As filed with the Securities and Exchange Commission on July 17, 1998
Registration No. 333-_______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-8
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-------------------------
ARM Financial Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 61--1244251
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
515 West Market Street
Louisville, Kentucky 40202
(Address of Principal Executive Offices)
ARM Financial Group, Inc.
1998 Non-Employee Director Stock Option Plan
(Full title of the plans)
-------------------------
Robert H. Scott
ARM Financial Group, Inc.
515 West Market Street
Louisville, Kentucky 40202
(Name and address of agent for service)
(502) 582-7900
(Telephone number, including area code, of agent for service)
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
============================================================================================================================
<CAPTION>
Title of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be to be Offering Price Per Aggregate Registration
Registered Registered Share Offering Price Fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Convertible Common Stock 70,000 $23.2188 (1) $1,625,316 (1) $479.47
par value $.01 per share
- ----------------------------------------------------------------------------------------------------------------------------
Class A Convertible Common Stock 30,000 $22.53 (2) $675,900 (2) $199.40
par value $.01 per share ============
$678.87
============================================================================================================================
<FN>
(1) The price shown is the average of the high and low prices of the Class A Convertible Common Stock on the New
York Stock Exchange consolidated reporting system on July 10, 1998, in accordance with Rule 457(c), and is
being utilized solely for the purpose of calculating the registration fee.
(2) Estimated solely for the purpose of calculating the registration fee. Such estimate is calculated in accordance with
Rule 457(h) and is based on the weighted average exercise price of the options previously granted under the ARM
Financial Group, Inc. 1998 Non-Employee Director Stock Option Plan.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
Part I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information.*
Item 2. Registrant Information and Employee Plan Annual Information.*
- --------------------
* Information required by Part I to be contained in the Section 10(a)
prospectus is omitted from this Registration Statement in accordance with
Rule 428 under the Securities Act, and the "Note" to Part I of Form S-8.
2
<PAGE>
Part II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents, filed by ARM Financial Group, Inc.
(the "Registrant"), are incorporated by reference in this Registration
Statement:
(a) the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31,1997 ;
(b) the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998; and
(c) the description of the Registrant's Class A Convertible
Common Stock, par value $.01 per share (the "Common Stock"), contained
in the Registrant's Registration Statement on Form 8-A (File No.
001-12294) for registration of such Common Stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
All documents subsequently filed by the Registrant pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of
a post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Registration Statement and to be part
hereof from the date of filing of such documents.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
3
<PAGE>
Item 6. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides,
in summary, that directors and officers of Delaware corporations are entitled,
under certain circumstances, to be indemnified against all expenses and
liabilities (including attorneys' fees) incurred by them as a result of suits
brought against them in their capacity as a director or officer, if they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, if they had no reasonable cause to believe their conduct
was unlawful; provided that no indemnification may be made against expenses in
respect of any claim, issue or matter as to which they shall have been adjudged
to be liable to the corporation, unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, they are fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper. Any such indemnification may be made by the
corporation only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct.
The Certificate of Incorporation of the Registrant (the
"Certificate of Incorporation") provides that no director of the Registrant
shall be personally liable to the Registrant or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except for liability:
(i) for any breach of the director's duty of loyalty to the Registrant or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) in respect of
certain unlawful dividend payments or stock redemptions or purchases or (iv) for
any transaction from which the director derived an improper personal benefit.
The Certificate of Incorporation and the By-laws of the
Registrant provide for indemnification of its directors and officers to the
fullest extent permitted by Delaware law, as the same may be amended from time
to time. In addition, Morgan Stanley Dean Witter & Co. ("MSDW") indemnifies
those directors of the Registrant who are also employees of Morgan Stanley & Co.
Incorporated.
In addition, the Registrant and MSDW maintain directors' and
officers' liability insurance for their respective directors and officers.
Item 7. Exemption from Registration Claimed.
Not applicable.
4
<PAGE>
Item 8. Exhibits.
The following exhibits are filed as part of this Registration
Statement:
4.1 ARM Financial Group, Inc. 1998 Non-Employee Director Stock
Option Plan.
4.2 Form of Restated Certificate of Incorporation of ARM Financial
Group, Inc. (incorporated by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-14693)).
4.3 Form of Second Amended and Restated By-laws of ARM Financial
Group, Inc. (incorporated by reference to the Form 10-Q filed
by the Registrant on May 15, 1998).
5 Opinion of Shearman & Sterling regarding the legality of the
securities being registered hereby.
23.1 Consent of Ernst & Young LLP.
23.3 Consent of Shearman & Sterling (included in Exhibit 5).
24 Powers of Attorney (included on signature page).
5
<PAGE>
Item 9. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby further undertakes that,
for purposes of determining any liability under the Securities Act of 1933, as
amended (the "Securities Act"), each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Louisville, Commonwealth of Kentucky on the 17th
day of July, 1998.
ARM FINANCIAL GROUP, INC.
By: /s/ Martin H. Ruby
-------------------------------------
Name: Martin H. Ruby
Title: Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
Each of the undersigned whose signature appears below hereby
constitutes and appoints Martin H. Ruby and Robert H. Scott his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) and supplements to this
Registration Statement and any and all related registration statements necessary
to register additional securities, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the indicated capacities on July 17, 1998.
Signature Title
--------- -----
/s/ Martin H. Ruby
_____________________________ Chairman of the Board of
Martin H. Ruby Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ Edward L. Zeman
_____________________________ Executive Vice President--
Edward L. Zeman Chief Financial Officer
(Principal Financial Officer)
/s/ Barry G. Ward
_____________________________ Controller (Principal Accounting
Barry G. Ward Officer)
/s/ Dudley J. Godfrey, Jr.
_____________________________ Director
Dudley J. Godfrey, Jr.
/s/ Edward D. Powers
_____________________________ Director
Edward D. Powers
/s/ Colin F. Raymond
_____________________________ Director
Colin F. Raymond
/s/ John R. Lindholm
_____________________________ Director
John R. Lindholm
/s/ Irwin T. Vanderhoof
_____________________________ Director
Irwin T. Vanderhoof
8
<PAGE>
Exhibit Index
Exhibit No. Description of Document
4.1 ARM Financial Group, Inc.
1998 Non-Employee Director Stock Option Plan
4.2 Form of Restated Certificate of Incorporation of
ARM Financial Group, Inc. (incorporated by
reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-14693)).
4.3 Form of Second Amended and Restated By-laws of
ARM Financial Group, Inc. (incorporated by
reference to the Form 10-Q filed by the Registrant on May 15,
1998 ).
5 Opinion of Shearman & Sterling regarding the legality of the
securities being registered hereby.
23.1 Consent of Ernst & Young LLP.
23.3 Consent of Shearman & Sterling (included in
Exhibit 5).
24 Powers of Attorney (included on signature page).
9
ARM FINANCIAL GROUP, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<PAGE>
ARM FINANCIAL GROUP, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purposes
The purposes of the Plan are to attract, retain and compensate
highly qualified individuals who are not employees of the Company for service as
members of the Board and to provide them with an ownership interest in the
Common Stock. The Plan will be beneficial to the Company and its stockholders by
allowing Eligible Directors to (i) have a personal financial stake in the
Company through an ownership interest in the Common Stock and (ii) underscore
their common interest with stockholders in increasing the value of the Common
Stock over the long term.
2. Definitions and Rules of Construction
(a) Definitions. For purposes of this Plan, the following
capitalized words shall have the meanings set forth below:
"Affiliates" and "Associates" have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
"Annual Award" means an award of Options pursuant to Section
5(b) of the Plan.
"Annual Meeting" means an annual meeting of the Company's
stockholders.
"Beneficial Owner" has the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
"Board" means the Board of Directors of the Company.
"Change in Control of the Company" shall be deemed to occur if
any of the following circumstances shall occur:
(i) any Person (other than (x) the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any person or entity organized, appointed
or established by the Company or any Subsidiary of the Company for or
pursuant to the terms of any such plan or (y) any of the Morgan Stanley
Stockholders or any of their respective Affiliates or any other entity
controlled by one or more of them), alone or together with its
Affiliates and Associates (collectively, an "Acquiring Person"), shall
become the Beneficial Owner of twenty (20%) or more of the then
outstanding shares of Common Stock or the Combined Voting Power of the
Company;
<PAGE>
2
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director who is a representative or nominee of
an Acquiring Person) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved (collectively, the
"Continuing Directors"), cease for any reason to constitute a majority
of the Board;
(iii) the consummation of a merger or consolidation with any
other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or
any Parent of such surviving entity) at least 51% of the Combined
Voting Power of the Company, such surviving entity or the Parent of
such surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the consummation of a plan of reorganization (other than
a reorganization under the United States Bankruptcy Code) or complete
liquidation of the Company or the sale or disposition by the Company of
all or substantially all of the Company's assets;
provided, however, that a Change in Control shall not be deemed to have occurred
in the event of (i) a sale or conveyance in which the Company continues as a
holding company of an entity or entities that conduct all or substantially all
of the business or businesses formerly conducted by the Company or (ii) any
transaction undertaken for the purpose of reincorporating the Company under the
laws of another jurisdiction, if such sale, conveyance or transaction does not
materially affect the beneficial ownership of the Company's capital stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Voting Power" means the combined voting power of the
Company's or other relevant entity's then outstanding voting securities.
"Committee" means the committee designated by the Board
pursuant to Section 3(c) of the Plan.
"Common Stock" means the Class A Convertible Common Stock of
the Company, par value $.01 per share, or such other class or kind of shares or
other securities as may be applicable under Section 12.
"Company" means ARM Financial Group, Inc., a Delaware
corporation, or any successor to substantially all its business.
<PAGE>
3
"Effective Date" means January 1, 1998.
"Eligible Director or Eligible Directors" has the meaning
specified in Section 4 of the Plan.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, in the event the Common Stock is
traded on a recognized securities exchange or quoted by the National Association
of Securities Dealers Automated Quotations on National Market Issues, an amount
equal to the average of the high and low prices of the Common Stock on such
exchange or such quotation on the date set for valuation or, if no sales of
Common Stock were made on said exchange or so quoted on that date, the average
of the high and low prices of the Common Stock on the next preceding day on
which sales were made on such exchange or quotations; or, if the Common Stock is
not so traded or quoted, that value determined, in its sole discretion, by the
Committee.
"Initial Award" means an award of Options pursuant to Section
5(a) of the Plan.
"Morgan Stanley Stockholders" means Morgan Stanley Dean Witter
& Co., The Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Capital
Partners III, L.P., Morgan Stanley Capital Investors, L.P. and MSCP III 892
Investors, L.P.
"Option or Options" means an option or options to purchase
shares of Common Stock awarded to an Eligible Director pursuant to the Plan.
Options awarded pursuant to this Plan shall be non-statutory stock options.
"Option Shares" means the shares of Common Stock issuable upon
exercise of a Option.
"Parent" means any corporation which is a "parent corporation"
within the meaning of Section 424(e) of the Code with respect to the relevant
entity.
"Permanent Disability" means a medically determinable physical
or mental impairment rendering an Eligible Director substantially unable to
function as a member of the Board for any period of six consecutive months. Any
dispute as to whether an Eligible Director is Permanently Disabled shall be
resolved by a physician mutually acceptable to the Eligible Director and the
Company, whose decision shall be final and binding upon the Eligible Director
and the Company.
<PAGE>
4
"Person" means any person, entity or "group" within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
"Plan" means the ARM Financial Group, Inc. 1998 Non-Employee
Director Stock Option Plan as described herein.
"Retirement" means an Eligible Director ceasing to be a member
of the Board as a result of retirement from the Board in accordance with the
retirement policy then applicable to Board members.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means (i) any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect to
the Company or (ii) any other corporation or other entity in which the Company,
directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for the purposes of the Plan.
(b) Rules of Construction. The masculine pronoun shall be deemed
to include the feminine pronoun and the singular form of a word shall be deemed
to include the plural form, unless the context requires otherwise. Unless the
text indicates otherwise, references to sections are to sections of the Plan.
3. Shares Available; Administration
(a) Subject to the provisions of Section 10(b) of the
Plan, the maximum number of shares of Common Stock which may be issued under the
Plan shall not exceed 100,000 shares (the "Plan Limit"). Either authorized and
unissued shares of Common Stock or treasury shares may be delivered upon
exercise of Options awarded pursuant to the Plan.
(b) For purposes of determining the number of shares of
Common Stock that remain available for issuance, the following shares shall be
added back to the Plan Limit and again be available for Options.
(i) the number of shares tendered to pay the
exercise price of an Option or to satisfy an Eligible
Director's tax withholding obligations, if applicable; and
(ii) the number of shares withheld from any Option to
satisfy an Eligible Director's tax withholding obligations, if
applicable, or to pay the exercise price of an Option.
<PAGE>
5
(c) The Plan will be administered by a committee designated by
the Board and composed exclusively of members of the Board who are not Eligible
Directors (the "Committee"). Subject to the provisions of this Plan, the
Committee shall have full and final authority to (i) interpret the Plan; (ii)
establish, amend and rescind any rules and regulations relating to the Plan;
(iii) prescribe award documentation; (iv) make factual determinations in
connection with the administration or interpretation of the Plan; and (v) take
any other actions necessary or advisable for the administration of the Plan. The
Committee's interpretation of the Plan, and all actions taken and determinations
made by the Committee pursuant to the powers vested in it hereunder, shall be
conclusive and binding upon all parties concerned including the Company, its
stockholders and persons granted Options under the Plan. The Chairman of the
Board of the Company shall be authorized to implement the Plan in accordance
with its terms and to take or cause to be taken such actions of a ministerial
nature as shall be necessary to effectuate the intent and purposes thereof.
Notwithstanding the foregoing, the full Board shall approve any Discretionary
Option granted pursuant to Section 5(d) of the Plan or take any other action in
order to ensure that the grant of such Discretionary Options under the Plan (or
the tendering or withholding of shares of Common Stock) are exempt from
liability under Section 16 of the Exchange Act pursuant to Rule 16b-3
promulgated thereunder.
4. Eligibility
Options awarded pursuant to the Plan shall be granted only to
active members of the Board who are not, as of the date of any Option grants,
employees of the Company, any of its Subsidiaries or affiliates or any of the
Morgan Stanley Stockholders (each an "Eligible Director", and collectively, the
"Eligible Directors").
5. Option Grant
(a) Initial Award. (i) In April 1998, each Eligible
Director will be granted, subject to the approval of the Plan by the Company's
stockholders, an Option to purchase 10,000 shares of Common Stock. Such Options
will be fully vested and have an exercise price equal to the Fair Market Value
of the Common Stock on the date of grant. (ii) On the date of an Eligible
Director's initial election or appointment to the Board, such Eligible Director
(including any Eligible Director reelected or reappointed after a period of at
least 12 calendar months during which he did not serve on the Board) shall be
granted an Initial Award consisting of an Option to purchase 10,000 shares of
Common Stock. Such Option shall have a per share exercise price equal to the
Fair Market Value of the Common Stock on the date of the award and shall be
subject to the vesting schedule provided for in Section 6(a) and the other terms
and conditions provided for herein.
(b) Annual Awards. At each Annual Meeting during the term of
the Plan, each Eligible Director who has continuously served as a member of the
Board since the immediately preceding Annual Meeting, and who is reelected at
such Annual Meeting or who
<PAGE>
6
will otherwise continue to serve on the Board following such Annual Meeting,
will receive an Annual Award consisting of an Option to purchase 2,000 shares of
Common Stock; provided, however, that if any such Eligible Director had received
an award pursuant to Section 5(a)(i) or (ii) during the period following the
previous Annual Meeting, such Eligible Director shall not receive an Annual
Award at such Annual Meeting. The Option shall have a per share exercise price
equal to the Fair Market Value of the Common Stock on the date such Option is
granted and shall be subject to the vesting schedule provided for in Section
6(a) and the other terms and conditions provided for herein.
(c) Automatic Grants. Grants of Options under Section 5(a)
and (b) shall be made automatically pursuant to the terms of the Plan and,
except for stockholder approval of the Plan pursuant to Section 11, shall not
require the approval of any person. Such Options are subject to the terms of the
Plan
(d) Discretionary Awards. The Board may in its discretion
grant Options ("Discretionary Options") ratably to Eligible Directors as a
result of extraordinary service upon such terms and conditions to be determined
by the Board and set forth in a certificate, including those relating to vesting
or the acceleration thereof; provided, however, that the exercise price of such
Discretionary Options shall be no less than the Fair Market Value of the Common
Stock on the applicable date of grant.
6. Vesting
(a) Vesting. Options awarded pursuant to the Plan (other
than Discretionary Options) shall vest and become exercisable in four equal
annual installments of 25%, commencing on the first anniversary of the date of
grant.
(b) Accelerated Vesting. Notwithstanding anything to the
contrary in Section 6(a), an Option (other than a Discretionary Option) shall
become vested and exercisable with respect to 50% of an award (to the extent not
already so vested) upon an Eligible Director ceasing to be a member of the Board
as a result of death, Permanent Disability or Retirement. Notwithstanding
anything to the contrary in Section 6(a), an Option shall become fully vested
and exercisable upon a Change in Control in the Company.
(c) Forfeiture. In the event of an Eligible Director's
termination of service as a member of the Board for any reason other than death,
Permanent Disability, Retirement or a Change in Control of the Company prior to
the satisfaction of the vesting period described in Section 6(a), the unvested
portion of any Options awarded to the Eligible Director (other than a
Discretionary Option) shall be forfeited to the Company as of the date of
termination of service, and the Eligible Director shall have no further rights
or interest therein.
<PAGE>
7
7. Term of Options
(a) Ten-Year Term. Each Option shall expire ten years
from the date of its grant, subject to earlier termination as provided herein.
(b) Exercise Following Certain Terminations of Service.
If an Eligible Director's service as a member of the Board terminates for any
reason other than death, Permanent Disability, Retirement or a Change in Control
of the Company, the Eligible Director shall have the right, subject to the terms
and conditions hereof, to exercise the Option, to the extent it has vested as of
the date of such termination of service, at any time within 90 days after the
date of such termination, subject to the earlier expiration of the Option as
provided in Section 7(a). At the end of such 90 day period the Option shall
expire.
(c) Exercise Following Termination of Service Due to
Death, Permanent Disability, Retirement or a Change in Control of the Company.
If an Eligible Director's service as a member of the Board terminates by reason
of death, Permanent Disability, Retirement or a Change in Control of the
Company, all Options awarded to such Eligible Director that are vested
(including those that vested pursuant to Section 6(b) of the Plan) may be
exercised by such Eligible Director, or by his or her estate, personal
representative or beneficiary, as the case may be, at any time within one year
after the date of termination of service, subject to the earlier expiration of
the Option as provided in Section 7(a). At the end of such one-year period the
Option shall expire.
(d) Exercise Following Termination of Service Subject to
Company Policies and Procedures on Insider Trading. Any exercise of an Option
pursuant to Section 7(b) or 7(c) following termination of an Eligible Director's
service as a member of the Board for any reason other than death shall be
subject to, and shall be permitted only to the extent such exercise complies
with, the policies and procedures of the Company concerning insider trading that
were applicable to the Eligible Director on the date of such termination of
service (as such policies and procedures may be amended by the Company during
the period provided in Section 7(b) or 7(c), as the case may be, for exercise of
the Option).
8. Time and Manner of Exercise
(a) Notice of Exercise. Subject to the other terms and
conditions hereof, an Eligible Director may exercise any Options (to the extent
vested) by giving written notice of exercise to the Company; provided, however,
that no less than 100 Option Shares may be purchased upon any exercise of the
Option unless the number of Option Shares purchased at such time is the total
number of Option Shares in respect of which an Option is then exercisable, and
provided, further, that in no event shall an Option be exercisable for a
fractional share. The date of exercise of an Option shall be the later of (i)
the date on which the Company receives such written notice or (ii) the date on
which the conditions provided in Section 8(b) are satisfied.
<PAGE>
8
Notwithstanding any other provision of the Plan or of the notice of award
relating to an Option provided for in Section 9, no Option may be exercised,
whether in whole or in part, and no Option Shares will be issued by the Company
in respect of any such attempted exercise, at any time when such exercise is
prohibited by Company policy then in effect concerning transactions by an
Eligible Director in the Company's securities. In the event that an Eligible
Director gives written notice of exercise to the Company at a time when such
exercise is prohibited by such policy, the Company in its sole discretion may
disregard such notice of exercise or may consider such notice to be delivered as
of the first date that the Eligible Director is permitted to exercise such
Option in accordance with such Company policy.
(b) Payment. Prior to the issuance of a certificate
pursuant to Section 8(e) hereof evidencing the Option Shares in respect of which
all or a portion of an Option shall have been exercised, an Eligible Director
shall have paid to the Company the exercise price for all Option Shares
purchased pursuant to the exercise of such Option. Payment of the Option price
shall be made (i) by personal check, bank draft or postal or express money order
(such modes of payment are collectively referred to as "cash") payable to the
order of the Company in U.S. dollars, (ii) in whole shares of Common Stock of
the Company owned by the Eligible Director for a period of a least six months,
or (iii) in a combination of cash and delivery of shares of Common Stock as the
Board in its sole discretion may approve. In addition to the exercise methods
described above, subject to approval of the Committee, an Eligible Director may
exercise an Option through a procedure whereby the Eligible Director delivers to
the Company an irrevocable notice of exercise in exchange for the Company
issuing the shares of Common Stock subject to the Option to a broker previously
designated or approved by the Company.
(c) Stockholder Rights. An Eligible Director shall have
no rights as a stockholder with respect to any shares of Common Stock issuable
upon exercise of an Option until a certificate evidencing such shares shall have
been issued to the Eligible Director pursuant to Section 8(e), and no adjustment
shall be made for dividends or distributions or other rights in respect of any
share for which the record date is prior to the date upon which the Eligible
Director shall become the holder of record thereof.
(d) Limitation on Exercise. No Option shall be
exercisable unless the Common Stock subject thereto has been registered under
the Securities Act and qualified under applicable state "blue sky" laws in
connection with the offer and sale thereof, or the Company has determined that
an exemption from registration under the Securities Act and from qualification
under such state "blue sky" laws is available.
(e) Issuance of Shares. Subject to the foregoing
conditions, as soon as is reasonably practicable after its receipt of a proper
notice of exercise and payment of the Option price for the number of shares with
respect to which the Option is exercised, the Company shall deliver to the
Eligible Director (or following the Eligible Director's death, such other person
entitled to exercise the Option), at the principal office of the Company or at
such other location
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9
as may be acceptable to the Company and the Eligible Director (or such other
person), one or more stock certificates for the appropriate number of shares of
Common Stock issued in connection with such exercise. Such shares shall be fully
paid and nonassessable and shall be issued in the name of the Eligible Director
(or such other person).
(f) Tax Withholding. The Company shall have the right,
prior to the delivery of any certificates evidencing shares of Common Stock to
be issued upon full or partial exercise of an Option, to require an Eligible
Director to remit to the Company any amount sufficient to satisfy any Federal,
state or local tax withholding requirements. The Company may permit the Eligible
Director to satisfy, in whole or in part, such obligation to remit taxes, by
directing the Company to withhold shares of Common Stock that would otherwise be
received by the Eligible Director, pursuant to such rules as the Committee may
establish from time to time, by delivering to the Company shares of Common Stock
owned by the Eligible Director prior to exercising the Option, or by making a
payment to the Company consisting of a combination of cash and such shares of
Common Stock. Such an election shall be subject to the following:
(i) the election shall be made in such manner as may be
prescribed by the Committee and the Committee shall have the right, in
its discretion, to disapprove such election; and
(ii) the election shall be made prior to the date to be used
to determine the tax to be withheld and shall be irrevocable.
The value of any share of Common Stock to be withheld by the Company or
delivered to the Company pursuant to this Section 8(f) shall be the Fair Market
Value of the Common Stock on the date to be used to determine the amount of tax
to be withheld.
The Company shall also have the right to deduct from all cash
payments made pursuant to or in connection with the Option any Federal, state or
local taxes required to be withheld with respect to such payments.
(g) Restrictions on Transfer. An Option may not be
transferred, pledged, assigned, or otherwise disposed of, except by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined in the Code or Title I of ERISA ("QDRO"); provided,
however, that the Committee may, subject to such terms and conditions as the
Committee shall specify, permit the transfer of an Option to an Eligible
Director's family members or to one or more trusts established in whole or in
part for the benefit of one or more of such family members. The Option shall be
exercisable, during the Eligible Director's lifetime, only by the Eligible
Director, by the person to whom the Option has been transferred pursuant to a
QDRO or to a permitted transferee pursuant to the proviso contained in the
preceding sentence.
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10
(h) Non-qualified Status of Options. Options awarded
under the Plan are not intended to qualify, and shall not be treated, as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
9. Notice of Award
The terms and conditions of each award of Options shall be
embodied in a certificate which shall incorporate the Plan by reference. Each
certificate shall state the date on which the Options were granted, the number
of shares subject to such Option and the per share exercise price therefor.
Certificates representing Discretionary Options shall contain such other terms
and conditions consistent with the terms of the Plan as the Board of Directors
may prescribe.
10. No Restriction on Right of Company to Effect
Corporate Changes
(a) Authority of the Company and Stockholders. The
existence of the Plan, any award certificates and the Options granted hereunder
shall not affect or restrict in any way the right or power of the Company or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
(b) Change in Capitalization. Notwithstanding any
provision of the Plan or any award certificates, the number and kind of shares
authorized for issuance under Section 3(a) may be equitably adjusted in the sole
discretion of the Committee in the event of a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, extraordinary dividend,
split-up, spin-off, combination, exchange of shares, warrants or rights offering
to purchase Common Stock at a price substantially below Fair Market Value or
other similar corporate event affecting the Common Stock in order to preserve,
but not increase, the benefits or potential benefits intended to be made
available under the Plan. In addition, upon the occurrence of any of the
foregoing events, the number of outstanding Options and the number and kind of
shares subject to any outstanding Option and the purchase price per share, if
any, under any outstanding Option may be equitably adjusted (including by
payment of cash to an Eligible Director) in the sole discretion of the Committee
in order to preserve the benefits or potential benefits intended to be made
available to Eligible Directors granted Options. Such adjustments shall be made
by the Committee, in its sole discretion, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final. Unless
otherwise determined by the Committee, such adjusted
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11
Options shall be subject to the same vesting schedule and restrictions to which
the underlying Option is subject.
11. Effective Date; Term of the Plan
Subject to approval by the majority of the stockholders of the
Company at the 1998 Annual Meeting, the effective date of the Plan shall be
January 1, 1998. If the Plan is not approved by the stockholders at such Annual
Meeting, the Plan and all interests in the Plan awarded to Eligible Directors
before the date of such Annual Meeting shall be void ab initio and of no further
force and effect. Unless terminated earlier in accordance with Section 12 below,
the Plan shall terminate on the Annual Meeting of stockholders of the Company in
2007. After such date, no further awards of Options may be made hereunder, but
previously granted awards shall remain outstanding subject to the terms hereof.
12. Amendments; Termination
The Board may at any time and from time to time alter, amend,
suspend or terminate the Plan in whole or in part. Any amendment to the Plan,
which under the requirements of applicable law must be approved by the
stockholders of the Company, shall not be effective unless and until such
stockholder approval has been obtained in compliance with such law. No
termination or amendment of the Plan may, without the written consent of the
Eligible Director, affect any such person's rights under the provisions of the
Plan with respect to awards of Options which were made prior to such action.
13. No Right to Reelection
Nothing in the Plan shall be deemed to create any obligation
on the part of the Board to nominate any of its members for reelection by the
Company's stockholders, nor confer upon any Eligible Director the right to
remain a member of the Board for any period of time, or at any particular rate
of compensation.
14. Governing Law
Except as to matters of federal law, the Plan, all award
documents issued and all actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to conflicts of law principles.
July 17, 1998
ARM Financial Group, Inc.
515 West Market Street
Louisville, KY 40202
Ladies and Gentlemen:
We have acted as counsel for ARM Financial Group, Inc., a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-8 (the "Registration Statement") of the Company filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to 100,000 shares (the "Shares") of
Class A Convertible Common Stock, par value $.01 per share, of the Company (the
"Common Stock"), to be issued from time to time pursuant to the Company's 1998
Non-Employee Director Stock Option Plan (the "Plan").
In so acting, we have examined the Registration Statement and
we have also examined and relied as to factual matters upon the representations
and warranties contained in originals, or copies certified or otherwise
identified to our satisfaction, of such documents, records, certificates and
other instruments as in our judgment are necessary or appropriate to enable us
to render the opinion expressed below. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents, certificates
and instruments submitted to us as originals and the conformity with originals
of all documents submitted to us as copies.
The opinion expressed below is limited to the law of the State
of New York, the General Corporation Law of Delaware and the federal law of the
United States, and we do not express any opinion herein concerning any other
law.
Based upon the foregoing and having regard for such legal
considerations as we have deemed relevant, we are of the opinion that the Shares
have been duly authorized by the
<PAGE>
Company and, when (a) issued and delivered by the Company in accordance with the
terms of the Plan and (b) paid for in full in accordance with the terms of the
Plan, the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
/s/ SHEARMAN & STERLING
FG:BK
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the ARM Financial Group, Inc. 1998 Non-Employee Director
Stock Option Plan of our reports dated February 10, 1998, with respect to the
consolidated financial statements and financial statement schedules of ARM
Financial Group, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Louisville, Kentucky
July 15, 1998
