<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 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] Fee not 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.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
VARIFLEX, INC.
5152 North Commerce Avenue
Moorpark, CA 93021
________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 1, 2000 at 10:00 a.m., Local Time
________________________
Notice is hereby given that the 2000 Annual Meeting of Stockholders of
Variflex, Inc. (the "Company") will be held at the Grand Vista Hotel, 999
Enchanted Way, Simi Valley, California, on Friday, December 1, 2000 at 10:00
a.m., local time, for the following purposes:
1. To elect six directors for terms expiring in 2001.
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, 2001.
3. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Holders of common stock of the Company are entitled to vote for the
election of directors and on each of the other matters set forth above.
The stock transfer books of the Company will not be closed. The Board of
Directors has fixed the close of business on October 30, 2000 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/ MARK S. SIEGEL
----------------------------------
Mark S. Siegel, Secretary
November 3, 2000
<PAGE>
VARIFLEX, INC.
5152 North Commerce Avenue
Moorpark, CA 93021
PROXY STATEMENT
-------------------
Annual Meeting of Stockholders to be held December 1, 2000
-------------------
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 2000 Annual Meeting of Stockholders of the Company (and at any and all
adjournments thereof) for the purposes referred to below and set forth in the
accompanying Notice of Annual Meeting of Stockholders. These proxy materials are
first being mailed to stockholders on or about November 3, 2000.
The Board of Directors has fixed the close of business on October 30, 2000
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 2000 Annual Meeting.
On October 30, 2000, there were outstanding and entitled to vote 4,584,432
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 Bylaws 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 of 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 Bylaws 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 stockholders indicate otherwise, as noted above).
The Board of Directors has no reason to believe that the nominees will be unable
or unwilling to serve.
1
<PAGE>
The following information includes the age, the year in which first elected
a director of the Company, the principal occupation, and other directorships as
of October 30, 2000 of each of the nominees named for election as directors.
NOMINEES FOR ELECTION AS DIRECTORS
Kenneth N. Berns, age 40, was appointed to the Company's Board of Directors
in October 1998. Mr. Berns also serves as a Director and Assistant Secretary of
UTI Energy Corp. Mr. Berns has been employed by REMY Investors & Consultants,
Inc., a private investment and financial management company, and its affiliates
(collectively, "Remy") since December 1994. From 1993 through 1994, Mr. Berns
was a partner in Ridge Properties, Ltd., a real estate development and
management company. Mr. Berns is a Certified Public Accountant and holds a
Bachelors Degree in Business Administration from San Diego State University and
a Masters Degree in Taxation from Golden Gate University.
Michael T. Carr, age 47, was elected to the Company's Board of Directors in
March 1998, Mr. Carr has served as Vice President Business Development of
forestfactory, inc., an internet solutions for commercial paper company, since
May 2000. From April 1990 to April 1999, Mr. Carr was President and Chief
Executive Officer of Weider Publications, Inc., a publisher of several consumer
magazines and specialty publications.
Loren Hildebrand, age 61, 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. 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 77, 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 1997. Mr. Losi served as President of
the Company from 1977 until 1989, at which time he became Chief Executive
Officer. Mr. Losi has over 50 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 48, has served as Chief Operating Officer of
the Company since 1992, as a director since 1985, and effective November 1997
was also named Chief Executive Officer. From 1992 until August 1998, Mr. Losi
served as President of the Company. 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 49, was elected to the Company's Board of Directors and
as Chairman of the Board, in November 1997. Mr. Siegel also serves as Chairman
of the Board of Directors of UTI Energy Corp. 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 degree from the University of California at Berkeley (Boalt Hall)
School of Law.
2
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS 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. Berns, Carr and Hildebrand 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 2000, and took various
actions by unanimous written consent. During fiscal 2000, each director, except
Michael T. Carr, attended all 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 2000.
The following table sets forth the beneficial ownership of Common Stock as
of October 30, 2000 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 (based on Schedules 13D and 13G reports filed with the
Securities and Exchange Commission), and each of the Named Executive Officers
(as defined below).
Named Executive Officers, Shares Beneficially
Directors and 5% Stockholders (1) Owned (2)
--------------------------------- --------------------
Number Percent
------ -------
REMY Capital Partners IV, L.P. 2,066,667 (3)(4) 41.46%
Mark S. Siegel 2,066,667 (3)(4) 41.46%
Kenneth N. Berns 2,066,667 (4)(5) 41.46%
Raymond (Jay) H. Losi II (6) 1,465,415 (4)(7) 30.93%
Raymond (Ray) H. Losi (6) 446,575 (4)(8) 9.33%
Dimensional Fund Advisors Inc. 369,200 (9) 8.05%
Steven L. Muellner 57,000 1.23%
Warren F. Marr 38,015 0.82%
Michael T. Carr 14,000 0.30%
Loren Hildebrand 10,000 0.22%
Roger M. Wasserman 10,000 0.22%
Paula Coffman 6,250 0.14%
All directors and executive
officers as a group (10 persons) 4,113,922 75.36%
_______________
(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
3
<PAGE>
exercisable within 60 days are deemed outstanding for the purpose of
calculating the number and percentage owned by such person, but not deemed
outstanding for the purpose of calculating the percentage owned by each
other person listed. Shares of common stock which may be acquired within 60
days of October 30, 2000, through the exercise of options, are as follows:
Mr. Raymond (Jay) H. Losi II, 54,000 shares; Mr. Warren F. Marr, 38,015;
Mr. Steven L. Muellner, 50,000; Mr. Michael T. Carr, 8,000; Mr. Loren
Hildebrand, 8,000; Mr. Roger M. Wasserman, 10,000; and Ms. Paula Coffman,
6,250.
(3) 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.
(4) As a result of the Voting Agreement, Raymond (Ray) H. Losi, Raymond (Jay)
H. Losi II, Eileen Losi, Barbara Losi, Mark S. Siegel, Kenneth N. Berns and
Remy Capital Partners IV, L.P. may be deemed to beneficially own 4,185,095
shares of Common Stock.
(5) As a member of REMY LLC, Mr. Berns 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. Berns disclaims beneficial ownership
of such shares and warrants.
(6) 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.
(7) 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.
(8) 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.
(9) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 3, 2000. Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment advisor, is deemed to have beneficial ownership of
369,200 shares of Common Stock as of December 31, 1999, 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.
4
<PAGE>
Executive Officers of the Company
The names, ages and positions of the executive officers of the Company
as of October 30, 2000, 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.
Paula Coffman, age 36, has been an employee of the Company since June
1984. Since April 1999, she has served as Vice President of Operations. From
January 1993 to April 1999, she was 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 59, has served as Vice President of Sales since he
joined the Company in January 1990.
Steven L. Muellner, age 50, has served as President since August 1998.
Prior to joining the Company, Mr. Muellner was President and Co-Chief Executive
Officer of Applause Enterprises, a gift and toy company, from July 1996 to May
1998. From January 1995 to June 1996, Mr. Muellner was Executive Vice President,
Sales & Marketing for Caradon Doors & Windows, Ltd., a door and window
manufacturing company.
Roger M. Wasserman, age 59, has served as Chief Financial Officer
since May 1998 and Treasurer since June 1998. Prior to joining the Company,
Mr. Wasserman was Controller of several divisions of Kellwood Company, a major
apparel wholesaler and distributor, from July 1995 to May 1998.
5
<PAGE>
Executive Compensation
The following table sets forth all compensation paid by the Company
during fiscal 1998, 1999 and 2000 to (i) the individual serving as the Company's
chief executive officer during fiscal 2000, and (ii) the four other most highly
compensated executive officers of the Company during fiscal 2000 (collectively
referred to as the "Named Executive Officers").
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
------------------------------------------------------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi II 2000 $300,000 $69,000 $ * - $ -
Chief Executive Officer 1999 300,000 - * - -
1998 300,000 - * - -
Steven L. Muellner 2000 $262,000 $49,000 $ * - $ -
President 1999 241,846 - * 125,000 -
Warren F. Marr 2000 $159,326 $30,000 $ * - $ -
Vice President of Sales 1999 149,345 - * - -
1998 144,282 1,000 * - -
Roger M. Wasserman 2000 $131,250 $18,000 $ * - $ -
Chief Financial Officer 1999 126,298 12,000 * - -
1998 26,442 - * 25,000 -
Paula Coffman 2000 $ 93,000 $18,000 $ * 6,250 $ -
Vice President of Operations 1999 81,515 10,000 * - -
1998 75,083 1,000 * - -
</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.
INDIVIDUAL OPTION GRANTS TO NAMED EXECUTIVE
OFFICERS DURING FISCAL YEAR 2000
<TABLE>
<CAPTION>
Percent
of Total
Options Potential Realizable Value at Assumed
Number of Granted to Annual Rates of Stock
Options Employees Exercise Expiration Price Appreciation for Option Terms
--------------------------------------
Name of Executive Officer Granted(1) in FY 2000 Price Date(2) 5% 10%
------------------------- ---------- ---------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C>
Paula Coffman 6,250 100% $5.4375 2/23/10 $21,373 $54,162
</TABLE>
_____________
(1) The options vest 20% on February 23, 2001, and in additional twenty percent
cumulative increments annually thereafter.
(2) All options were granted subject to earlier termination upon certain events
related to termination of employment.
6
<PAGE>
FY 2000 OPTIONS EXERCISE AND FY 2000 YEAR-END VALUE TABLE
The following table sets forth information covering the value of unexercised
options and deferred stock units held by the Named Executive Officers as of July
31, 2000.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Options In-The-Money-Options
At End - FY 2000 At End - FY 2000(1)
---------------------------------- ------------------------------------
Acquired
Name of Executive Officer on Exercise Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Raymond (Jay) H. Losi II - 54,000 36,000 $ 13,500 $ 9,000
Steven L. Muellner - 25,000 100,000 28,125 112,500
Warren F. Marr - 38,015 2,114 118,579 12,155
Roger M. Wasserman - 10,000 15,000 2,500 3,750
Paula Coffman - 6,250 6,250 4,688 4,688
</TABLE>
(1) Calculated by determining the difference between the fair market value of
the Common Stock underlying the option at July 31, 2000 (the closing price
of $5.75 per share as quoted on the Nasdaq National Market) and the exercise
price of the Named Executive Officer's Option.
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. Warren F. Marr as Vice President of Sales, and Ms. Paula
Coffman as Vice President - Administrative Services. In May 1998, the Company
entered into an employment agreement with Mr. Roger Wasserman as Chief Financial
Officer. In August of 1998, the Company entered into an employment agreement
with Mr. Steven Muellner as President. Each employment agreement requires that
the employee devote his or her entire time to the performance of his or her
executive obligations.
The employment agreement for Mr. Raymond (Jay) H. Losi II provides for a
three-year initial term, which automatically renewed for an additional three-
year term and after December 31, 1999, became a month-to-month employment
agreement. The employment of Mr. Losi 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.
The employment agreement for Mr. Wasserman provides for an initial term of
one year, which was automatically renewed for an additional one-year term that
expired on May 10, 2000. Thereafter, the term of Mr. Wasserman's existing
employment agreement continues on a month-to-month basis. The employment
agreements for Mr. Marr and Ms. Coffman provide for a one-year initial term and
automatic renewal for an additional period of one year, unless either party
elects not to renew at least sixty days prior to the end of the initial term.
The initial term of the employment agreement for Mr. Muellner is for two and
one-half years. Upon expiration of this initial term, Mr. Muellner's employment
agreement automatically renews for additional one year periods, unless either
party elects not to renew at least ninety days prior to the expiration of the
then current term.
Each of the employment agreements described above includes provisions
relating to termination by the Company or by the executive for cause. If Mr.
Losi terminates his agreement for cause as specified in his agreement or for
certain other reasons specified in his agreement, including the occurrence of
certain events in a change in control of the Company, he is entitled to receive,
in lieu of any other remedy, three years base salary. Except for the employment
agreements with Mr. Losi and Mr. Wasserman, each of the employment agreements
may be terminated by the executive without cause upon prior written notice to
the Company. Except for Mr. Muellner's employment agreement, the Company may not
terminate any of the other employment agreements without cause. The Company may
terminate Mr. Muellner's employment agreement without cause with a severance
payment of $125,000.
As base compensation under their respective employment agreements, Mr.
Raymond (Jay) H. Losi II receives $300,000 per year, Mr. Marr receives $149,250
per year, Ms. Coffman receives $96,000 per year, Mr. Wasserman receives $136,500
per year and Mr. Muellner receives $250,000 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. The employment agreements also provide for
certain additional benefits.
Effective as of November 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. Effective as of November 1999, the Consulting Agreement was amended,
extending its term on a month-to-month basis, terminable by either party on
sixty days prior written notice, for a fee of $1,000 per month. The Company also
pays 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>
On November 18, 1997, the Company and Remy Capital Partners IV, L.P., entered
into a 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. The Consulting Agreement with Remy
was for a term of two years and provides that Remy is not required to render
services for more than twenty hours per month during the term. Effective as of
November 1999, the Consulting Agreement was amended, extending its term for a
two-year period, for a fee of $125,000 per year. 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 and Secretary. Kenneth N. Berns is a
director of the Company and is a member of Remy Investors, L.L.C.
The employees and consultants who have entered into the agreements noted
above have, pursuant to the terms of such agreements, covenanted that they shall
not, for specified periods, compete with the Company within certain specified
geographic areas, or solicit the Company's employees or customers. Messrs.
Raymond (Jay) H. Losi II, Marr, Wasserman and Muellner 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.
Compensation Committee Interlocks and Insider Participation
Messrs. Carr, Hildebrand and Siegel, non-employee directors, served as
members of the Compensation Committee of the Board of Directors of the Company
(the "Compensation Committee") during fiscal 2000. 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.
9
<PAGE>
The information below regarding the Company's Compensation Committee Report
on Executive Compensation, Audit Committee Members and Performance Graph shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission, nor shall such information be incorporated by reference
into any future filing under the Securities Act of 1933, and amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates it by reference in such filing.
Compensation Committee Report on Executive Compensation
The Compensation Committee was established by the Board of Directors in March
1994. The Compensation Committee issues reports disclosing the Compensation
Committee's compensation policies applicable to the Company's executive
officers.
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 wholesaler 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.
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.
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.
2000 Compensation
During fiscal 2000 the Company's revenues increased 48% from the prior year
and the Company incurred a net loss of $1,983,000 versus net income of $803,000
during the prior fiscal year. The Company made substantial progress in the
design, development and marketing of new products. Based on this performance,
selective cost-of-living and merit salary increases were implemented during the
year and selective cash bonuses were given during the year to the Company's
executive officers.
10
<PAGE>
CEO Compensation
As with the other executive officers of the Company, total compensation for
the Chief Executive Officer, 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 total compensation was $369,000.
With respect to the above matters, this constitutes the report of the
Compensation Committee members named below.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Michael T. Carr
Loren Hildebrand
Mark S. Siegel
Audit Committee Members
The listing standards of the National Association of Securities Dealers,
Inc. ("NASD") require, among other things, that (as of June 14, 2001) the
Company have an audit committee of at least three members, comprised solely of
independent directors, at least one of whom has past employment experience in
finance or accounting, requisite professional certification in accounting, or
other comparable experience or background. The NASD's listing standards permit
the Company's Board of Directors to appoint one director to the Audit Committee
who is not independent, if the Board, under exceptional and limited
circumstances, determines that such director's membership on the Audit Committee
is in the best interest of the Company and its stockholders, and the Board
discloses, in the next annual proxy statement subsequent to such determination,
the nature of the relationship and the reasons for that determination.
The Company's Audit Committee members are Loren Hildebrand, Michael Carr,
and Kenneth Berns. Both Mr. Hildebrand and Mr. Carr are considered independent
directors under the definition of independence in the NASD's listing standards.
The Company's Board of Directors appointed Mr. Berns, who served as a member of
the Company's Audit Committee for a majority of fiscal year 2000, as the third
member of the Audit Committee on June 30, 2000. Mr. Berns, by virtue of the fact
that he is a member of Remy Investors, L.L.C., an affiliate of the Company, does
not meet the NASD's definition of independence. In accordance with the NASD's
listing standards, the Company's Board of Directors determined that it would be
in the best interests of the Company and its stockholders to appoint Mr. Berns
to the Audit Committee because (i) it would be difficult and expensive for the
Company to obtain another independent director to act as the third member of the
Company's Audit Committee and (ii) Mr. Berns is a certified public accountant,
has extensive experience in the financial affairs of publicly held companies,
and is familiar with the Company and its financial affairs.
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 for the
five fiscal years commencing July 31, 1995 and ending July 31, 2000, assuming an
investment of $100 and the reinvestment of any dividends.
The comparisons in the graph below are based upon historical data and are not
indicative of, nor intended to forecast, future performance of the Company's
Common Stock.
[Performance Graph Appears Here]
Cumulative Total Return
----------------------------------------------
7/95 7/96 7/97 7/98 7/99 7/00
VARIFLEX INC. 100.00 42.11 34.21 36.84 41.23 40.35
NASDAQ STOCK MARKETS (U.S.) 100.00 108.96 160.79 189.28 270.71 385.48
NASDAQ NON-FINANCIAL 100.00 105.98 153.84 179.15 264.40 390.12
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.
A Form 4 for Michael T. Carr and Loren Hildebrand were not timely filed upon
the granting of stock options as an annual retainer. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
during fiscal 2000, all other Section 16(a) filing requirements applicable to
its officers, directors and greater than 10% Stockholders were complied with.
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, 2001. 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 STOCKHOLDERS VOTE FOR THE
RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS
STOCKHOLDERS' PROPOSAL
Proposals of Stockholders which are intended to be presented at the 2001
Annual Meeting must be received by the Company at its principal executive
offices, in a form which complies with the applicable securities laws, no later
than July 6, 2001 for inclusion in the Company's proxy materials for that
meeting. In addition, in the event a stockholder proposal is not received by the
Company by September 19, 2001, the proxy to be solicited by the Board of
Directors for the 2001 Annual Meeting will confer authority on the holders of
the proxy to vote the shares in accordance with their best judgement and
discretion if the proposal is presented at the 2001 Annual Meeting without any
discussion of the proposal in the proxy materials for such meeting. Please
address your proposals to: Variflex, Inc., 5152 North Commerce Avenue, Moorpark,
California 93021, Attention: Mark S. Siegel, Secretary.
13
<PAGE>
OTHER MATTERS
The Proxy and Proxy Statement have been approved by the Board of Directors
and sent to stockholders 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.
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/ MARK S. SIEGEL
------------------------
Mark S. Siegel, Secretary
November 3, 2000
14
<PAGE>
PROXY COMMON STOCK PROXY PROXY
VARIFLEX, INC.
5152 North Commerce Avenue, Moorpark, CA 93021
REVOCABLE PROXY FOR ANNUAL MEETING ON DECEMBER 1, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Raymond H. Losi II and Kenneth N. Berns,
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 on the reverse side, all the shares of
common stock of Variflex, Inc. which the undersigned may be entitled to vote at
the Annual Meeting of Stockholders to be held at the Grand Vista Hotel, 999
Enchanted Way, Simi Valley, California, on December 1, 2000, and at all
adjournments thereof with all powers the undersigned would possess if personally
present and voting thereat.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
VARIFLEX, INC.
December 1, 2000
Please Detach and Mail in the Envelope Provided
A [X] Please mark your
votes as in this
example
<TABLE>
<S> <C> <C> <C>
For all nominees WITHHOLD
listed at right (except AUTHORITY
as marked to the to vote for all nominees
contrary below) listed at right
1. ELECTION [_] [_] Nominees: FOR AGAINST ABSTAIN
OF Kenneth N. Berns 2. The proposal to ratify [_] [_] [_]
DIRECTORS Michael T. Carr the appointment of
Loren Hildebrand Ernst & Young LLP.
(Instruction. To withhold authority to vote for Raymond (Ray) H. Losi 3. In their discretion, the Proxies are
any individual nominee: strike a line through Raymond (Jay) H. Losi, II authorized to vote upon such other business
the nominee's name at right) Mark S. Siegel 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.
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.
---
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY CARD
PROMPTLY IN THE ENVELOPE ENCLOSED-NO POSTAGE IS
REQUIRED.
_____________________________________________________ _________________________________________________ Date ____________, 2000
(SIGNATURE) (SIGNATURE IF HELD JOINTLY)
NOTE: (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.)
</TABLE>
