<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VARIFLEX, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
VARIFLEX, INC.
5152 NORTH COMMERCE AVENUE
MOORPARK, CA 93021
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1998 AT 10:00 A.M., LOCAL TIME
----------------
Notice is hereby given that the 1997 Annual Meeting of Stockholders of
Variflex, Inc. (the "Company") will be held at the Radisson Hotel, 999
Enchanted Way, Simi Valley, California, on Tuesday, May 12, 1998 at 10:00
a.m., local time, for the following purposes:
1.To elect six directors for terms expiring in 1998.
2.To consider and take action upon a proposal to ratify the selection of
Ernst & Young LLP, independent certified public accountants, as auditors
for the Company for the year ending July 31, 1998.
3.To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Holders of common stock of the Company are entitled to vote for the election
of directors and on each of the other matters set forth above.
The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on April 17, 1998 as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Annual Meeting and any adjournments thereof.
You are cordially invited to be present.
By order of the Board of
Directors
/s/ Randall L. Bishop
Randall L. Bishop, Secretary
April 20, 1998
<PAGE>
VARIFLEX, INC.
5152 NORTH COMMERCE AVENUE
MOORPARK, CA 93021
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 12, 1998
----------------
This statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Variflex, Inc. (the "Company") from holders of
the Company's outstanding shares of common stock ("Common Stock") entitled to
vote at the 1997 Annual Meeting of Stockholders of the Company (and at any and
all adjournments thereof) for the purposes referred to below and set forth in
the accompanying Notice of Annual Meeting of Stockholders. These proxy
materials are first being mailed to stockholders on or about April 20, 1998.
The Board of Directors has fixed the close of business on April 17, 1998 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, said meeting. Holders of Common Stock are entitled to one vote
for each share held of record on the record date with respect to each matter
to be acted on at the 1997 Annual Meeting.
On April 17, 1998, there were outstanding and entitled to vote 6,025,397
shares of Common Stock. Stockholders who do not expect to attend in person are
requested to sign and return the enclosed form of proxy in the envelope
provided. At any time prior to their being voted, proxies are revocable by
written notice to the Secretary of the Company or by voting in person at the
meeting.
1. ELECTION OF DIRECTORS
The Company's by-laws permit the Board of Directors to fix the number of
Board members between three and nine directors. At present, the Board of
Directors has six members. The directors are elected at each annual meeting of
the stockholders of the Company for a term of office running until the next
annual meeting of the Company's stockholders and until their successors have
been elected.
The Board of Directors recommends a vote FOR the election of each of the
nominees named below. Proxies in the enclosed form received from holders of
Common Stock will be voted for the election on the six nominees named below as
directors of the Company unless stockholders indicate otherwise.
The votes of the holders of a majority of the voting power of the Common
Stock present at the meeting in person or by proxy is required for the
approval of the nominees as Directors in accordance with the by-laws of the
Company.
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present, but do not represent
votes cast with respect to any proposal. Abstention from voting on any matter
will have the practical effect of voting against any of the proposals since it
is one less vote for approval. Broker non-votes are not considered to be
shares "entitled to vote" (other than for quorum purposes), and will therefore
have the effect of reducing the absolute number of votes required for
stockholders to approve the nominees as Directors. "Broker non-votes" are
shares held by a broker or nominee for which an executed proxy is received by
the Company, but are not voted as to one or more proposals because
instructions have not been received from the beneficial owners or persons
entitled to vote and the broker or nominee does not have discretionary power
to vote.
If any nominees for director should be unable or unwilling to serve, the
persons authorized by the proxy to vote shall, pursuant to the authority
granted to them by the Board of Directors, have the discretion to select and
vote for substituted nominees (unless shareholders indicate otherwise, as
noted above). The Board of Directors has no reason to believe that the
nominees will be unable or unwilling to serve.
<PAGE>
The following information includes the age, the year in which first elected
a director of the Company, the principal occupation, and other directorships
of each of the nominees named for election as directors.
NOMINEES FOR ELECTION AS DIRECTORS
RANDALL L. BISHOP, age 29, was elected to the Company's Board of Directors
on November 18, 1997. Mr. Bishop has been employed by REMY Investors and
Consultants, Inc., a private investment and financial management company, and
its affiliates (collectively, "Remy") since August 1997 and was previously
associated with Remy from July 1993 to July 1995. From September 1995 to June
1997, he attended business school. From April 1992 to June 1993, he was
employed by Nitta Corporation. Mr. Bishop received a Bachelor of Arts degree
in Japanese from Stanford University and a Masters in Business Administration
from the Harvard Business School.
MICHAEL T. CARR, age 44, was elected to the Company's Board of Directors on
March 16, 1998. Mr. Carr has served as President and Chief Executive Officer
of Weider Publications, Inc., a publisher of several consumer magazines and
specialty publications, since April 1990. From 1986 to 1990, Mr. Carr was
Senior Vice President for Playboy Magazine. Prior to 1986, Mr. Carr held
various positions in sales and sales management with Woman's Day Magazine and
Lebhar-Friedman Publishing, and prior to entering the publishing field, Mr.
Carr had similar positions in the housewares and hardware industry. Mr. Carr
also presently serves on the Board of Directors of the Magazine Publishers of
America and the Hudson County Occupational Rehabilitation Center in New
Jersey.
LOREN HILDEBRAND, age 57, was appointed to the Company's Board of Directors
in February 1994. Mr. Hildebrand presently is the President and sole director
and stockholder of Creative Consultants, a company he founded in 1992 to
render consulting services to the toy industry. From May 1994 to September
1997, Mr. Hildebrand was Executive Vice President of Lewis Galoob Toys, Inc.,
a publicly traded toy manufacturer. From 1989 through 1992 Mr. Hildebrand was
Executive Vice President of Toy Soldiers, Inc., a closely held toy company he
co-founded which was sold in 1992. From 1987 through 1989 Mr. Hildebrand was
Executive Vice President of Sales and Marketing for World of Wonder, a
publicly traded manufacturer of toys. In 1987, Mr. Hildebrand retired as
Executive Vice President of Sales, Merchandising and Distribution and a member
of the Executive Committee of Mattel Toy Company, Inc., a publicly traded
manufacturer of toys, with whom he had been employed since 1964. Mr.
Hildebrand also served as a director of AFCO Industries, Inc., a wholly owned
subsidiary of Mattel. Mr. Hildebrand earned his Bachelor of Arts degree in
Economics from Pacific Lutheran University and his Masters of Business
Administration degree from the University of Washington Graduate School of
Business.
RAYMOND (RAY) H. LOSI, age 74, has served on the Board of Directors of the
Company since its inception in August 1977. Mr. Losi served as the Chairman of
the Board from 1977 until his resignation from that position and the position
of Chief Executive Officer effective November 18, 1997. Mr. Losi served as
President of the Company from 1977 until 1989, at which time he became Chief
Executive Officer. Mr. Losi has 55 years of experience in the junior sporting
goods and bulk toys market. Mr. Losi attended Yale University and the
University of Connecticut. Mr. Losi is the father of Raymond (Jay) H. Losi II,
who is also an officer and director of the Company.
RAYMOND (JAY) H. LOSI II, age 45, has served as President and Chief
Operating Officer of the Company since 1992, as a director since 1985, and
effective November 18, 1997 was also named Chief Executive Officer. Prior to
1992, Mr. Losi served as Vice President in Charge of Procurement from 1984 and
as Vice President in Charge of International Sales from 1981. Mr. Losi has
directed product development for the Company since its inception in August
1977. Mr. Losi is the son of Raymond (Ray) H. Losi, who is also a director of
the Company.
MARK S. SIEGEL, age 47, was elected to the Company's Board of Directors and
as Chairman of the Board, on November 18, 1997. Mr. Siegel also serves as
Chairman of the Board of Directors of UTI Energy Corp.
2
<PAGE>
Mr. Siegel is President of Remy and has been associated with Remy since 1993.
From 1992 to 1993, Mr. Siegel was President, Music Division, of Blockbuster
Entertainment Corp. From 1988 through 1992, Mr. Siegel was an Executive Vice
President of Shamrock Holdings, Inc. and Managing Director of Shamrock Capital
Advisors, Incorporated. Mr. Siegel received a Bachelor of Arts degree in
Philosophy from Colgate University and a Juris Doctor from the University of
California at Berkeley (Boalt Hall) School of Law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR ELECTION OF EACH OF THE ABOVE NOMINEES
Directors who are employees of the Company or serve the Company through
consulting agreements receive no compensation for service as members of the
Board. Each non-employee director receives options to purchase 4,000 shares of
common stock of the Company at market price upon being appointed or elected to
the Board, and options to purchase 2,000 shares of common stock of the Company
at market price as an annual retainer. Each non-employee director also
receives $1,000 for each Board meeting and $500 for each committee meeting
personally attended, or $250 for each such meeting in which they participate
by telephone. All directors are reimbursed for expenses incurred in connection
with attendance at meetings. The Company may grant awards to the directors
under the Company's 1994 Stock Plan.
In March 1994, the Board of Directors established a Compensation Committee
and an Audit Committee. The Compensation Committee, on which Messrs. Carr,
Hildebrand and Siegel serve, establishes salaries, incentive and other forms
of compensation for officers and other employees, administers the various
incentive compensation and benefit plans, and recommends policies relating to
such plans. The Audit Committee, on which Messrs. Bishop, Raymond (Ray) H.
Losi, and Siegel serve, is responsible for meeting periodically with
representatives of the Company's independent public accountants to review the
general scope of audit coverage, including consideration of the Company's
accounting practices and procedures and system of internal accounting
controls, and to report to the Board with respect thereto. The Audit Committee
also recommends to the Board of Directors the appointment of the Company's
independent auditors.
The Board of Directors held four meetings in fiscal 1997, and took various
actions by unanimous written consent. During fiscal 1997, each incumbent
director attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors plus the total number of meetings of all
committees of the Board on which he or she served. The Audit Committee and the
Compensation Committee each had one meeting in fiscal 1997, each of which was
fully attended.
The following table sets forth the beneficial ownership of Common Stock as
of April 17, 1998 of each of the Company's directors, each person (and certain
related individuals) known by the Company to own beneficially more than 5% of
the Common Stock, and each of the executive officers named in the Summary
Compensation Table below.
<TABLE>
<CAPTION>
OFFICERS, DIRECTORS SHARES BENEFICIALLY
AND 5% STOCKHOLDERS(1) OWNED(2)
---------------------- ------------------------------
NUMBER PERCENT
----------- ----------
<S> <C> <C>
Raymond (Ray) H. Losi(3)...................... 446,575(4)(10) 7.17%
Raymond (Jay) H. Losi II(3)................... 1,429,415(5)(10) 23.27%
Eileen Losi(3)................................ 120,000(6)(10) 1.99%
Barbara Losi(3)............................... 206,438(7)(10) 3.43%
Warren F. Marr................................ 26,533 0.44%
Loren Hildebrand.............................. 8,000 0.13%
Mark S. Siegel................................ 2,066,667(8)(10) 32.16%
Randall L. Bishop............................. 2,066,667(10)(11) 32.16%
Michael T. Carr............................... 6,000 0.10%
REMY Capital Partners IV, L.P................. 2,066,667(8)(10) 32.16%
Dimensional Fund Advisors Inc................. 342,200(9) 5.68%
All directors and executive officers
as a group (9 persons)....................... 3,993,390 58.80%
</TABLE>
3
<PAGE>
- --------
(1) Unless otherwise indicated, the address of persons listed in this column
is c/o Variflex, Inc., 5152 N. Commerce Avenue, Moorpark, CA 93021.
(2) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under Rule 13d-3(d), shares not
outstanding which are subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding for the
purpose of calculating the number and percentage owned by such person, but
not deemed outstanding for the purpose of calculating the percentage owned
by each other person listed. Shares of common stock which may be acquired
within 60 days of April 17, 1998, through the exercise of options, or
otherwise, is as follows: Mr. Raymond (Jay) H. Losi II, 18,000 shares; Mr.
Warren F. Marr, 26,533; Mr. Rocco Attolico, 5,000; Mr. Loren Hildebrand,
6,000; Mr. Michael T. Carr, 6,000; and Ms. Paula Coffman, 5,000.
(3) Mr. Raymond (Ray) H. Losi and Mrs. Barbara Losi are married. Mr. Raymond
(Jay) H. Losi II is the son of Mr. Raymond (Ray) H. Losi and his prior
spouse, Ms. Eileen Losi.
(4) Includes shares held by Mr. Raymond (Ray) H. Losi as Trustee of the 1989
Raymond H. Losi Revocable Trust under declaration of trust dated January
23, 1989, for benefit of Raymond (Ray) H. Losi. Although Mr. Losi is
married to Mrs. Barbara Losi, the shares retain their identity as the sole
and separate property of the beneficiary of the trust (Mr. Raymond (Ray)
H. Losi). Also includes 200,000 warrants currently exercisable to purchase
Common Stock.
(5) Includes 807,507 shares held by Losi Enterprises Limited Partnership, of
which Losi Properties, Inc., a corporation whose sole stockholder is the
1989 Raymond H. Losi II Revocable Trust, of which Mr. Raymond (Jay) H.
Losi II is a Trustee, is a general partner. Also includes 120,000 shares
held by the Jay and Kathy Losi Revocable Trust dated January 1, 1989, for
which Mr. Raymond (Jay) H. Losi II and his spouse are beneficiaries. Also
includes 263,908 shares held by EML Enterprises Limited Partnership, of
which Mr. Raymond (Jay) H. Losi II is a Trustee of the general partner,
and 120,000 shares held by Mrs. Eileen Losi through the Eileen Losi
Revocable Trust, for which Mr. Raymond (Jay) H. Losi II is a Trustee. Also
includes 100,000 warrants currently exercisable to purchase Common Stock.
(6) Shares held by Mrs. Eileen Losi as a Trustee of the Eileen Losi Revocable
Trust under declaration of trust dated October 13, 1993 for benefit of
Eileen Losi.
(7) Includes 106,438 shares held by Mrs. Barbara Losi as Trustee of the 1989
Barbara Losi Revocable Trust under declaration of trust dated January 31,
1989, for benefit of Barbara Losi. Although Mrs. Losi is married to Mr.
Raymond (Ray) H. Losi, the shares retain their identity as the sole and
separate property of the beneficiary of the trust (Mrs. Barbara Losi).
Also includes 100,000 shares owned by The BL 1995 Limited Partnership, of
which BL Holdings, Inc., a corporation owned solely by Barbara Losi, is a
general partner.
(8) REMY Capital Partners IV, L.P. ("REMY IV") owns 1,666,667 shares of Common
Stock and 400,000 warrants currently exercisable to purchase Common Stock.
The General Partner of REMY IV is REMY Investors, L.L.C. ("REMY LLC"), and
the Managing Member for REMY LLC is Mark S. Siegel, the Company's Chairman
of the Board. The address of REMY IV, REMY LLC and Mr. Siegel is 1801
Century Park East, Suite 1111, Los Angeles, California 90067.
(9) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 342,200 shares of
Common Stock as of December 31, 1997, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans, all
of which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares. The address
for Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401.
(10) As a result of the Voting Rights Agreement described below, Raymond (Ray)
H. Losi, Raymond (Jay) H. Losi II, Eileen Losi, Barbara Losi, Mark S.
Siegel, Randall L. Bishop and Remy Capital Partners IV, L.P. may be
deemed to beneficially own 4,175,396 shares of Common Stock.
(11) As a member of REMY LLC, Mr. Bishop may be deemed to beneficially own
1,666,667 shares of Common Stock and 400,000 warrants currently
exercisable to purchase Common Stock, however Mr. Bishop disclaims
beneficial ownership of such shares and warrants.
4
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the executive officers of the Company as of
April 17, 1998, are listed below, together with a brief description of each
such officer's business experience for the past five years, except in the case
of those who are also members of the Board of Directors, for whom biographies
appear above under the caption: "NOMINEES FOR ELECTION AS DIRECTORS."
Executive officers will be appointed each year by the Board of Directors at
its annual meeting following the annual meeting of stockholders and serve for
one year or until their successors are chosen and qualify in their stead.
ROCCO ATTOLICO, age 56, has served as Vice President of Manufacturing since
January 1994. Mr. Attolico has been an employee of the Company since July 1991
when he was hired to supervise and direct the Company's shipping, warehousing
and order processing functions.
PAULA COFFMAN, age 33, has been an employee of the Company since June 1984.
Since January 1993, she has served as Vice President of Administrative
Services. Prior to her appointment as Vice President, Ms. Coffman served the
Company as Product and Sales Planning Manager, Sales Administration Manager
and Sales Coordinator.
WARREN F. MARR, age 56, has served as Vice President of Sales since he
joined the Company in January 1990.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, with respect to the Company's fiscal year
ended July 31, 1997, compensation paid by the Company to its principal
executive officer, its Chief Executive Officer and the Company's other
executive officers whose total annual salary and bonuses exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ --------------------------
SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
------------------ ------ -------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi
II..................... 1997 $300,000 $ -- $ * 90,000 $ --
President and Chief 1996 300,000 -- * -- 3,997
Operating Officer 1995 300,000 180,000 * -- 3,077
(Principal Executive
Officer)
Raymond (Ray) H. Losi... 1997 $131,731 $ -- $ * -- $ --
Chief Executive Officer 1996 150,000 -- * -- --
1995 150,000 -- * -- --
Warren F. Marr.......... 1997 $142,659 $ 1,000 $ * 23,951 $ --
Vice President of Sales 1996 133,757 7,500 * 2,667 8,200
1995 125,171 75,000 * 1,379 4,749
William B. Ogden........ 1997 $131,652 $ 1,000 $ * 12,500 $ --
Chief Financial Officer 1996 127,382 2,500 * -- 7,790
1995 118,963 39,000 * -- --
</TABLE>
- --------
* Any perquisites and other personal benefits, securities or property are
less than $50,000 and less than 10% of total annual salary and bonus
reported for the named executive officer.
(1) Amounts represent Company annual contributions to the Defined Benefit
Pension Plan and Trust, which was terminated effective July 31, 1997.
INDIVIDUAL OPTION GRANTS TO EXECUTIVE OFFICERS
DURING FISCAL YEAR 1997
<TABLE>
<CAPTION>
PERCENT
OF TOTAL POTENTIAL REALIZABLE VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
NUMBER OF GRANTED TO PRICE APPRECIATION FOR OPTION TERMS
NAME OF EXECUTIVE OPTIONS EMPLOYEES EXERCISE EXPIRATION -------------------------------------
OFFICER GRANTED(1) IN FY 1997 PRICE DATE(2) 0% 5% 10%
- ----------------- ---------- ---------- -------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi
II..................... 90,000 60.4% $ 5.50 6/13/07 -- $ 238,003 $ 672,184
Raymond (Ray) H. Losi... -- -- -- -- -- --
Warren F. Marr.......... 20,000 13.4% 5.00 6/13/07 -- 62,889 159,374
Warren F. Marr.......... 3,951 2.7% 0.0004 4/16/07 $ 20,000 32,579 51,878
William B. Ogden........ 12,500 8.4% 5.00 6/13/07 -- 31,445 79,687
</TABLE>
- --------
(1) Other than the 3,951 options granted to Mr. Marr on April 16, 1997, each
of the options granted to executive officers during fiscal year 1997 were
granted in connection with the cancellation of existing stock options with
a higher exercise price. The options granted to Mr. Losi II vested 20% on
January 1, 1998 and vest in additional twenty percent cumulative
increments annually thereafter. The options granted to Mr. Ogden vested
80% on January 1, 1998, and the remaining 20% have been terminated due to
termination of employment in April 1998. Of the options granted to Mr.
Marr, 20,000 vested 80% on January 1, 1998 and the remaining 20% vest on
January 1, 1999, and 3,951 vest in twenty percent cumulative increments
beginning April 16, 1998.
(2) All options were granted subject to earlier termination upon certain
events related to termination of employment.
6
<PAGE>
FY 1997 OPTIONS EXERCISE AND FY 1997 YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY-OPTIONS AT
AT END-FY 1997 END-FY 1997
------------------------- -------------------------
NAME OF EXECUTIVE ACQUIRED
OFFICER ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi
II..................... -- -- 90,000 -- --
Raymond (Ray) H. Losi... -- -- -- -- --
Warren F. Marr.......... -- 10,533 29,596 $51,348 $46,781
William B. Ogden........ -- -- 12,500 -- --
</TABLE>
PENSION PLAN TABLES
In 1979, the Company established the Variflex, Inc. Defined Benefit Pension
Plan and Trust (the "Defined Benefit Plan") to provide retirement, disability
and death benefits to the Company's eligible employees. All employees of the
Company who are at least age twenty-one and who have completed one year of
service may participate in the Defined Benefit Plan. Benefits under the
Defined Benefit Plan are based upon a participant's years of service (not to
exceed 35 years) and his or her average monthly compensation (but not to
exceed $150,000, as such figure may be adjusted for inflation). Benefits
payable to a participant under the Defined Benefit Plan may not, with certain
exceptions, exceed $7,500 per month, or $90,000 per year, as such figures may
be adjusted for inflation. Each participant's benefits vest at the cumulative
rate of 20% per year of service after the completion of such participant's
second year of service. Participants' benefits fully vest upon termination of
the Defined Benefit Plan. The assets of the Defined Benefit Plan are invested
and managed by a trustee. The trustee has, under certain circumstances, the
authority to make loans to participants and beneficiaries. The Company's
policy is to contribute the minimum amount that is required to be contributed
by law and can be deducted for federal income tax purposes. Set forth below is
a chart showing estimated annual benefits payable upon retirement with respect
to the Defined Benefit Plan.
<TABLE>
<CAPTION>
REMUNERATION
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$150,000-- $15,200 $30,400 $45,600 $60,800 $76,000 $90,000 $107,000
--
125,000-- 12,300 24,700 37,000 49,400 61,700 74,100 86,400
--
100,000-- 9,500 19,000 28,400 37,900 47,400 56,900 66,400
--
75,000-- 6,600 13,200 19,900 26,500 33,100 39,700 46,300
--
50,000-- 4,100 8,200 12,300 16,400 20,500 24,600 28,700
--
25,000-- 2,100 4,100 6,200 8,200 10,300 12,300 14,400
--
</TABLE>
0--
----------------------------------------------------------------------
5 10 15 20 25 30 35
Years of Service
During fiscal 1997, the Compensation Committee of the Board of Directors
recommended the termination of the Defined Benefit Plan and replacement with a
defined contribution plan. The Board of Directors accepted the recommendations
terminating the Defined Benefit Plan effective July 31, 1997, and launching a
defined contribution plan effective August 1, 1997. The termination of the
Defined Benefit Plan is subject to the approvals of the Pension Benefit
Guarantee Corporation and the United States Internal Revenue Service. Also see
"Compensation Committee Report on Executive Compensation" below.
7
<PAGE>
COMPENSATION ARRANGEMENTS UPON RESIGNATION, RETIREMENT OR OTHER TERMINATION;
EMPLOYMENT AGREEMENTS
EMPLOYMENT RELATED AGREEMENTS. In April 1994, the Company entered into
employment agreements with Mr. Raymond (Jay) H. Losi II as President and Chief
Operating Officer, Mr. Rocco Attolico as Vice President of Manufacturing, Mr.
Warren F. Marr as Vice President of Sales, and Ms. Paula Coffman as Vice
President of Administrative Services. The employment agreement for Mr. Raymond
(Jay) H. Losi II provides for a three year initial term, while the employment
agreement for Messrs. Attolico and Marr and Ms. Coffman provide for one year
initial terms. Each employment agreement renews automatically following the
expiration of its initial term unless 60 days prior written notice is given.
Pursuant to such automatic renewal provisions, the Company's agreement with
Mr. Raymond (Jay) H. Losi II renews for one additional three year period,
while the Company's agreements with Messrs. Attolico and Marr and Ms. Coffman
each renew for one additional one year period. Each employment agreement
requires that the employee devote his or her entire time to the performance of
his or her executive obligations.
Each of the employment agreements includes the following provisions relating
to termination for cause: (i) the Company may terminate the employment of an
executive if the executive willfully breaches or habitually neglects his
duties or commits such acts of dishonesty, fraud or misrepresentation as would
prevent the effective performance of his duties; (ii) the executive may
terminate his or her employment with the Company if the Company breaches or
fails to fulfill any representations, warranties or covenants entered into
with the executive, demotes the executive, requires the executive to
participate in any felony or other crime, commits any act which adversely
reflects upon the name and reputation of the executive, if there is a change
in control of the Company or if the Company engages in other conduct
constituting legal cause for termination. Except for the employment agreement
with Raymond (Jay) H. Losi II, each of the employment agreements includes the
following provisions relating to termination without cause: (i) the employment
of an executive shall terminate automatically upon the death of the executive;
(ii) the employment of an executive may terminate at the Company's election if
the executive is prevented from discharging his duties under the agreement for
a period of 60 days due to any physical or mental disability; or (iii) the
employment of the executive may be terminated at the executive's election upon
90 days written notice to the Company. If Mr. Losi II terminates the agreement
for cause pursuant to clause (ii) of the first sentence of this paragraph, he
is entitled to receive, in lieu of any other remedy, three years base salary.
The employment of Raymond (Jay) H. Losi II terminates without cause upon his
death, or at the Company's election if he is unable to discharge his duties
due to any physical or mental disability for a period of 30 days. Effective as
of November 18, 1997, Mr. Losi's employment agreement was amended to eliminate
the right of Mr. Losi to terminate his employment agreement without cause upon
180 days notice and to provide that Mr. Losi will be the Chief Executive
Officer of the Company.
As base compensation under their respective employment agreements, Mr.
Raymond (Jay) H. Losi II receives $300,000 per year, Mr. Attolico receives
$79,500 per year, Mr. Marr receives $137,376 per year and Ms. Coffman receives
$68,065 per year. Base compensation for each employee is reviewed at least
once per year and may be increased at the discretion of the Board of
Directors. Messrs. Raymond (Jay) H. Losi II, Marr and Attolico, and Ms.
Coffman, also are entitled under their employment agreements to auto
allowances of $1,000, $500, $400 and $500 per month, respectively.
Effective as of November 18, 1997, the employment agreement with Raymond
(Ray) H. Losi was mutually and voluntarily terminated, Mr. Losi voluntarily
resigned as Chief Executive Officer, and the Company and Mr. Losi entered into
a Consulting Agreement. The Consulting Agreement with Mr. Losi is for a term
of two years. Under the Consulting Agreement, Mr. Losi will receive a salary
of $100,000 per year. In addition, Mr. Losi received warrants to purchase
200,000 shares of Common Stock of the Company at a price of Five Dollars and
Ten Cents ($5.10) per share, all of which are currently exercisable. The
Company will also pay the lease payments for two automobiles used by Mr. Losi,
the automobile insurance for those vehicles, and the premiums for Mr. Losi's
health insurance policies. Mr. Losi's consulting agreement automatically
terminates upon his death.
8
<PAGE>
At the same time, the Company and Remy Capital Partners IV, L.P., entered
into a two-year Consulting Agreement pursuant to which in exchange for the
rendition of advice and assistance on such financial matters as the Company
may request, Remy Capital Partners IV, L.P. was granted warrants to purchase
400,000 shares of the Common Stock of the Company at a price of Five Dollars
and Ten Cents ($5.10) per share, all of which are currently exercisable. As
additional compensation for the services to be rendered, the Company also
granted to Remy Capital Partners IV, L.P. certain registration rights pursuant
to a Registration Rights Agreement entered into between the Company and Remy.
Remy Capital Partners IV, L.P. owns 1,666,667 shares of the Common Stock of
the Company (in addition to the 400,000 warrants). The General Partner of Remy
Capital Partners IV, L.P. is Remy Investors, L.L.C. and the Managing Member of
Remy Investors, L.L.C. is Mark S. Siegel, the Company's Chairman of the Board.
Randall L. Bishop is a director and the Secretary of the Company and is
employed by an affiliate of Remy Investors, L.L.C.
The Company entered into a consulting agreement with Mr. Gerald I. Boyce, a
director of the Company and its past President, for a one-year term stated to
expire December 31, 1994. Since that date, Mr. Boyce has continued to perform
the duties provided for under that agreement and the Company has continued to
compensate Mr. Boyce at the rate of $50,000 per year and provide health
insurance as provided for in that agreement.
The employees and consultants who have entered into the agreements noted
above have, pursuant to the terms of such agreements, covenanted that they
shall not, for specified periods, compete with the Company within certain
specified geographic areas, or solicit the Company's employees or customers.
Mr. Boyce has so covenanted for a period of two years following the
termination of his services, and Messrs. Raymond (Jay) H. Losi II, Attolico
and Marr, and Ms. Coffman have so covenanted for a period of one year
following the termination of each of their employment or services. In
addition, these employees have covenanted to return all proprietary
information to the Company following the termination of their respective
employment agreements, and not use or disclose any confidential information of
the Company.
Mrs. Barbara Losi received $15,500 in fiscal 1997 as compensation for her
services as an officer. In addition, the Company has agreed to provide her
with health insurance for life in connection with her previous rendering of
services to the Company.
REPORT ON REISSUANCE OF STOCK OPTIONS. On June 23, 1997, the Board of
Directors terminated all of the incentive stock option plans and stock options
originally granted in April 1994, and granted new incentive stock options
under the 1994 Stock Plan. This exchange of options was an acknowledgment by
the Board of the importance to the Company of having equity incentives
available to key employees and its determination that the existing options,
which were exercisable at a price significantly above the current market price
of the stock, did not provide the compensatory incentive they were intended to
provide at the time of their grant. Further information with respect to these
actions as they relate to executive officers of the Company is set forth in
the following table.
<TABLE>
<CAPTION>
LENGTH OF
OPTIONS TERMINATED NEW OPTIONS ISSUED ORIGINAL
------------------- ------------------- MARKET OPTION
NUMBER OF NUMBER OF PRICE OF TERM
SECURITIES SECURITIES STOCK AT REMAINING
NAME OF EXECUTIVE UNDERLYING EXERCISE UNDERLYING EXERCISE TIME OF AT TIME OF
OFFICER OPTIONS PRICE OPTIONS PRICE REISSUANCE REISSUANCE
- ----------------- ---------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi
II..................... 180,000 $15.50 90,000 $5.50 $5.00 7 years
Raymond (Ray) H. Losi... -- --
Warren F. Marr.......... 40,000 15.50 20,000 5.00 5.00 7 years
William B. Ogden........ 25,000 15.50 12,500 5.00 5.00 7 years
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Boyce, Hildebrand and Murphy, the three non-employee directors,
served as members of the Compensation Committee of the Board of Directors of
the Company (the "Compensation Committee") during
9
<PAGE>
fiscal 1997. None of the executive officers or directors is a director on any
other board which relationship would be construed to constitute a compensation
committee interlock within the meaning of the proxy rules of the Securities
and Exchange Commission. Mr. Boyce was the President of the Company from 1989
to 1992. As discussed above, the Company continues to compensate Mr. Boyce
pursuant to a consulting agreement.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement in whole or in part, the following
Report of the Compensation Committee and Performance Graph for Variflex, Inc.,
on Executive Compensation shall not be incorporated by reference in any such
filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee was established by the Board of Directors in
March 1994 and this report discloses the Compensation Committee's compensation
policies applicable to the Company's executive officers since that time.
The Company's compensation program for executive officers is primarily
comprised of base salary, an annual incentive based on the achievement of
financial performance objectives, and long-term incentives in the form of
stock option grants. Executives also participate in various other benefits
plans, including a health insurance plan generally available to all employees
of the Company.
It is the Company's philosophy to pay base salaries and annual incentives to
executives at or above medium competitive levels for similarly-situated
companies based on the achievement of stretch performance objectives. Stock
option grants are intended to result in minimal or no rewards if the stock
price does not appreciate, but may provide substantial rewards to executives
as stockholders benefit from stock price appreciation. An important objective
of the Compensation Committee is to ensure that the compensation practices of
the Company are competitive and effectively designed to attract, retain and
motivate highly qualified personnel. In that regard, the Company's executive
compensation program is designed to reward and retain executives who are
capable of leading the Company in achieving its strategic and financial
objectives.
Base Salary
Base salaries for executive positions are established relative to comparable
positions in similarly-sized consumer goods manufacturing and distribution
companies. The Committee has access to salary surveys and outside compensation
consultants to help determine the relevant competitive pay levels. In
determining salaries the Compensation Committee also takes into account
individual experience and performance, equity relative to other positions
within the Company, and specific issues particular to the Company. The Company
has determined that base salaries for the six top officers are between the
50th and 75th percentile levels of comparative companies.
Annual Incentives
The top six executive officers are eligible for annual incentives based on
the achievement of predetermined after-tax net income and individual
objectives. These objectives are established by the Board annually and
represent stretch levels of achievement. The performance measures and levels
are reviewed annually to ensure that the plan supports the objectives of the
strategic plan and is consistent with the competitive labor market.
Stock Option Grant
The Company strongly believes in tying employee rewards directly to the
long-term success of the Company and increases in stockholder value through
grants of executive stock options. Stock grants will also enable employees to
develop and maintain a significant stock ownership position in the Company's
common stock. See "Report on Reissuance of Stock Options" above.
10
<PAGE>
Other Benefits
Executive officers are eligible to participate in benefits programs designed
for all full-time employees of the Company. Other all-employee benefits
programs include medical, dental, long-term disability and life insurance
coverage.
1997 Compensation
During fiscal 1997 the Company's revenues decreased 29% from the prior year
and the Company incurred a net loss of $1,805,000 versus net income of
$564,000 during the prior fiscal year. However, the Company made substantial
progress in the design and development of new products. Based on this
performance, only selective cost-of-living and merit salary increases were
implemented during the year and minimal cash bonuses were given during the
year to the Company's executive officers. Existing incentive stock options
were terminated during the year and replaced with new options having lower
exercise prices; see "Report on Reissuance of Stock Options" above. If the
Company's operating results improve in fiscal 1998, the Company anticipates
implementing a program of regular merit salary adjustments for executive
officers together with other forms of compensation such as cash incentive
bonuses and/or stock option awards.
Benefit Plan Replacement
During fiscal 1997 the Board of Directors, at the recommendation of both the
Company's independent auditors and its pension plan accountants, terminated
the Company's Defined Benefit Plan effective July 31, 1997 and launched in its
place a discretionary defined contribution plan. This change was made to take
advantage of the fact that the assets in the Defined Benefit Plan had
appreciated to a level that exceeded the present value of accrued benefit
obligations at the time of this action. The Board's decision was also intended
to reduce potential exposure to the Company, considering the fact that under
the Defined Benefit Plan, a decline in the value of plan assets, if it
occurred, could have to made up through contributions from the Company. The
new defined contribution plan was implemented effective August 1, 1997, and is
intended to offer employees greater long-term benefits at lower costs to the
Company compared to the Defined Benefit Plan. Participation and vesting
requirements are essentially the same under the defined contribution plan as
compared to the Defined Benefit Plan.
CEO Compensation
As with the other executive officers of the Company, total compensation for
the President, Mr. Raymond (Jay) H. Losi II is delivered through a combination
of base salary, annual incentive, stock options and standard benefits afforded
to all employees. Mr. Losi's base pay and annual incentive awards of $300,000
and $0, respectively, result in total cash at between the 50th and 75th
percentile of similar sized consumer goods manufacturing and distribution
companies.
With respect to the above matters, this constitutes the report of the
Compensation Committee members named below.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Gerald I. Boyce
Loren Hildebrand
Marvin G. Murphy
11
<PAGE>
PERFORMANCE GRAPH
The following is a graph which compares the Company's cumulative total
stockholder return on the Common Stock with the cumulative total return on the
NASDAQ Stock Market-U.S. Index and the NASDAQ Non-Financial Stock Index from
June 17, 1994, the date of the Company's initial public offering, through July
31, 1997, the last day of fiscal 1997. The cumulative total shareholder return
is based on $100 invested in Common Stock of the Company and in the respective
indices on June 17, 1994 (including reinvestment of dividends):
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------------------
6/17/94 7/94 10/94 1/94 4/95 7/95 10/95 1/96 4/96 7/96 10/96 1/97 4/97 7/97
------- ---- ----- ---- ---- ---- ----- ---- ---- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VARIFLEX, INC. ......... VFLX 100 110 132 98 103 92 54 50 53 39 37 35 32 31
NASDAQ STOCK
MARKET (U.S.).......... INAS 100 99 107 104 117 139 144 147 166 151 170 193 176 223
NASDAQ NON--FINANCIAL... INNF 100 99 109 105 119 143 146 148 170 151 169 193 173 220
</TABLE>
12
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent stockholders are also
required to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, during the fiscal year ended July 31, 1997,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent stockholders were complied with, except certain
inadvertent filing delinquencies relating to the reissuance of certain stock
options as described above, which have since been corrected, as set forth
below.
Messrs. Raymond (Jay) H. Losi II, Rocco Attolico, Warren F. Marr and William
B. Ogden and Ms. Paula Coffman each did not timely make a report on Form 5 in
respect of the cancellation of stock options previously granted and of the
issuance of new stock options at a lower exercise price. As noted, as of the
date of this Proxy Statement, these Section 16(a) reporting delinquencies have
been corrected.
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent certified
public accountants, as independent auditors for the Company for the fiscal
year ending July 31, 1998. A resolution will be submitted to stockholders at
the meeting for ratification of such selection. Although ratification by
stockholders is not a prerequisite to the ability of the Board of Directors to
select Ernst & Young LLP as the Company's independent auditors, the Company
believes such ratification to be desirable. If the stockholders do not ratify
the selection of Ernst & Young LLP, the selection of independent auditors will
be reconsidered by the Board of Directors; however, the Board of Directors may
select Ernst & Young LLP notwithstanding the failure of the stockholders to
ratify its selection.
The Board of Directors recommends a vote "FOR" this resolution. Proxies
solicited by the Board of Directors will be so voted unless stockholders
specify a contrary vote. The resolution may be adopted by a majority of the
votes cast with respect thereto.
Ernst & Young LLP have been the Company's auditors since 1992.
It is expected that a representative of Ernst & Young LLP will be present at
the meeting, will have an opportunity to make a statement if he desires to do
so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
SHAREHOLDERS' PROPOSAL
Proposals of shareholders which are intended to be presented at the 1998
Annual Meeting must be received by the Company at its principal executive
offices no later than August 1, 1998 for inclusion in the Company's proxy
materials for that meeting.
13
<PAGE>
OTHER MATTERS
The Proxy and Proxy Statement have been approved by the Board of Directors
and sent to shareholders by its authority. The matters referred to in the
Notice of Meeting and in the Proxy Statement are, to management's knowledge,
the only matters which will be presented for consideration at the Meeting. If
any other matters properly come before the Meeting, the persons named in the
enclosed Proxy intend to vote said Proxy on any such matters in accordance
with their best judgment.
This Proxy Statement incorporates certain Financial Statements and other
information from the Company's Annual Report on Form 10-K, as amended,
delivered herewith for the fiscal year ending July 31, 1997.
Solicitation of proxies will be made by directors, officers and employees of
the Company by mail, telephone and, to the extent necessary, by telegrams and
personal interviews. Expenses in connection with the solicitation of proxies
will be borne by the Company. Brokers, custodians and fiduciaries will be
requested to transmit proxy material to the beneficial owners of Common Stock
held of record by such persons, at the expense of the Company.
By order of the Board of Directors
/s/ Randall L. Bishop
Randall L. Bishop, Secretary
April 17, 1998
14
<PAGE>
PROXY PROXY
COMMON STOCK PROXY
VARIFLEX, INC.
5152 NORTH COMMERCE AVENUE, MOORPARK, CA 93021
REVOCABLE PROXY FOR ANNUAL MEETING ON MAY 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Raymond H. Losi II and Randall L. Bishop, and
each of them jointly and severally, as attorneys and proxies of the
undersigned, with full power of substitution, and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
Variflex, Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Shareholders to be held at the Radisson Hotel, 999 Enchanted Way,
Simi Valley, California, on May 12, 1998, and at all adjournments thereof with
all powers the undersigned would possess if personally present and voting
thereat.
The Board of Directors recommends a vote FOR:
1. ELECTION OF DIRECTORS:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all
nominees listed below
(Instruction: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name below:)
RANDALL L. BISHOP MICHAEL T. CARR LOREN HILDEBRAN
RAYMOND (RAY) H. LOSI RAYMOND (JAY) H. LOSI, II MARK S. SIEGEL
2. The proposal to ratify the appointment of Ernst & Young LLP
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Stockholders planning to attend the Annual Meeting are requested to indicate
the number of persons attending in the block. [_]
Stockholders may attend the meeting whether or not the block is filled in.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS IN THIS PROXY. IF INSTRUCTIONS ARE NOT INCLUDED HEREIN, THIS PROXY
WILL BE VOTED FOR ITEMS 1 AND 2.
Date _______________________, 1998
Number of Shares
----------------------------------
(Signature)
----------------------------------
(Signature if held jointly)
(Please sign as name(s) appear(s)
on this proxy card. If joint
account, each joint owner should
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporation
name by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.)
PLEASE MARK, DATE, SIGN AND MAIL
THIS PROXY CARD PROMPTLY IN THE
ENVELOPE ENCLOSED--NO POSTAGE IS
REQUIRED
