<PAGE>
 
                              EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT ("Agreement"), which is dated as of May 11, 1998,
is made by and between VARIFLEX, INC., a Delaware corporation, located at 5152
North Commerce Avenue, Moorpark, California, 93021 and hereinafter referred to
as "Company", and ROGER M. WASSERMAN, whose address is ________________________
     __________________________________, hereinafter referred to as "Executive",
based upon the following:

                                    RECITALS
                                    --------

     WHEREAS, Company wishes to retain the services of Executive as its Chief
Financial Officer and to set forth in this Agreement the duties and
responsbilities Executive has agreeed to undertake on behalf of Company; and

     WHEREAS, Executive wishes to render services to Company as its Chief
Financial Officer and to have set forth in this Agreement the duties and
responsibilities he has agreed to undertake on behalf of Company; and

     THEREFORE, in consideration of the foregoing and of the mutual promises
contained in this Agreement, Company and Executive (who are sometimes
individually referred to as a "party" and collectively referred to as the
"parties") agree as follows:

                                   AGREEMENT
                                   ---------

     1.  "COMPANY" DEFINED.
         ----------------- 

         The term "Company" as used in this Agreement shall mean Variflex, Inc.

     2.  SPECIFIED PERIOD.
         ---------------- 

         (a)  INITIAL TERM.  Subject to paragraphs 10 and 11, Company hereby 
              ------------       
employs Executive pursuant to the terms of this Agreement and Executive hereby
accepts employment with Company pursuant to the terms of this Agreement for the
period beginning on May 11, 1998 ("Commencement Date") and ending on the day
before the first anniversary of the Commencement Date.

         (b)  RENEWAL OF TERM.  Subject to paragraphs 10 and 11, this 
              ---------------   
Agreement will be automatically renewed for an additional one (1) year term on
the anniversary date of the Commencement Date, unless either party gives written
notice to the other, at least sixty (60) days prior to the expiration of the
then term of this Agreement, that the party desires to terminate this Agreement.

     3.  GENERAL DUTIES.
         -------------- 

         Executive shall report only to Company's Board of Directors (the
"Board"). Executive shall devote his entire productive time, ability, and
attention to Company's business 
<PAGE>
 
during the term of this Agreement. Unless otherwise modified by the Board,
Executive shall serve as the Chief Financial Officer of the Company. In this
capacity, Executive shall do and perform all services, acts, or things necessary
or advisable to discharge his duties under this Agreement, including, but not
limited to, acting as immediate manager and supervisor of Company's accounting
department, maintaining the Company's financial reporting systems, acting as the
Company's liaison with its certified public accountants so that all financial
information required to be prepared and filed with the Securities and Exchange
Commission or other regulatory agencies will be done in a correct and timely
manner, assisting with the preparation of filings required by any federal or
state taxing authority, acting as the Company's liaison with its investors,
managing the Company's cash in accordance with those standards set forth by the
Board, maintaining internal accounting controls and rendering to the Board, at
its meetings or when the Board otherwise requests, an account or report of the
financial condition of the Company. Executive shall perform such other duties as
are commonly performed by the Chief Financial Officer of a publicly traded
corporation or which may from time to time be prescribed by the Board. Executive
shall not work for any other person, firm or entity during the Term of this
Agreement.

     4.   NONCOMPETITION, NONSOLICITATION AND NONINTERFERENCE AND PROPRIETARY
          -------------------------------------------------------------------
          PROPERTY AND CONFIDENTIAL INFORMATION PROVISIONS.
          ------------------------------------------------ 

          (a)  NONCOMPETITION.
               -------------- 

               (1) "Applicable Definitions" - For purposes of this paragraph 4,
                    ----------------------   
the following capitalized terms shall have the definitions set forth below:

                   i.   "Business Segments" - The term "Business Segment" is 
                         -----------------     
defined as each portion of the Company's (or Company's affiliates') business,
including, without limitation, the production, distribution, marketing, and
sales of the Company's (or Company's affiliates') products or product lines, and
the purchasing of raw materials and supplies in connection therewith.

                   ii.  "Competitive Business" - The term "Competitive Business"
                         --------------------          
is defined as any business that is or may be competitive with or similar to or
adverse to any of Company's (or Company's affiliates') Business Segments,
whether such business is conducted by a proprietorship, partnership, corporation
or other entity or venture.

                   iii. "Territory" - The term "Territory" is defined as the 
                         ---------            
geographic area (both within the United States and internationally) in which any
Business Segment is carried on including, by way of example and not limitation,
the entire geographic area in which Company conducts various phases of any such
Business Segment, including purchasing, production, distribution, promotional
and marketing activities, sales, and location of plants and warehouses.

               (2) Covenant Not to Compete. Executive hereby covenants and
                   -----------------------
agrees that during the term of this Agreement, and for a period of one (1) year
from the date this
                                      -2-
<PAGE>
 
Agreement is terminated or expires, Executive shall not, with respect to any
Business Segment and within the boundaries of the Territory applicable to such
Business Segment, without the prior written consent of Company (which consent
may be withheld in the sole and absolute discretion of Company), directly or
indirectly, either alone or in association or in connection with or on behalf of
any person, firm, partnership, corporation or other entity or venture now
existing or hereafter created: (i) be or become interested or engaged in,
directly or indirectly, with any Competitive Business including, without
limitation, being or becoming an organizer, investor, lender, partner, joint
venturer, stockholder, officer, director, employee, manager, independent sales
representative , associate, consultant, agent, supplier, vendor, vendee, lessor,
or lessee to any Competitive Business, or (ii) in any manner associate with, or
aid or abet or give information or financial assistance to any Competitive
Business, or (iii) use or permit the use of Executive's name or any part thereof
to be used or employed in connection with any Competitive Business (collectively
and severally, the "Noncompetition Covenants"). Notwithstanding the foregoing, 
                    -------------------------                    
the provisions of this paragraph 4(a)(2) shall not be deemed to prevent the
purchase or ownership by Executive as a passive investment of no more than 5% of
the outstanding capital shares of any publicly held corporation, so long as any
other obligation or duty under the Noncompetition Covenants are not breached.

          (3) Separate Covenants.  The Noncompetition Covenants shall be 
              ------------------       
construed to be divided into separate and distinct Noncompetition Covenants with
respect to (i) each Business Segment and (ii) each matter or type of conduct
described therein. Each of such divided Noncompetition Covenants shall be
separate and distinct from all such other Noncompetition Covenants with respect
to the same or any other Business Segment.

          (4) Acknowledgments.  Executive acknowledges that:  (i) the covenants
              ---------------     
and the restrictions contained in the Noncompetition Covenants are necessary,
fundamental, and required for the protection of Company's business; (ii) the
Noncompetition Covenants relate to matters which are of a special, unique and
extraordinary value; and (iii) a breach of any of the Noncompetition Covenants
will result in irreparable harm and damages which cannot be adequately
compensated by a monetary award.

          (5) Judicial Limitation.  Notwithstanding the foregoing, if at any 
              -------------------       
time a court of competent jurisdiction holds that any portion of any
Noncompetition Covenant is unenforceable by reason of its extending for too
great a period of time or over too great a geographical area or by reason of its
being too extensive in any other respect, such Noncompetition Covenant shall be
interpreted to extend only over the maximum period of time, maximum geographical
area, or maximum extent in all other respects, as the case may be, as to which
it may be enforceable, all as determined by such court in such action.

     (b)  NONSOLICITATION AND NONINTERFERENCE.
          ----------------------------------- 

          (1) Covenants.  Executive hereby covenants and agrees that during the
              ---------         
term of this Agreement, and for a period of one (1) year from the date this
Agreement terminates or expires, Executive shall not, either for Executive's own
account or directly or indirectly in conjunction with or on behalf of any
person, partnership, corporation or other entity or venture:

                                      -3-
<PAGE>
 
          i.   Solicit or employ or attempt to solicit or employ any person who
is then or has, within twelve (12) months prior thereto, been an officer,
partner, manager, agent or employee of Company or any affiliate of Company
whether or not such a person would commit a breach of that person's contract of
employment with Company or any affiliate of Company, if any, by reason of
leaving the service of Company or any affiliate of Company (the "Nonsolicitation
                                                                 ---------------
Covenant"); or
--------

          ii.  On behalf of, directly or indirectly, any Competitive Business
(as such term is defined in paragraph 4(a)1.ii.), or for the purpose of or with
the reasonably foreseeable effect of harming the business of Company, solicit
the business of any person, firm or company which is then, or has been at any
time during the preceding twelve (12) months prior to such solicitation, a
customer, client, contractor, supplier or vendor of Company or any affiliate of
Company (the "Noninterference Covenant").
              ------------------------   

     (2)  Acknowledgments.  Each of the parties acknowledges that:  (i) the
          ---------------                                                  
covenants and the restrictions contained in the Nonsolicitation and
Noninterference Covenants are necessary, fundamental, and required for the
protection of the business of Company; (ii) such Covenants relate to matters
which are of a special, unique and extraordinary value; and (iii) a breach of
either of such Covenants will result in irreparable harm and damages which
cannot be adequately compensated by a monetary award.

     (3)  Judicial Limitation.  Notwithstanding the foregoing, if at any time,
          -------------------                                                 
despite the express agreement of Company and Executive, a court of competent
jurisdiction holds that any portion of any Nonsolicitation or Noninterference
Covenant is unenforceable by reason of its extending for too great a period of
time or by reason of its being too extensive in any other respect, such Covenant
shall be interpreted to extend only over the maximum period of time or to the
maximum extent in all other respects, as the case may be, as to which it may be
enforceable, all as determined by such court in such action.

     (c)  PROPRIETARY PROPERTY; CONFIDENTIAL INFORMATION.
          ---------------------------------------------- 

     (1) "Applicable Definitions"  For purposes of this paragraph 4(c), the
          ----------------------                                           
following capitalized terms shall have the definitions set forth below:

          i.  "Confidential Information" - The term "Confidential 
               ------------------------    
Information" is collectively and severally defined as any information, matter or
thing of a secret, confidential or private nature, whether or not so labeled,
which is connected with Company's business, Business Segments, or methods of
operation or concerning any of Company's suppliers, customers, licensors,
licensees or others with whom Company has a business relationship, and which has
current or potential value to Company or the unauthorized disclosure of which
could be detrimental to Company. Confidential Information shall be broadly
defined and shall include, by way of example and not limitation: (i) matters of
a business nature available only to management and owners of Company of which
Executive may become aware (such as information concerning customers, vendors
and suppliers, including their names, addresses, credit or financial status,
buying or selling habits, practices, requirements, and any arrangements or
contracts that Company may have with such parties, Company's marketing 

                                      -4-
<PAGE>
 
methods, plans and strategies, the costs of materials, the prices Company
obtains or has obtained or at which Company sells or has sold its products or
services, Company's manufacturing and sales costs, the amount of compensation
paid to employees of Company and other terms of their employment, financial
information such as financial statements, budgets and projections, and the terms
of any contracts or agreements Company has entered into) and (ii) matters of a
technical nature (such as product information, trade secrets, know-how,
formulae, innovations, inventions, devices, discoveries, techniques, formats,
processes, methods, specifications, designs, patterns, schematics, data,
compilation of information, test results, and research and development
projects). For purposes of the foregoing, the term "trade secrets" shall mean
the broadest and most inclusive interpretation of trade secrets as defined by
Section 3426.1(d) of the California Civil Code (the Uniform Trade Secrets Act)
                         ---------------------     
and cases interpreting the scope of said Section.

          ii.  "Proprietary Property" - The term "Proprietary Property" is
                --------------------                                      
collectively and severally defined as any written or tangible property owned or
used by Company in connection with Company's business, whether or not such
property also qualifies as Confidential Information.  Proprietary Property shall
be broadly defined and shall include, by way of example and not limitation,
products, samples, equipment, files, lists, books, notebooks, records,
documents, memoranda, reports, patterns, schematics, compilations, designs,
drawings, data, test results, contracts, agreements, literature, correspondence,
spread sheets, computer programs and software, computer print outs, other
written and graphic records, and the like, whether originals, copies, duplicates
or summaries thereof, affecting or relating to the business of Company,
financial statements, budgets, projections, invoices.

     (2) Ownership of Proprietary Property.  Executive acknowledges that all
         ---------------------------------                                  
Proprietary Property which Executive may prepare, use, observe, come into
possession of and/or control shall, at all times, remain the sole and exclusive
property of Company.  Executive shall, upon demand by Company at any time, or
upon the cessation of Executive's employment, irrespective of the time, manner,
cause or lack of cause of such cessation, immediately deliver to Company or its
designated agent, in good condition, ordinary wear and tear and damage by any
cause beyond the reasonable control of Executive excepted, all items of the
Proprietary Property which are or have been in Executive's possession or under
his control, as well as a statement describing the disposition of all items of
the Proprietary Property beyond Executive's possession or control in the event
Executive has not previously returned such items of the Proprietary Property to
Company.

     (3) Agreement Not to Use or Divulge Confidential Information.  Executive
         --------------------------------------------------------            
agrees that he will not, at any time, in any fashion, form or manner, unless
specifically consented to in writing by Company, either directly or indirectly
use, divulge, transmit or otherwise disclose or cause to be used, divulged,
transmitted or otherwise disclosed to any person, firm or corporation, in any
manner whatsoever (other than in Executive's performance of duties for Company
or except as required by law) any Confidential Information of any kind, nature
or description.  The foregoing provisions shall not be construed to prevent
Executive from making use of or disclosing information which is in the public
domain through no fault of Executive, provided, however, specific information 
shall not be deemed to be in the public

                                      -5-
<PAGE>
 
domain merely because it is encompassed by some general information that is
published or in the public domain or in Executive's possession prior to
Executive's employment with Company.

     (4) Acknowledgment of Secrecy.  Executive acknowledges that the
         -------------------------                                  
Confidential Information is not generally known to the public or to other
persons who can obtain economic value from its disclosure or use and that the
Confidential Information derives independent economic value thereby, and
Executive agrees that he shall take all efforts reasonably necessary to maintain
the secrecy and confidentiality of the Confidential Information and to otherwise
comply with the terms of this Agreement.

     (5) Inventions, Discoveries.  Executive acknowledges that any inventions,
         -----------------------                                              
discoveries or trade secrets, whether patentable or not, made or found by
Executive in the scope of his employment with Company constitute property of
Company and that any rights therein now held or hereafter acquired by Executive
individually or in any capacity are hereby transferred and assigned to Company,
and agrees to execute and deliver any confirmatory assignments, documents or
instruments of any nature necessary to carry out the intent of this paragraph
when requested by Company without further compensation therefor, whether or not
Executive is at the time employed by Company.  Provided, however,
notwithstanding the foregoing, Executive shall not be required to assign his
rights in any invention which qualifies fully under the provisions of Section
2870(a) of the California Labor Code, which provides, in pertinent part, that
               ---------------------                                         
the requirement to assign "shall not apply to any invention that the employee
developed entirely on his or her own time without using employer's equipment,
supplies, facilities or trade secret information except for those inventions
that either:

          (i)   Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or

          (ii)  Result from any work performed by the employee for the
employer."

     Executive understands that he bears the full burden of proving to Company
that an invention qualifies fully under Section 2870(a).  By signing this
Agreement, Executive acknowledges receipt of a copy of this Agreement and of
written notification of the provisions of Section 2870.

     5.  COMPLIANCE WITH SECURITIES LAWS.
         ------------------------------- 

     Executive acknowledges that, the Company is a publicly reporting company,
and that Company and Executive are subject to the provisions of Sections
10(b)(5), 16(a) and 16(b) of the Securities Exchange Act of 1934.  Executive
acknowledges that Section 16(a) of the Securities Exchanges Act requires
Executive to report the ownership or transfer of his stock or other securities
in Company to the Securities and Exchange Commission and that Sections 10(b)(5)
and 16(b) can prohibit Executive from selling or transferring his stock or
securities in Company.  Executive agrees that he will comply with Company's
policies, as stated from time to time, relating to selling or transferring his
stock or securities in Company.

                                      -6-
<PAGE>
 
     6.  COMPENSATION.
         ------------ 

         (a)  SALARY.  During the term of this Agreement, Company shall pay to
              ------                                                          
Executive a salary of One Hundred Twenty-Five Thousand Dollars ($125,000) per
year.  Executive's annual salary shall be reviewed periodically by Company for
the purpose of determining whether Executive's salary shall be increased.  In no
event shall this review take place less frequently than annually.  Executive
shall be entitled to receive such bonuses as the Company may, in its discretion,
award.

         (b)  EMPLOYEE BENEFIT PLANS.  Except as otherwise herein provided,
              ----------------------                                       
Executive shall be entitled, during the specified period of this Agreement, to
participate in any retirement, pension, profit-sharing, insurance, or other
plans which may now be in effect or which may be adopted by Company.  With
respect to the Company medical plans, Executive intends to obtain COBRA coverage
from the Commencement Date until the date Executive becomes eligible to
participate in the Company's medical plans ("Eligibility Date"), which is
anticipated to be within 90 days after the Commencement Date.  Company shall
reimburse Executive for the difference, if any, between the cost incurred by
Executive for such COBRA coverage from the Commencement Date through the
Eligibility Date and the cost which Executive would have paid for the Company
PPO medical plan from the Commencement Date through the Eligibility Date;
provided, however, that the maximum amount of such reimbursement will be
$2,500.00.

         (c)  STOCK OPTIONS.  Within thirty (30) days after the date of this
              -------------                                                 
Agreement, the Company will prepare and deliver to Executive, a stock option
agreement which shall provide the following:  (i) Executive shall be granted
incentive options, pursuant to the 1994 Variflex Stock Plan, to purchase an
aggregate of twenty-five thousand (25,000) shares of Company's common stock at a
price per share equal to the closing price of the Company's common stock as
listed by NASDAQ as of the end of the first business day immediately preceding
the option grant date; (ii) the option grant date shall be the Commencement
Date; (iii) options to purchase shall vest one-fifth on the first anniversary of
the Commencement Date, and thereafter one-fifth on each subsequent anniversary
of the Commencement Date, so long as Executive continues his employment with
Company; (iv) options shall expire five years following the grant date, except
that vested options shall terminate earlier in certain circumstances and
unvested options shall terminate upon termination of Executive's employment; (v)
Executive shall be entitled to pay for the stock in cash, in stock of Company
with a fair market value equal to the exercise price, and (vi) stock issued
pursuant to this plan shall be restricted stock, although Company shall reserve
the right to issue registered shares if it so decides.  Executive agrees to be
bound by the terms of the stock option agreement as adopted, and the provisions
of this paragraph shall be limited by and subject to the terms of that
agreement.

     7.  REIMBURSEMENT OF BUSINESS EXPENSES.  Company shall promptly reimburse
         ----------------------------------                                   
Executive for all reasonable business expenses incurred by Executive in
connection with the business of Company.  However, each such expenditure shall
be reimbursable only if Executive furnishes to Company adequate records and
other documentary evidence required by 

                                      -7-
<PAGE>
 
federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of each such expenditure as an income tax
deduction.

     8.  ANNUAL VACATION.
         --------------- 

         Executive shall be entitled to three (3) weeks vacation time each year
without loss of compensation.

     9.  TERMINATION FOR CAUSE.
         --------------------- 

         (a)  TERMINATION BY COMPANY.  Company reserves the right to declare
              ----------------------                                        
Executive in default of this Agreement and terminate Executive if Executive (i)
breaches or habitually neglects the duties which he is required to perform under
the terms of this Agreement; or (ii) fails to adhere to any written Company
policy if the Executive has been given a reasonable opportunity to comply with
such policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement); or
(iii) appropriates (or attempts to appropriate) a material business opportunity
of the Company, including attempting to secure or securing any personal profit
in connection with any transaction entered into on behalf of the Company; or
(iv) misappropriates (or attempts to misappropriate) any of the Company's funds
or property; or (v) is convicted of, indicted for (or its procedural
equivalent), or enters a guilty plea or plea of no contest with respect to, a
felony, the equivalent thereof, or any other crime; or (vi) commits such acts of
dishonesty, fraud, or misrepresentation as would prevent the effective
performance of his duties or results in material harm to Company's business,
taken as a whole.  Company may terminate this Agreement for cause by giving
written notice of termination to Executive.  With the exception of the covenants
included in paragraphs 4 and 5 above, upon such termination the obligations of
Executive and Company under this Agreement shall immediately cease.  Such
termination shall be without prejudice to any other remedy to which Company may
be entitled either at law, in equity, or under this Agreement.  If Executive's
employment is terminated pursuant to this paragraph, Company shall pay to
Executive, within two (2) business days of such termination, any deferred or
unpaid compensation to which Executive is entitled at the time of such
termination.

         (b)  TERMINATION BY EXECUTIVE.  Executive may terminate this Agreement
              ------------------------      
upon written notice to Company if the Company has: (i) materially breached this
Agreement; or (ii) required Executive to participate in any felony or other
serious crime.

     10.  TERMINATION UPON DEATH OR DISABILITY.
          ------------------------------------ 

          (a)  DEATH.  Executive's employment shall terminate upon the death of
               -----                                                           
Executive.  Upon such termination, the obligations of Executive and Company
under this Agreement shall immediately cease.

          (b)  DISABILITY.  Company reserves the right to terminate Executive's
               ----------                                                      
employment upon ten (10) days written notice if, for a period of thirty (30)
days, Executive is prevented from discharging his duties under this Agreement
due to any physical or mental disability.  With the exception of the covenants
included in paragraphs 4 and 5 above, upon such 

                                      -8-
<PAGE>
 
termination the obligations of Executive and Company under this Agreement shall
immediately cease.

     11.  MISCELLANEOUS.
          ------------- 

          (a)  PREPARATION OF AGREEMENT.  It is acknowledged by each party that
               ------------------------      
such party either had separate and independent advice of counsel or the
opportunity to avail itself or himself of same. In light of these facts it is
acknowledged that no party shall be construed to be solely responsible for the
drafting hereof, and therefore any ambiguity shall not be construed against any
party as the alleged draftsman of this Agreement.

          (b)  COOPERATION.  Each party agrees, without further consideration,
               -----------        
to cooperate and diligently perform any further acts, deeds and things and to
execute and deliver any documents that may from time to time be reasonably
necessary or otherwise reasonably required to consummate, evidence, confirm
and/or carry out the intent and provisions of this Agreement, all without undue
delay or expense.

          (c)  INTERPRETATION.
               -------------- 

               (i)   Entire Agreement/No Collateral Representations.  Each party
                     ----------------------------------------------             
expressly acknowledges and agrees that this Agreement, including all exhibits
attached hereto:  (1) is the final, complete and exclusive statement of the
agreement of the parties with respect to the subject matter hereof; (2)
supersedes any prior to contemporaneous agreements, promises, assurances,
guarantees, representations, understandings, conduct, proposals, conditions,
commitments, acts, course of dealing, warranties, interpretations or terms of
any kind, oral or written (collectively and severally, the "Prior Agreements"),
and that any such Prior Agreements are of no force or effect except as expressly
set forth herein; and (3) may not be varied, supplemented or contradicted by
evidence of Prior Agreements, or by evidence of subsequent oral agreements.  Any
agreement hereafter made shall be ineffective to modify, supplement or discharge
the terms of this Agreement, in whole or in part, unless such agreement is in
writing and signed by the party against whom enforcement of the modification or
supplement is sought.

               (ii)  Waiver.  No breach of any agreement or provision herein 
                     ------         
contained, or of any obligation under this Agreement, may be waived, nor shall
any extension of time for performance of any obligations or acts be deemed an
extension of time for performance of any other obligations or acts contained
herein, except by written instrument signed by the party to be charged or as
otherwise expressly authorized herein. No waiver of any breach of any agreement
or provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof, or a waiver or relinquishment of any other agreement
or provision or right or power herein contained.

               (iii) Remedies Cumulative.  The remedies of each party under this
                     -------------------                                        
Agreement are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled.

                                      -9-
<PAGE>
 
               (iv)    Severability.  If any term or provision of this Agreement
                       ------------           
or the application thereof to any person or circumstance shall, to any extent,
be determined to be invalid, illegal or unenforceable under present or future
laws effective during the term of this Agreement, then and, in that event: (A)
the performance of the offending term or provision (but only to the extent its
application is invalid, illegal or unenforceable) shall be excused as if it had
never been incorporated into this Agreement, and, in lieu of such excused
provision, there shall be added a provision as similar in terms and amount to
such excused provision as may be possible and be legal, valid and enforceable,
and (B) the remaining part of this Agreement (including the application of the
offending term or provision to persons or circumstances other than those as to
which it is held invalid, illegal or unenforceable) shall not be affected
thereby and shall continue in full force and effect to the fullest extent
provided by law.

               (v)     Time is of the Essence.  It is expressly understood and 
                       ----------------------      
agreed that time of performance is strictly of the essence with respect to each
and every term, condition, obligation and provision hereof and that the failure
to timely perform any of the terms, conditions, obligations or provisions hereof
by any party shall constitute a material breach and a noncurable (but waivable)
default under this Agreement by the party so failing to perform.

               (vi)    No Third Party Beneficiary.  Notwithstanding anything 
                       --------------------------   
else herein to the contrary, the parties specifically disavow any desire or
intention to create any third party beneficiary obligations, and specifically
declare that no person or entity, other than as set forth in this Agreement,
shall have any rights hereunder or any right of enforcement hereof. 


               (vii)   No Reliance Upon Prior Representation. The parties
                       -------------------------------------               
acknowledge that no other party has made any oral representation or promise
which would induce them prior to executing this Agreement to change their
position to their detriment, partially perform, or part with value in reliance
upon such representation or promise; the parties acknowledge that they have
taken such action at their own risk; and the parties represent that they have
not so changed their position, performed or parted with value prior to the time
of their execution of this Agreement.

               (viii)  Headings; References; Incorporation; Gender.  The 
                       -------------------------------------------      
headings used in this Agreement are for convenience and reference purposes only,
and shall not be used in construing or interpreting the scope or intent of this
Agreement or any provision hereof. References to this Agreement shall include
all amendments or renewals thereof. All cross-references in this Agreement,
unless specifically directed to another agreement or document, shall be
construed only to refer to provisions within this Agreement, and shall not be
construed to be referenced to the overall transaction or to any other agreement
or document. Any exhibit referenced in this Agreement shall be construed to be
incorporated in this Agreement. As used in this Agreement, each gender shall be
deemed to include the other gender, including neutral genders or genders
appropriate for entities, if applicable, and the singular shall be deemed to
include the plural, and vice versa, as the context requires.

     (d)  ENFORCEMENT.
          ----------- 

                                      -10-
<PAGE>
 
          (i)   Applicable Law.  This Agreement and the rights and remedies of
                --------------     
each party arising out of or relating to this Agreement (including, without
limitation, equitable remedies) shall be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without regard to the
conflicts of law principles thereof) of the State of California, as if this
agreement were made, and as if its obligations are to be performed, wholly
within the State of California.

          (ii)  Consent to Jurisdiction; Service of Process.  Any action or 
                -------------------------------------------  
proceeding arising out of or related to this Agreement shall be filed in and
heard and litigated solely before the state courts of California located within
the County of Ventura. Each party generally and unconditionally accepts the
exclusive jurisdiction of such courts and to venue therein, consents to the
service of process in any such action or proceeding by certified or registered
mailing of the summons and complaint in accordance with the notice provisions of
this Agreement, and waives any defense or right to object to venue in said
courts based upon the doctrine of "Forum Non Conveniens". Each party irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement.

          (iii) Waiver of Right to Jury Trial.  Each party hereby waives such
                -----------------------------                                
party's respective right to a jury trial of any claim or cause of action based
upon or arising out of this Agreement.  Each party acknowledges that this wavier
is a material inducement to each other party hereto to enter into the
transaction contemplated hereby, that each other party has already relied upon
this waiver in entering into this Agreement, and that each other party will
continue to rely on this wavier in their future dealings.  Each party warrants
and represents that such party has reviewed this waiver with such party's legal
counsel or has been afforded an ample opportunity to do so, and that such party
has knowingly and voluntarily waived its jury trial rights.

          (iv)  Consent to Specific Performance and Injunctive Relief and 
                ---------------------------------------------------------
Waiver of Bond or Security.  Each party acknowledges that Company may, as a 
--------------------------        
result of Executive's breach of the covenants and obligations included in
paragraph 4 of this Agreement, sustain immediate and long-term substantial and
irreparable injury and damage which cannot be reasonably or adequately
compensated by damages at law. Each party agrees that in the event of
Executive's breach or threatened breach of the covenants and obligations
included in paragraph 4, Company shall be entitled to obtain from a court of
competent jurisdiction or arbitration, as the case may be under this Agreement,
equitable relief, including, without limitation, enforcement of all of the
provisions of this Agreement by specific performance and/or temporary,
preliminary and/or permanent injunctions enforcing any of Company's rights,
requiring performance by Executive, or enjoining any breach by Executive, all
without proof of any actual damages that have been or may be caused to Company
by such breach or threatened breach and without the posting of bond or other
security in connection therewith. Executive waives the claim or defense that
Company has an adequate, remedy at law and Excessive shall not allege or
otherwise assert the legal position that any such remedy at law exists. Each
party agrees and acknowledges: (1) that the terms of this paragraph are fair,
reasonable and necessary to protect the legitimate interests of the other party;
(2) that this waiver is a material inducement to the other party to enter into
the transaction contemplated hereby; (3) that the other party has

                                      -11-
<PAGE>
 
already relied upon this waiver in entering into this agreement; and (4) that
each party will continue to rely on this wavier in their future dealings. Each
party warrants and represents that such party has reviewed this provision with
such party's legal counsel or has been afforded an ample opportunity to do so,
and that such party has knowingly and voluntarily waived its rights.

          (v) Attorneys' Fees and Costs.  If any party institutes or should the
              -------------------------                                        
parties otherwise become a party to any Action Or Proceeding (as defined below)
based upon or arising out of this Agreement including, without limitation, to
enforce or interpret this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement or any provision hereof, or for a
declaration of rights in connection herewith, or for any other relief, including
equitable relief, in connection herewith, the Prevailing Party (as defined
below) in any such Action Or Proceeding, whether or not such Action Or
Proceeding proceeds to final judgment or determination, shall be entitled to
receive from the non-Prevailing Party as a cost of suit, and not as damages, all
Costs And Expenses (as defined below) of prosecuting or defending the Action Or
Proceeding, as the case may be, including, without limitation, reasonable
Attorneys' And Other Fees.

          (vi) Definitions.  The term "Action Or Proceeding" is defined as any 
               -----------         
and all claims, suits, actions, notices, inquiries, proceedings, hearings,
arbitrations or other similar proceedings, including appeals and petitions
therefrom, whether formal or informal, governmental or non-governmental, or
civil or criminal.  The term "Prevailing Party" is defined as the party who is
determined to prevail by the Court after its consideration of all damages and
equities in the Action Or Proceeding, whether or not the Action Or Proceeding
proceeds to final judgment.  The Court shall retain the discretion to determine
that no party is the Prevailing Party in which case no party shall be entitled
to recover its Costs And Expenses under this subparagraph 12(d).  The term
"Attorneys' And Other Fees" is defined as attorneys' fees, accountants' fees,
fees of other professionals, witness fees (including experts engaged by the
parties, but excluding shareholders, officers, employees or partners of the
parties), and any and all other similar fees incurred in the prosecution or
defense of the Action Or Proceeding.  The term "Costs And Expenses" is defined
as the cost to take depositions, the cost to arbitrate this dispute, if
applicable, and the costs and expenses of travel and lodging incurred with
respect to the Action or Proceeding, provided, however, the party incurring said
travel and lodging expense must ordinarily travel over one hundred (100) miles,
one way, from his or her residence in incurring such expense.

     (e)  NO ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES BY EXECUTIVE.
          ------------------------------------------------------------  
Executive's rights and benefits under this Agreement are personal to him and
therefore (i) no such right or benefit shall be subject to voluntary or
involuntary alienation, assignment or transfer; and (ii) Executive may not
delegate his duties or obligations hereunder.

     (f)  NOTICES.  Unless otherwise specifically provided in this Agreement,
          -------                                                            
all notices, demands, requests, consents, approvals or other communications
(collectively and severally called "Notices") required or permitted to be given
hereunder, or which are given with respect to this Agreement, shall be in
writing, and shall be given by:  (A) personal delivery (which form of Notice
shall be deemed to have been given upon delivery), (B) by telegraph or by

                                      -12-
<PAGE>
 
private airborne/overnight delivery service (which forms of Notice shall be
deemed to have been given upon confirmed delivery by the delivery agency), (C)
by facsimile transmission (which forms of Notice shall be deemed delivered upon
receipt by the sending party of a confirmation of transmission issued by
sender's facsimile machine), or (D) by mailing in the United States mail by
registered or certified mail, return receipt requested, postage prepaid (which
forms of Notice shall be deemed to have been given upon the fifth (5th) business
day following the date mailed).  Each party, and their respective counsel,
hereby agree that any such Notice may be given hereunder by such party's Counsel
and such counsel may communicate directly with all principals, as required to
comply with the foregoing notice provisions.  Notices shall be addressed to the
address hereinabove set forth in the introductory paragraph of this Agreement,
or to such other address as the receiving party shall have specified most
recently by like Notice, with a copy to the other parties hereto.  Any Notice
given to the estate of a party shall be sufficient if addressed to the party as
provided in this subparagraph.

     (g)  COUNTERPARTS.  This Agreement may be executed in counterparts, each of
          ------------                                                          
which shall be deemed an original, and all of which together shall constitute
one and the same instrument, binding on all parties hereto.  Any signature page
of this Agreement may be detached from any counterpart of this Agreement and
reattached to any other counterpart of this Agreement identical in form hereto
by having attached to it one or more additional signature pages.

     (h)  EXECUTION BY ALL PARTIES REQUIRED TO BE BINDING:  ELECTRONICALLY
          ----------------------------------------------------------------
TRANSMITTED DOCUMENTS.  This Agreement shall not be construed to be an offer and
---------------------                                                           
shall have no force and effect until this Agreement is fully executed by all
parties hereto.  If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted electronically
by facsimile or similar device, such facsimile document shall for all purposes
be treated as if manually signed by the party whose facsimile signature appears.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

                              COMPANY:

                              VARIFLEX, INC., a Delaware corporation

                              By:  /s/ Raymond (Jay) H. Losi II
                                 ---------------------------------
                                       Raymond (Jay) H. Losi II
                                       Chief Executive Officer and
                                       Chief Operating Officer

                              EXECUTIVE:

                              /s/ Roger M. Wasserman
                              ------------------------------------
                              Roger M. Wasserman

                                      -13-