recover,
in addition to other appropriate relief, reasonable legal
fees, costs and expenses incurred in such action.
H. Representation by Counsel; Interpretation.
Each party acknowledges that it has been represented by
counsel in connection with this Warrant. Any rule of law,
including, but not limited to, Section 1654 of the California
Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Warrant
against the party that drafted it, has no application and is
expressly waived.
I. Specific Performance. In view of the
uniqueness of the matters contemplated by this Warrant, the
parties hereto would not have an adequate remedy at law for
money damages if this Warrant is not being performed in
accordance with its terms. The parties therefore agree that
each party will be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which such
party may be entitled.
J. Notices. All notices, demands and requests
required by this Warrant shall be in writing and shall be
deemed to have been given for all purposes (i) upon personal
delivery, (ii) one (1) business day after being sent, when
sent by professional overnight courier service for next
business day delivery from and to locations within the
continental United States, (iii) five (5) days after posting
when sent by registered or certified mail, or (iv) on the
date of receipt by the sending party of confirmation of the
successful transmission of the facsimile, as printed by the
facsimile machine, when sent by facsimile. Any party hereto
may from time to time by notice in writing served upon the
others as provided herein, designate a different mailing
address or a different party to which such notices or demands
are thereafter to be addressed or delivered.
(remainder of page intentionally left blank)
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder
have caused this Warrant to be signed in its name by an
officer or authorized representative.
Dated: November 18, 1997
VARIFLEX, INC., a Delaware corporation
By:__________________________
Name: ________________
Title: ________________
Address: 5152 North Commerce Avenue
Moorpark, California
93021
Facsimile: (805) 523-7384
The foregoing is acknowledged
by and agreed to as of the
18th day of November, 1997
_______________________________
RAYMOND H. LOSI, II
Address: _____________________________
_____________________________
_____________________________
Facsimile: _________________
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
To Be Executed
Upon Exercise of Warrant
The undersigned exercises the right to purchase
_________ Warrant Shares, evidenced by the enclosed Warrant,
and makes payment of the Purchase Price in cash
_____________________________________________________________
($ ______) or by the exchange of ________ shares of Common
Stock. Certificate(s) for such shares are to be issued and
delivered as set forth below.
Date: (HOLDER)
By: ________________________
Its:_______________________
Name to appear on
the stock certificate:
_____________________________
(Please Print)
Address: _____________________________
_____________________________
_____________________________
Employer Identification Number, Social
Security Number or other identifying
number: __________________________________
If the foregoing exercise is not for all of the
Warrant Shares purchasable under this Warrant, please
register and deliver a new Warrant for the unexercised
portion as follows:
Name: ___________________________________
(Please Print)
Address: _________________________________
_________________________________
_________________________________
Employer Identification Number, Social
Security Number or other identifying
number: __________________________________________
<PAGE>
EXHIBIT B
CASHLESS EXERCISE FORM
The undersigned Holder exercises the right to purchase
_________ Warrant Shares, evidenced by the enclosed Warrant
and requests that the Company exchange the Warrant for
Warrant Shares as provided in Section 2.2.2 of the Warrant.
Certificate(s) for such shares are to be issued and delivered
as set forth below.
Date: _________________________
(HOLDER)
By: ____________________
Its:_______________________
Name to appear on
the stock certificate:
_____________________________
(Please Print)
<TABLE>
<S> <C>
Name: __________________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
If the foregoing exercise is not for all of the
Warrant Shares purchasable under the warrant, please register
and deliver a new Warrant for the unexercised portion as
follows:
<TABLE>
<S> <C>
Name: __________________________________
(Please Print)
Address: ____________________________ Employer Identification
Number, Social
____________________________ Security Number or
other identifying
____________________________ number:
________________________________
</TABLE>
Calculation of Cashless Exercise:
A = Current Market Price: ______________________________
B = Exercise Price: ____________________________________
X = Number of Shares of Common Stock to be issued for each
right to purchase one Warrant Share exchanged: _____________
A - B (__________ )
1 x ____________________ = X ( ______________ )
A (___________ )
Total number of Warrant Shares issuable: ___________________
Total number of Warrant Shares to be issued: _______________
<PAGE>
