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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest
event reported):
November 18, 1997
VARIFLEX, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-24338 95-3164466
(Commissioner File Number) (IRS Employer Identification Number
5152 N. Commerce Avenue
MOORPARK, CA 93021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 523-0322
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<PAGE>
Item 5. Other Events.
On November 18, 1997, Remy Capital Partners IV, L.P., a private investment
partnership ("Remy"), acquired approximately 28 percent of the common stock of
Variflex, Inc. (the "Company"). Remy purchased stock from entities controlled by
Raymond H. Losi, a co-founder of the Company, and other members of the Losi
family, for $9.2 million, or $5.50 per share (the "Transaction"). The Losi
family interests continue to hold approximately 32 percent of the Company's
outstanding shares.
In connection with the Transaction, Mark S. Siegel and Randall L. Bishop
of Remy have been appointed to the Company's Board of Directors. Mr. Siegel will
assume the position of Chairman of the Board, succeeding Raymond H. Losi who
will continue to serve as a director. Raymond H. Losi, II, who was not among the
selling shareholders and continues to beneficially own 22 percent of the
Company's outstanding stock, was elected Chief Executive Officer, and retains
the titles and responsibilities of President and Chief Operating Officer. As
part of the Transaction, Gerald I. Boyce, Barbara Losi and Marvin G. Murphy
resigned as directors.
In accordance with the terms of the Transaction, the Company entered into
consulting agreements with each of Raymond H. Losi and Remy (the "Consulting
Agreements"), pursuant to which Raymond H. Losi and Remy will each act as
independent consultants for a period of two years. As compensation under the
Consulting Agreements, Remy is to receive warrants to purchase 400,000 shares of
the Company's Common Stock at a price of $5.10 per share (the "Warrant Share
Price") and Raymond H. Losi is to receive a fee of $100,000 per year, other
perquisites and warrants to purchase 200,000 shares of the Company's Common
Stock at the Warrant Share Price. The warrants issued to Raymond H. Losi, as
well as warrants to purchase 100,000 shares of the Company's Common Stock at the
Warrant Share Price that were issued to Raymond H. Losi, II in accordance with
the Transaction (together, the "Warrants"), were issued by the Company in
accordance with Rule 16b-3 of the Securities Exchange Act of 1934, as amended.
In accordance with the terms of the Transaction, the Company also granted
certain registration rights to each of Remy and Raymond H. Losi, II.
Also in connection with the Transaction, a Voting Rights Agreement was
entered into among entities controlled by the Losi Family that hold Common Stock
of the Company (the "Losi Entities") and Remy (the "Voting Rights Agreement")
pursuant to which the parties agreed to the procedures the parties would follow
in nominating and voting for directors of the Company. Subject to certain
adjustments in the event that the holdings of Common Stock of Remy, on one hand,
or the Losi Entities, on the other hand, decline to certain levels, the Voting
Rights Agreement stipulates that, beginning in 1998, at each annual meeting of
the Company, the parties will vote the shares of Common Stock of the Company
owned by them for six directors, of which two directors shall be nominated by
Remy, two directors shall be nominated by the Losi Entities and two independent
directors shall be agreed to by the Losi Entities and Remy.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) EXHIBITS. The following exhibits accompany this Report:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.1 Stock Purchase Agreement dated November 18, 1997, by and
between Remy Capital Partners IV, L.P., The RHL Limited
Partnership, EML Enterprises, L.P. and The BL 1995 Limited
Partnership.
10.2 Registration Rights Agreement dated November 18, 1997, by
and among Variflex, Inc., Remy Capital Partners IV, L.P. and
Raymond H. Losi, II.
10.3 Voting Agreement dated November 18, 1997, by and among
Raymond H. Losi, Raymond H. Losi, II, Raymond H. Losi, as
Trustee of the 1989 Raymond H. Losi Revocable Trust under
Declaration of Trust dated January 23, 1989, Losi
Enterprises Limited Partnership, Raymond H. Losi, II and
Kathy Losi, as Co-Trustees of the Jay and Kathy Losi
Revocable Trust dated January 1, 1989, EML Enterprises,
L.P., Eileen Losi, as Trustee of the Eileen Losi Revocable
Trust under Declaration of Trust dated October 13, 1993,
Barbara Losi, as Trustee of the 1989 Barbara Losi Revocable
Trust under Declaration of Trust dated January 31, 1989, The
BL 1995 Limited Partnership, Raymond H. Losi, as Trustee of
the Diane K. Losi Trust and Remy Capital Partners IV, L.P.
10.4 Warrant to purchase Variflex, Inc. Common Stock issued to
Remy Capital Partners IV, L.P.
10.5 Warrant to purchase Variflex, Inc. Common Stock issued to
Raymond H.
Losi.
10.6 Warrant to purchase Variflex, Inc. Common Stock issued to
Raymond H. Losi, II.
10.7 Consulting Agreement dated November 18, 1997, by and between
Variflex, Inc. and Remy Capital Partners IV, L.P.
10.8 Consulting Agreement dated November 18, 1997, by and between
Variflex, Inc. and Raymond H. Losi.
99.1 News Release dated November 19, 1997, announcing that Remy
Capital Partners IV, L.P., acquired approximately 28 percent
of the Company's common stock through a purchase from
Raymond H. Losi and other members of the Losi family, and
that Mark S. Siegal and Randall L. Bishop had been appointed
to the Company's Board of Directors and that Gerald I.
Boyce, Barbara Losi and Marvin G. Murphy resigned as
directors.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VARIFLEX, INC.
By: /S/ RAYMOND H. LOSI II
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Raymond H. Losi II
President (Principal Executive
Officer)
Date: November 26, 1997
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBIT NUMBERED PAGE
10.1 Stock Purchase Agreement dated November 18,
1997, by and between Remy Capital Partners IV,
L.P., The RHL Limited Partnership, EML
Enterprises, L.P. and The BL 1995 Limited
Partnership.
10.2 Registration Rights Agreement dated
November 18, 1997, by and among Variflex,
Inc., Remy Capital Partners IV, L.P. and
Raymond H. Losi, II.
10.3 Voting Agreement dated November 18, 1997, by
and among Raymond H. Losi, Raymond H. Losi,
II, Raymond H. Losi, as Trustee of the
1989 Raymond H. Losi Revocable Trust under
Declaration of Trust dated January 23, 1989,
Losi Enterprises Limited Partnership,
Raymond H. Losi, II and Kathy Losi, as Co-
Trustees of the Jay and Kathy Losi Revocable
Trust dated January 1, 1989, EML Enterprises,
L.P., Eileen Losi, as Trustee of the Eileen
Losi Revocable Trust under Declaration of
Trust dated October 13, 1993, Barbara Losi,
as Trustee of the 1989 Barbara Losi Revocable
Trust under Declaration of Trust dated January
31, 1989, The BL 1995 Limited Partnership,
Raymond H. Losi, as Trustee of the Diane K.
Losi Trust and Remy Capital Partners IV, L.P.
10.4 Warrant to purchase Variflex, Inc. Common
Stock issued to Remy Capital Partners IV, L.P.
10.5 Warrant to purchase Variflex, Inc. Common
Stock issued to Raymond H. Losi.
10.6 Warrant to purchase Variflex, Inc. Common
Stock issued to Raymond H. Losi, II.
10.7 Consulting Agreement dated November 18,
1997, by and between Variflex, Inc. and
Remy Capital Partners IV, L.P.
10.8 Consulting Agreement dated November 18,
1997, by and between Variflex, Inc. and
Raymond H. Losi.
99.1 News Release dated November 19, 1997,
announcing that Remy Capital Partners IV,
L.P., acquired approximately 28 percent of
the Company's common stock through a
purchase from Raymond H. Losi and other
members of the Losi family, and that Mark S.
Siegal and Randall L. Bishop had been
appointed to the Company's Board of
Directors and that Gerald I. Boyce, Barbara
Losi and Marvin G. Murphy resigned as directors.
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 1. PURCHASE AND SALE OF STOCK; WARRANTS; REGISTRATION RIGHTS AGREEMENT.
1.1 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.
1.2 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.
1.3 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.
1.4 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.
1.5 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 2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Sellers jointly and
severally represent and warrant to Buyer as follows:
2.1 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.
2.2 (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
limiting 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.
2.3 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.
2.4 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
otherwise), 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.
2.5 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.
2.6 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.
2.7 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.
2.8 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 3. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Sellers as follows:
3.1 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.
3.2 (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.
3.3 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.
3.4 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 4. CONDITIONS OF PURCHASE.
4.1 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.
4.2 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 5. SURVIVAL OF REPRESENTATION AND WARRANTIES; INDEMNIFICATION.
5.1 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.
5.2 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.
5.3 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 6. GENERAL.
6.1 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.
6.2 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.
6.3 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.
6.4 Headings of Sections and subsections are for convenience only and
are not a part of this Agreement.
6.5 This Agreement may be executed in one or more counterparts, all of
which constitute one agreement.
6.6 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.
6.7 Each party will pay its own expenses in the negotiation, preparation
and performance of this Agreement.
6.8 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.
6.9 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.
6.10 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.
6.11 (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.
6.12 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
SHARES TO BE
NAME SHARES OWNED SOLD
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
<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
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is entered
into as of November 18, 1997, by and among Variflex, Inc., a Delaware
corporation (the "COMPANY"), Remy Capital Partners IV, L.P., a Delaware limited
partnership ("REMY") and Raymond H. Losi, II ("LOSI") (Remy and Losi are
sometimes collectively referred to herein as the "HOLDERS" and each,
individually, a "HOLDER").
In consideration of the mutual promises contained herein, the
parties hereby agree as follows:
SECTION 1 CERTAIN DEFINITIONS. As used in this Agreement,
unless the context otherwise requires:
"AFFILIATE" means, with regard to any Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such first Person; or (ii) any trust in which such
Person is the trustee and has sole voting and dispositive power.
"BUSINESS DAY" means any day that commercial banks are not
authorized or required to close in Los Angeles, California.
"COMMISSION" means the Securities and Exchange Commission or any
other similar or successor agency of the United States government administering
the Securities Act.
"COMMON STOCK" means the Common Stock of the Company, par
value $.001 per share.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and any
similar or successor federal statute, and the rules and regulations of the
Commission thereunder, as in effect at the time.
"INITIATING HOLDER" means the Holder who has given a Demand
Notice pursuant to Section 2.1.
"OFFERING" means the registration of the Company's securities
under the Securities Act, whether underwritten or not, for sale to the public.
"PERSON" means a corporation, an association, a trust, a
partnership, a limited liability company, a joint venture, an organization, a
business, an individual, a government or political subdivision thereof or a
governmental body.
"PROSPECTUS" means the prospectus included in any Registration
Statement, together with and including any amendment or supplement to such
prospectus, covering the Offering of any portion of the Registrable Securities
covered by a Registration Statement, and all material incorporated by reference
in such Prospectus.
"REGISTRABLE SECURITIES" means shares of the Common Stock held by
the Holders or their respective Affiliates or otherwise acquired by the Holders
or their respective Affiliates (collectively, the "SHARES") and any securities
issued or issuable with respect to the Shares by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation, reclassification or other reorganization. A security will
cease to be a Registrable Security when it (a) has been effectively registered
under the Securities Act and disposed of in accordance with the Registration
Statement covering it, (b) is distributed to the public pursuant to Rule 144 (or
any similar rule then in force) under the Securities Act, or (c) has otherwise
been transferred and a new certificate not bearing a restrictive legend and not
subject to any stop transfer order lawfully has been delivered by or on behalf
of the Company and no other restriction on transfer exists.
"REGISTRATION STATEMENT" means a registration statement filed by
the Company with the Commission covering Registrable Securities.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar federal statute, together with the rules and regulations of the
Commission promulgated thereunder, as in effect at the time.
OTHER DEFINITIONS. The following terms shall have the meanings
set forth in the following sections:
DEFINITION SECTION
"COMPANY" Introduction
"CONTROLLING PERSON" 5.1
"DEMAND NOTICE" 2.1
"DEMAND REGISTRATION STATEMENT" 2.1
"INDEMNIFIED PERSONS" 5.1
"LOSSES" 5.1
"OTHER HOLDER" 2.1
"OTHER SHARES" 2.1.1(a)
"PIGGYBACK NOTICE" 2.2.1
"PIGGYBACK REGISTRATION STATEMENT" 2.2
"REGISTERING HOLDERS" 3.1
"REGISTRATION EXPENSES" 3.13
"SHARES" 1
SECTION 2 REGISTRATION RIGHTS.
2.1 DEMAND REGISTRATION. Commencing on the date hereof, an
Initiating Holder may, by notice to the Company (the "DEMAND NOTICE"), demand
that the Company file, and the Company will file, a Registration Statement as
soon as practicable covering the Registrable Securities specified in the Demand
Notice by the Initiating Holder (a "DEMAND REGISTRATION STATEMENT"). Such Demand
Registration Statement will be filed on an appropriate form under the Securities
Act no later than ninety (90) days after the Company receives the Demand Notice.
Remy will be entitled to demand that the Company file and cause to be declared
effective Demand Registration Statements on three (3) separate occasions. Losi
will be entitled to demand that the Company file and cause to be declared
effective Demand Registration Statements on three (3) separate occasions. The
Company will use its best efforts to cause any Demand Registration Statement to
be declared effective on the date requested by the managing underwriter for the
Offering (no earlier than sixty (60) days from the date of the Demand Notice),
or, if such Offering is not underwritten, as soon as practicable after the
filing with the Commission. The Company will keep such Demand Registration
Statement effective until the Offering is completed (but not more than one
hundred eighty (180) days from the effective date of the Demand Registration
Statement). Upon receipt of a Demand Notice, the Company shall provide notice
thereof to the Holder other than the Initiating Holder (the "OTHER HOLDER").
2.1.1 COMPANY/OTHER HOLDER PARTICIPATION. The Other
Holder and/or the Company can elect to register equity securities of the Company
in any Demand Registration Statement or to participate in the Offering, by
including any of their Registrable Securities in the Demand Registration
Statement, subject to the following:
(a) NOTICE. The Other Holder and/or the Company must
give notice of such election to the Initiating Holder within fifteen (15) days
after the Demand Notice was given by the Company to the Other Holder, including
the number of Shares proposed to be sold by the Other Holder and/or the Company
in the Offering (the "OTHER SHARES");
(b) CONDITIONS. The Other Holder and/or the Company must
agree to sell such Other Shares on the same basis provided in the underwriting
arrangements approved by the Initiating Holder and the Company (including
standard indemnification provisions) and to timely complete and execute all
questionnaires, powers of attorney, indemnities, holdback agreements,
underwriting agreements and other documents reasonably required by such
underwriting arrangements, by the Commission or by any state securities
regulatory body;
(c) LIMITATION ON AMOUNT. If the managing underwriter
for any underwritten Offering reasonably decides that inclusion of all or any
portion of the Other Shares in such Offering would materially and adversely
affect the ability of the underwriters to sell all of the securities requested
to be included in such Offering, and delivers to the Company its written opinion
to such effect, the number of Other Shares that may be sold in such Offering
will be limited. In such event, the number of shares of Common Stock that may be
sold in the Offering will be allocated first to the Initiating Holder, second,
to the extent available, to the Other Holder, third, to the extent available, to
the Company and, fourth, to the extent available, to any other party having
registration rights with respect to the Common Stock.
2.2 "PIGGYBACK" REGISTRATION. If at any time, or from time to
time, the Company decides to file a Registration Statement covering any shares
of its Common Stock (other than a registration statement on Form S-4 or S-8, or
any form substituted therefor) for its own account or for the account of any
stockholder (a "PIGGYBACK REGISTRATION STATEMENT"), the Holders will be entitled
to include Registrable Securities in such registration and related Offering on
the following terms and conditions.
2.2.1 NOTICE. The Company will promptly give notice of
such decision to the Holders (a "PIGGYBACK NOTICE"). The Holders will have the
right to request, by notice given to the Company within ten (10) Business Days
after it receives the Piggyback Notice, that a specific number of Registrable
Securities held by the Holders be included in the Piggyback Registration
Statement and related underwritten Offering, if any.
If the Piggyback Registration Statement relates to an
underwritten Offering, the Piggyback Notice must specify the name of the
managing underwriter for such Offering. The Piggyback Notice must also specify
the number of shares to be registered for the account of the Company and for the
account of any stockholder, and the intended method of disposition of such
shares.
2.2.2 UNDERWRITTEN OFFERING. If the Piggyback
Registration Statement relates to an underwritten Offering, as a condition to
participation in such Piggyback Registration Statement the Holders must agree to
sell its Registrable Securities on the same basis provided in the underwriting
arrangements approved by the Company (including standard indemnification
provisions) and to timely complete and execute all questionnaires, powers of
attorney, indemnities, holdback agreements, underwriting agreements and other
documents required under the terms of such underwriting arrangements, by the
Commission or by any state securities regulatory body.
2.2.3 BEST EFFORTS. The Company will use its best
efforts to include in the Piggyback Registration Statement the number of
Registrable Securities requested in response to the Piggyback Notice. If the
managing underwriter for any underwritten Offering under the Piggyback
Registration Statement reasonably decides that inclusion of all or any portion
of the Registrable Securities in such Offering would materially and adversely
affect the ability of the underwriters to sell all of the securities requested
to be included in such Offering, and delivers to the Holders its written opinion
to such effect, the number of securities that may be sold in such Offering will
be limited. Securities to be sold will be allocated first to the Company (or, if
the Offering is being made principally for the account of another Person, to
such Person), second to the Holders pro rata between the Holders based upon the
respective number of shares sought by each to be included in the Offering, and,
third, to any other third party (or to the Company if the Offering is being made
principally for the account of another Person) having registration rights with
respect to the Common Stock.
2.2.4 WITHDRAWALS. The Holders will have the right to
withdraw their Registrable Securities from the Piggyback Registration Statement,
but if the same relates to an underwritten Offering, they may only do so during
the time period and on terms agreed upon by the Holders and the underwriters for
such underwritten Offering. The Company will on five (5) Business Days notice to
the Holders have the right to withdraw any Piggyback Registration Statement at
any time prior to the effective date thereof.
2.3 SELECTION OF UNDERWRITERS. If the Registrable Securities
covered by a Demand Registration Statement are to be sold in an underwritten
Offering, the managing underwriter of such Offering may be designated by the
Initiating Holder. If the Registrable Securities included in a Piggyback
Registration Statement are to be sold in an underwritten Offering, the managing
underwriter of such Offering will be designated by the Company (or, if the
Offering is being made principally for the account of another Person, by such
Person).
SECTION 3 REGISTRATION PROCEDURES. The Company will use its best
efforts to effect any registration under Section 2 in a manner that permits the
sale of the Registrable Securities covered thereby in accordance with the
intended method or methods of disposition. The Company will, as promptly as
practicable, do the following.
3.1 REVIEW. At least five (5) Business Days before filing a
Registration Statement or Prospectus, the Company will furnish to the Holder(s)
who are participating in such Registration Statement (the "REGISTERING HOLDERS")
and the underwriters, if any, copies of all such documents proposed to be filed.
Such documents will be subject to the review of the Registering Holders and such
underwriters (and their respective counsel). The Company will not file any
Registration Statement or any Prospectus to which the Registering Holders or the
underwriters, if any, reasonably object. If the Registration Statement is a
Piggyback Registration Statement relating to an underwritten Offering and the
underwriters do not agree with such objection by the Registering Holders and the
Registering Holders are permitted to withdraw any Registrable Securities from
such Offering, the Company can file the Piggyback Registration Statement
notwithstanding such objection by the Registering Holders.
3.2 AMENDMENTS. The Company will (a) prepare and file with the
Commission such amendments and post-effective amendments to the Registration
Statement as may be necessary to keep the Registration Statement effective for
the applicable time period required herein; (b) cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act; and (c) comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended methods of disposition by the Registering
Holders set forth in such Registration Statement or Prospectus supplement.
3.3 NOTIFICATION. The Company will promptly notify the
Registering Holders and the managing underwriters, and (if requested by any such
Person) confirm such notification in writing, (a) when the Prospectus has been
filed, and, with respect to the Registration Statement, when it has become
effective, (b) of any request by the Commission for amendments or supplements to
the Registration Statement or the Prospectus or for additional information, (c)
of the issuance of any stop order suspending the effectiveness of the
Registration Statement, or the refusal or suspension of qualification of
registration of Registrable Securities, or the initiation of any proceedings for
that purpose, (d) if at any time the representations and warranties of the
Company contemplated by Section 8 cease to be true and correct, and (e) of any
event that makes any material statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or that
requires the making of any changes in the Registration Statement, the Prospectus
or any document incorporated therein by reference in order to make the
statements therein not misleading in any material respect. The Company will make
every reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible moment;
If any event contemplated by clause (e) occurs, the Company will
promptly prepare a supplement or post-effective amendment to the Registration
Statement or the Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. Upon receipt of any notice from
the Company that any event of the kind described in clause (e) has happened, the
Registering Holders will discontinue offering the Registrable Securities until
the Registering Holders receive the copies of the supplemented or amended
Prospectus contemplated by the previous sentence, or until they are advised in
writing by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus. The period during which distribution of the
Shares is suspended will not be counted toward completion of the required period
of effectiveness for any Registration Statement.
3.4 INFORMATION INCLUDED. If requested by the managing
underwriters or the Registering Holders, the Company will immediately
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters and the Registering Holders agree
should be included therein relating to the sale of the Registrable Securities,
including, but not limited to, information with respect to the number of
Registrable Securities being sold to such underwriters or other Persons, the
purchase price being paid therefor by such underwriters or other Persons and any
other terms of the distribution of the Registrable Securities to be sold in such
Offering. Such information will include, if applicable, any required disclosure
of arrangements with underwriters. The Company will make all required filings of
such Prospectus supplement or post-effective amendment as promptly as
practicable after being notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
3.5 COPIES. The Company will (a) promptly furnish to the
Registering Holders and each managing underwriter without charge, at least one
signed copy of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference), and (b) promptly deliver to the Registering Holders and the
underwriters without charge, as many copies of the Prospectus (including each
preliminary Prospectus) and any amendment or supplement thereto as such Persons
may reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the Registering Holders and the underwriters
in connection with the Offering and sale of the Registrable Securities covered
by the Prospectus or any amendment or supplement thereto.
3.6 BLUE SKY REQUIREMENTS. Prior to any Offering of Registrable
Securities covered by a Registration Statement under Section 2, the Company will
register or qualify or cooperate with the Registering Holders, the underwriters
and their respective counsel in connection with the registration or
qualification of such Registrable Securities under the securities or blue sky
laws of such jurisdictions as the Registering Holders or underwriter reasonably
request in writing, and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of such Registrable
Securities. The Company will not be required to take any actions under this
subsection if such actions would require it to submit to the general taxation of
such jurisdiction or to file therein any general consent to service of process,
unless this limitation means that the Registrable Securities would not be
qualified (or exempt from qualification) for offer and sale in at least twenty
(20) states.
3.7 OTHER REGISTRATIONS. The Company will use its best efforts to
cause the Registrable Securities covered by the Registration Statement to be
registered with or approved by such governmental agencies or authorities other
than the Commission and state securities regulatory bodies as may be necessary
to enable the Registering Holders or the underwriters to consummate the
disposition of such Registrable Securities.
3.8 CERTIFICATES. The Company will cooperate with the Registering
Holders and the managing underwriter to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold that do
not bear any restrictive legends. Such certificates will be in such
denominations and registered in such names as the managing underwriter requests
at least two (2) business days prior to any sale of Registrable Securities to
the underwriters.
3.9 OTHER ACTIONS. In addition, the Company will (a) make such
representations and warranties to the Registering Holders and the underwriters
as are customarily made by issuers to underwriters in primary underwritten
offerings (or as may be reasonably requested by the underwriters), (b) obtain
opinions of counsel to the Company and updates (which counsel and opinions must
be reasonably satisfactory to the Registering Holders), (c) obtain customary
"cold comfort" letters and updates from the Company's independent certified
public accountants addressed to the underwriters, and use its best efforts to
obtain such a letter for the Registering Holders or to obtain a letter from such
accountants authorizing the Registering Holders to rely on such "cold comfort"
letter, (d) if an underwriting agreement is entered into, ensure it sets forth
in full the indemnification provisions and procedures of Section 4 with respect
to the Company and the Registering Holders, and (e) deliver such documents and
certificates as may be requested by the Registering Holders and the managing
underwriter to evidence compliance with clause (a) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company with the Registering Holders. The above will be done in
connection with each closing under such underwriting or similar agreement or as
and to the extent required thereunder.
3.10 DUE DILIGENCE. The Company will make available for
inspection by the Registering Holders, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney or
accountant retained by the Registering Holders or managing underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to be
available to discuss and to supply all information reasonably requested by any
such person in connection with the Registration Statement. All such records,
information or documents will be subject to standard confidentiality
arrangements.
3.11 BEST EFFORTS. The Company will otherwise use its best
efforts to comply with all applicable rules and regulations of the Commission
and state securities regulatory bodies.
3.12 SECTION 11(A) NOTICE. The Company will make generally
available to its stockholders earnings statements satisfying the provisions of
Section 11(a) of the Securities Act no later than thirty (30) days after the end
of any twelve (12) month period (or sixty (60) days, if such period is a fiscal
year) (a) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwritten
Offering, or, if not sold to underwriters in such an Offering, (b) beginning
with the first month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement, which statements will cover such
twelve (12) month period.
3.13 EXPENSES. Except as set forth in the last sentence of this
subsection and in subsection 6.13.4, all expenses incident to the Company's
performance of or compliance with this Agreement, including, but not limited to,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger expenses, telephone
and delivery expenses, and fees and disbursements of Company counsel and of
independent certified public accountants of the Company (including the expenses
of any special audit required by or incident to such performance), will be borne
by the Company. The Company will also pay its internal expenses, the expense of
any annual audit and the fees and expenses of any Person retained by the
Company. In addition, the Company will pay all reasonable fees and disbursements
of one counsel (designated by the Initiating Holder, and if there is no
Initiating Holder, by a majority of the Holders participating in the Offering)
to the Holders. All such expenses are referred to herein as "REGISTRATION
EXPENSES." All underwriting fees and commissions with respect to an underwritten
Offering, and transfer taxes, if any, will be borne by each Holder in proportion
to the number of Registrable Securities sold by such Holder.
SECTION 4 INDEMNIFICATION.
4.1 INDEMNIFICATION BY THE COMPANY. The Company will indemnify
and hold harmless the Registering Holders, their respective officers, directors,
agents (including, but not limited to counsel) and employees and each Person who
controls the Registering Holders (within the meaning of Section 15 of the
Securities Act) (each, a "CONTROLLING Person") (all of the foregoing are
"INDEMNIFIED PERSONS") from and against any and all losses, claims, damages and
liabilities (including any investigation, legal or other expenses ("LOSSES")
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted) to which the Indemnified
Person may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such Losses arise out of or are based upon (a) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (b) any violation by the Company of the Securities Act or the
Exchange Act, or other federal or state law applicable to the Company and
relating to any action or inaction required of the Company in connection with
such registration. In addition, the Company will reimburse the Indemnified
Person for any investigation, legal or other expenses incurred by such
Indemnified Person in connection with investigating or defending any such Loss.
The Company will not be liable with respect to the portion of any such Loss that
arises out of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary Prospectus, Prospectus, or
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Indemnified Person specifically for
use therein. Such indemnity will remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person, and will
survive the transfer of such securities by the Indemnified Person. The Company
will also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of Section 15 of the Securities Act) to the same extent customarily
requested by such Persons in similar circumstances.
4.2 INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. If the
Holders sell Registrable Securities under a Prospectus that is part of a
Registration Statement, the Holders will indemnify and hold harmless the
Company, its directors and each officer who signed such Registration Statement
and each Person who controls the Company (within the meaning of Section 15 of
the Securities Act) under the same circumstances as the foregoing indemnity from
the Company to the Holders to the extent that such Losses arise out of or are
based upon any untrue statement of a material fact or omission of a material
fact that was made in the Prospectus, the Registration Statement, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information relating to the Holders furnished to the Company by the Holders
expressly for use therein. In no event will the aggregate liability of the
Holders exceed the amount of the net proceeds received by the Holders upon the
sale of the Registrable Securities giving rise to such indemnification
obligation. Such indemnity will remain in full force and effect regardless of
any investigation made by or on behalf of the Company or such officer, director,
employee or Controlling Person, and will survive the transfer of such securities
by the Holders. The Company and the Holders will be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as customarily furnished by such Persons in similar circumstances.
4.3 CONTRIBUTION. If the indemnification provided for in the
foregoing Sections is unavailable to an indemnified party or is insufficient to
hold such indemnified party harmless for any Losses in respect of which the
foregoing Sections would otherwise apply by their terms (other than by reason of
exceptions provided in the foregoing Sections), then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, will have a
joint and several obligation to contribute to the amount paid or payable by such
indemnified party as a result of such Losses. Such contribution will be in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party, on the one hand, and such indemnified party, on the other hand, in
connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of such indemnifying party, on the one hand, and indemnified party, on the
other hand, will be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken or made by, or relates to information supplied by, such indemnifying party
or indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The amount paid or payable by a party as a result of any such Losses
will be deemed to include any investigation, legal or other fees or expenses
incurred by such party in connection with any investigation or proceeding, to
the extent such party would have been indemnified for such expenses if the
indemnification provided for in the foregoing Sections was available to such
party.
4.4 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled
to indemnification hereunder will (a) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification, and (b)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Any Person entitled to
indemnification hereunder will have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel will be at the expense of such Person and not of the indemnifying party
unless (x) the indemnifying party has agreed to pay such fees or expenses, (y)
the indemnifying party has failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such Person, or (z) in the opinion of counsel
of the Person to be indemnified, a conflict of interest may exist between such
Person and the indemnifying party with respect to such claims. In the case of
(z), if the Person notifies the indemnifying party in writing that such Person
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party will not have the right to assume the defense of such claim
on behalf of such Person. If such defense is not assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent will not be unreasonably
withheld). No indemnified party will be required to consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term the giving of a release, by all claimants or plaintiffs, to such
indemnified party from all liability in respect to such claim or litigation. Any
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel in each relevant jurisdiction for all parties indemnified by such
indemnifying party with respect to such claim.
SECTION 5 OTHER AGREEMENTS.
5.1 HOLDBACK AGREEMENTS.
5.1.1 RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The
Company agrees not to effect any public or private sale or distribution of
securities of the same class as the Registrable Securities, or convertible into
or exchangeable or exercisable for securities of the same class as the
Registrable Securities, including a sale pursuant to Regulation D under the
Securities Act, during the ten (10) day period prior to, and during the ninety
(90) day period beginning on the closing date of, an Offering made pursuant to a
Demand Notice.
5.1.2 RESTRICTIONS ON PUBLIC SALE BY THE HOLDERS. If
requested by the managing underwriter of an underwritten offering, the Holders
will not effect any public sale or distribution of securities of the same class
(or securities exchangeable or exercisable for or convertible into securities of
the same class) as the securities included in the Offering, including, but not
limited to, a sale pursuant to Rule 144 of the Securities Act during the ten
(10) day period prior to and the ninety (90) day period (or shorter period
requested by the underwriter) subsequent to an Offering.
5.2 RULE 144. The Company will file, on a timely basis, all
reports required to be filed by it under the Securities Act and the Exchange
Act, and will take such further action and provide such documents as any holder
of Registrable Securities may request, all to the extent required from time to
time to enable the Holders to sell Registrable Securities without registration
under the Securities Act within the limitation of the conditions provided by (a)
Rule 144 under the Securities Act, as such rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the Commission.
Upon the request of the Holders, the Company will deliver to the Holders a
written statement verifying that it has complied with such information and
requirements.
5.3 REPRESENTATIONS AND WARRANTIES.
5.3.1 VALIDITY. The Company represents and warrants
to the Holders that this Agreement has been duly and validly executed and
delivered by the Company and constitutes a legally valid and binding agreement
of the Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and except that the remedy of specific performance
and injunctive and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought and except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws.
5.3.2 NO INCONSISTENT AGREEMENTS. The Company
represents and warrants that it has not previously entered into, and will not on
or after the date of this Agreement enter into, any agreement with respect to
its securities that is inconsistent with the terms of this Agreement, including
any agreement that impairs or limits the registration rights granted to the
Holders or that otherwise conflicts with the provisions hereof or would preclude
the Company from discharging its obligations under this Agreement.
5.3.3 FURNISH INFORMATION. The Company will promptly
deliver to the Holders copies of all financial statements, reports and proxy
statements that the Company is required to send to its stockholders generally.
SECTION 6 MISCELLANEOUS PROVISIONS.
6.1 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.
6.2 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.
6.3 INTERPRETATION; GOVERNING LAW. This Agreement is to be
construed as a whole and in accordance with its fair meaning. This Agreement is
to be interpreted in accordance with the laws of the State of California.
6.4 HEADINGS. Headings of Sections and subsections are for
convenience only and are not a part of this Agreement.
6.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which constitute one agreement.
6.6 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.
6.7 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.
6.8 SPECIFIC PERFORMANCE. In view of the uniqueness of the
matters contemplated by this Agreement, the Holders would not have an adequate
remedy at law for money damages if this Agreement is not being performed in
accordance with its terms. The /Company therefore agrees that the Holders will
be entitled to specific enforcement of the terms hereof in addition to any other
remedy to which it may be entitled.
6.9 TIME IS OF THE ESSENCE. Time is of the essence in the
performance of each and every term, provision and covenant in this Agreement.
6.10 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.
6.11 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.
6.12 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.
6.13 ARBITRATION.
6.13.1 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 6.13.3. 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.
6.13.2 In case of a dispute, any party may commence the
arbitration by giving written notice to the other pursuant to Section 6.11. 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
6.11.
6.13.3 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 6.13, shall apply to the conduct of the proceeding.
6.13.4 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, 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.
VARIFLEX, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Address: 5152 North Commerce Ave.
Moorpark, California 93021
Facsimile: (805) 523-7384
REMY CAPITAL PARTNERS IV, L.P.
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
----------------------------------
RAYMOND H. LOSI, II
Address: 5152 North Commerce Ave.
Moorpark, California 93021
Facsimile: (805) 523-7384
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:
I. 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: -------------------------
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
Number of Shares Owned
LOSI ENTITY AS OF THE EFFECTIVE DATE
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
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 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
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:
-------------------------
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)
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:
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:
------------------------------------
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.
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)
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:
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:
------------------------------------
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, 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 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, 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)
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:
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:
------------------------------------
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "AGREEMENT"), is entered into as
of November 18, 1997, by and between Variflex, Inc., a Delaware corporation (the
"COMPANY"), and Remy Capital Partners IV, L.P., a Delaware limited partnership
("CONSULTANT").
WHEREAS, Consultant has provided prior to the date hereof
valuable consulting services to the Company in the areas of financial and
strategic planning; and
WHEREAS, the Company desires to engage Consultant and Consultant
desires to act as an independent consultant on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the conditions and covenants
contained herein, the parties hereto agree as follows:
1. TERM AND COMPENSATION.
(a) Consultant will assist the Company in the capacity as an
independent consultant for a period of two (2) years commencing on the date
hereof, by rendering advice and assistance on such financial matters as the
Company may specifically request, provided that Consultant shall not be required
to render services for more than twenty (20) hours per month.
(b) As compensation for the services to be provided hereunder,
the Company has granted to Consultant a warrant 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 of even date herewith. As additional
compensation for the services to be provided hereunder, the Company has granted
to Consultant certain registration rights on such terms as are contained in that
certain Registration Rights Agreement of even date herewith. Said warrant and
registration rights shall constitute full payment for Consultant's services to
the Company as required hereby during the term of this Agreement, and Consultant
shall not receive any additional benefits or compensation for the consulting
services to be provided hereunder, except that the Company will reimburse
Consultant for reasonable and customary expenses incurred at the Company's
request in connection with such consulting.
2. INDEPENDENT CONTRACTOR. Consultant shall be an independent
contractor and shall not be deemed to be an employee of the Company.
3. LOCATION. Consultant shall provide the services to be rendered
hereunder in Southern California at the Company's offices, Consultant's offices
or such other locations as the Company or Consultant may reasonably request.
4. NON-EXCLUSIVITY. Subject to Section 1, nothing in this
Agreement shall preclude Consultant from securing and performing consulting or
other services in addition to the services to be performed hereunder during the
term of this Agreement.
5. CONFIDENTIAL INFORMATION. Consultant agrees to keep
confidential any information which is identified as proprietary to the Company
that may be obtained by it in the course of rendering consulting services to the
Company pursuant hereto and to refrain from publishing, revealing or otherwise
disclosing any such information without the prior written consent of the
Company. The parties agree that equitable relief would be appropriate for breach
of this paragraph 5.
6. MISCELLANEOUS PROVISIONS.
(a) 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.
(b) 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.
(c) INTERPRETATION; GOVERNING LAW. This Agreement is to be
construed as a whole and in accordance with its fair meaning. This Agreement is
to be interpreted in accordance with the laws of the State of California.
(d) HEADINGS. Headings of Sections and subsections are for
convenience only and are not a part of this Agreement.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which constitute one agreement.
(f) SUCCESSORS AND ASSIGNS. This Agreement may not be assigned or
transferred by Consultant without the prior written consent of the Company. All
rights, covenants and agreements of the parties contained in this Agreement
shall, except as otherwise provided herein, by binding upon and inure to the
benefit of their respective successors and assigns. Nothing in this Agreement,
express or implied, is intended to confer any rights or remedies upon any other
person.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
<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.
VARIFLEX, INC.
By:
-----------------------------
Name:
--------------------------
Title:
-------------------------
Address: 5152 North Commerce Ave.
Moorpark, California 93021
Facsimile: (805) 523-7384
REMY CAPITAL PARTNERS IV, L.P.
By: REMY INVESTORS, LLC
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
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "AGREEMENT"), is entered into as
of November 18, 1997, by and between Variflex, Inc., a Delaware corporation (the
"COMPANY"), and Raymond H. Losi, an individual ("CONSULTANT").
WHEREAS, Consultant has for many years provided valuable services
to the Company in his capacity as Chairman of the Board and Chief Executive
Officer; and
WHEREAS, the Company desires to engage Consultant and Consultant
desires to act as an independent consultant on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the conditions and covenants
contained herein, the parties hereto agree as follows:
1. TERM AND COMPENSATION.
(a) Consultant will assist the Company in the capacity as an
independent consultant for a period of two (2) years commencing on the date
hereof, by rendering advice and assistance on such matters as the Company may
specifically request, including providing advice and assistance consistent with
Consultant's past areas of responsibility; provided that Consultant shall not be
required to render services for more than twenty (20) hours per month.
(b) During the term of this Agreement, the Company shall pay
Consultant the following as compensation for the services to be provided
hereunder: (i) a salary of One Hundred Thousand Dollars ($100,000) per year,
payable in bi-weekly installments; (ii) the amounts due under the automobile
leases for each of the two (2) automobiles currently leased by Consultant and
identified on EXHIBIT A attached hereto, as well as the premiums due under the
automobile insurance policies for each automobile identified on EXHIBIT A
attached hereto as in effect on the date hereof; and (iii) the premiums due
under Consultant's health insurance policy as in effect on the date hereof. As
additional compensation for the services to be provided hereunder, the Company
has granted to Consultant a warrant to purchase Two Hundred Thousand (200,000)
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 of even date herewith. The payments and warrant described
herein shall constitute full payment for Consultant's services to the Company
during the term of this Agreement, and Consultant shall not receive any
additional benefits or compensation for consulting services, except that the
Company will reimburse Consultant for reasonable and customary expenses incurred
at the Company's request in connection with such consulting.
2. INDEPENDENT CONTRACTOR. Consultant shall be an independent
contractor and shall not be deemed to be an employee of the Company.
3. LOCATION. Consultant shall provide the services to be rendered
hereunder in Southern California at the Company's office facilities,
Consultant's home or such other locations as the Company or Consultant may
reasonably request.
4. OTHER EMPLOYMENT PERMITTED. Subject to Section 1, nothing in
this Agreement shall preclude Consultant from securing and performing employment
during the term of this Agreement.
5. CONFIDENTIAL INFORMATION. Consultant agrees to keep
confidential any information which is identified as proprietary to the Company
that may be obtained by him in the course of rendering consulting services to
the Company pursuant hereto and to refrain from publishing, revealing or
otherwise disclosing any such information without the prior written consent of
the Company. The parties agree that equitable relief would be appropriate for
breach of this paragraph 5.
6. TERMINATION BY DEATH. This Agreement shall automatically
terminate upon the Consultant's death. In such event, the Company shall be
obligated to pay the Consultant's estate or beneficiaries only the accrued but
unpaid fees and expenses due as of the date of death.
7. FREE EXECUTION. Consultant represents and agrees that he has
carefully read and understands this Agreement and agrees that none of the
Company's officers, agents or employees has made any representations other than
those contained herein. Further, Consultant expressly agrees that Consultant has
entered into this Agreement freely and voluntarily and without pressure or
coercion by any of the Company's officers, agents, employees or anyone else
acting on their behalf.
8. MISCELLANEOUS PROVISIONS.
(a) 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.
(b) 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.
(c) INTERPRETATION; GOVERNING LAW. This Agreement is to be
construed as a whole and in accordance with its fair meaning. This Agreement is
to be interpreted in accordance with the laws of the State of California.
(d) HEADINGS. Headings of Sections and subsections are for
convenience only and are not a part of this Agreement.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which constitute one agreement.
(f) SUCCESSORS AND ASSIGNS. This Agreement may not be assigned or
transferred by Consultant without the prior written consent of the Company. All
rights, covenants and agreements of the parties contained in this Agreement
shall, except as otherwise provided herein, by binding upon and inure to the
benefit of their respective successors and assigns. Nothing in this Agreement,
express or implied, is intended to confer any rights or remedies upon any other
person.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by itself or its duly authorized officers as of the day
and year first above written.
VARIFLEX, INC.
By:
-----------------------------
Name:
--------------------------
Title:
-------------------------
Address: 5152 North Commerce Ave.
Moorpark, California 93021
Facsimile: (805) 523-7384
----------------------------------
RAYMOND H. LOSI
Address: -------------------------
-------------------------
-------------------------
Facsimile: -------------------------
<PAGE>
EXHIBIT A
AUTOMOBILE LEASES
1. 1997 JAGUAR XJ6
Serial Number: SAJHX6242VC789597
Lessor: Desert European Motorcars
Lease Date: 2/5/97
Lease Term: 24 months
Monthly Payment: $695.74
2. 1996 GMC YUKON
Serial Number: 1GKEK13R4TJ705712
Lessor: Thorson GMC Buick Inc.
Lease Date: 3/7/96
Lease Term: 48 months
Monthly Payment: $486.07
EXHIBIT 99.1
NEWS RELEASE
STERN AND COMPANY
12121 Wilshire Boulevard - Suite 520
Los Angeles, California 90025
Telephone: (310) 442-8414
VARIFLEX, INC. ANNOUNCES MAJOR INVESTMENT BY REMY CAPITAL
PARTNERS, IV, L.P.; MANAGEMENT HANGES; TWO NEW BOARD MEMBERS
Moorpark, CA - November 19, 1997 -- Variflex, Inc. (NASDAQ: VFLX) a
leading sports and recreational products company, announced today that REMY
Capital Partners IV, L.P., a private investment partnership ("REMY"), has
acquired approximately 28 percent of the company's common stock. REMY purchased
stock from Raymond H. Losi, a co-founder of the company, and other members of
the Losi family, for $9.2 million, or $5.50 per share. The Losi family continues
to hold approximately 32 percent of the company's outstanding shares.
Variflex also announced that Mark S. Siegel and Randall L. Bishop of
REMY have been appointed to the company's Board of Directors. Mr. Siegel will
assume the position of Chairman of the Board, succeeding Raymond H. Losi who
will continue to serve as a director. Raymond "Jay" H. Losi, II, who was not
among the selling shareholders and continues to beneficially own 22 percent of
the company's outstanding stock, was elected Chief Executive Officer, and
retains the titles and responsibilities of President and Chief Operating
Officer. As part of the transaction, Gerald I. Boyce, Barbara Losi and Marvin G.
Murphy resigned as directors.
Jay Losi, President and Chief Executive Officer said, "We are extremely
pleased that REMY has recognized the inherent value in Variflex. We believe that
REMY's knowledge of the consumer products market and their financial expertise,
coupled with Variflex's existing strengths will enable us to move forward and
take advantage of the growth opportunities in this industry. REMY'S ownership
will enhance our competitive position."
Mark S. Siegel, President of REMY Investors, L.L.C., the general partner
of REMY Capital Partners IV, L.P., said, "Variflex has a proven ability to
develop, produce and sell quality products and has substantial cash and no debt
on its balance sheet. We look forward to working with the company to realize its
full potential through the growth of the existing business and attractive
acquisitions."
Variflex, Inc. is a leading supplier of in-line skates, skateboards,
skating protective equipment and bicycle and recreational safety helmets to the
mass market. Variflex's Static brand of high quality action sports products,
including snowboards and skateboards are high-performance, aggressively-priced
upscale products marketed to the sporting goods and specialty dealer markets.
Variflex also recently introduced Quik-Shade(TM), an innovative 10'x10' instant
canopy that can be used at the beach, in the backyard or virtually anywhere.
NOTE: Any reference to the development of products, growth rate or the future
performance of the company constitutes forward-looking information and actual
results may vary materially. There can be no assurance of the rate of growth of
the industry or of the company, that the company's products will enjoy continued
success or that any products in development will ever be commercially released
or that, if released, such products will contribute revenues or profits to the
company sufficient to recoup or exceed their development cost. For a discussion
of these and other factors that could affect Variflex, Inc.'s business and
financial results, see information contained in the company's Forms 10-K and
10-Q on file at the Securities and Exchange Commission.
CONTACT: Steven D. Stern -- (310) 442-8414
