SCHEDULE 14A--INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
File by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Materials Pursuant to Section240.14a-11(c) or
Section240.14a-12
ARM FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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4) Date Filed:
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[LOGO]
515 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202-3319
April 22, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of the
Stockholders of ARM Financial Group, Inc. (the "Company") to be held on
Wednesday, May 27, 1998, in the Medallion Room of the Seelbach Hilton Hotel,
located at 500 Fourth Avenue, Louisville, Kentucky. The meeting will begin at
9:00 a.m., Eastern Daylight Savings Time.
This will be our first stockholder meeting as a publicly owned company. Your
Board of Directors and management look forward to personally greeting those
stockholders able to attend. Enclosed you will find a notice setting forth the
business expected to come before the meeting, the Proxy Statement, a form of
proxy card and a copy of the Company's 1997 Annual Report.
Whether or not you plan to attend the meeting in person, your shares should
be represented and voted at the meeting. Accordingly, after reading the enclosed
Proxy Statement, kindly complete, sign, date and promptly return the proxy card
in the enclosed self-addressed envelope. No postage is required if it is mailed
in the United States. If you later decide to attend the meeting and wish to vote
your shares personally, you may revoke your proxy at any time before it is
exercised.
Sincerely,
[SIGNATURE]
Martin H. Ruby
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
[LOGO]
515 WEST MARKET STREET
LOUISVILLE, KY 40202-3319
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 22, 1998
ARM Financial Group, Inc. (the "Company") will hold the 1998 Annual Meeting
of its stockholders on Wednesday, May 27, 1998, at 9:00 a.m., Eastern Daylight
Savings Time, in the Medallion Room of the Seelbach Hilton Hotel, located at 500
Fourth Avenue, Louisville, Kentucky for the following purposes:
1. To elect three directors, each for a term of three years;
2. To approve the ARM Financial Group, Inc. 1998 Non-Employee Director
Stock Option Plan; and
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has set the close of business on April 16, 1998, as
the record date for determining stockholders entitled to vote at the meeting or
any adjournment thereof. A list of stockholders will be available for inspection
by stockholders of record during the business hours at the Company's executive
offices located at 515 West Market Street, Louisville, Kentucky, for ten (10)
days prior to the date of the meeting, and will also be available at the
meeting.
The Board of Directors unanimously recommends that stockholders vote to
approve the proposals listed above, which are described in detail in the
accompanying Proxy Statement. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
[SIGNATURE]
Robert H. Scott
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
[LOGO]
515 WEST MARKET STREET
LOUISVILLE, KY 40202-3319
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1998
---------------------
GENERAL INFORMATION ABOUT THE MEETING
This Proxy Statement is being furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of ARM Financial Group, Inc., a
Delaware corporation (the "Company"), for use at the 1998 Annual Meeting of
Stockholders of the Company to be held in the Medallion Room of the Seelbach
Hilton Hotel, located at 500 Fourth Avenue, Louisville, Kentucky, on Wednesday,
May 27, 1998, at 9:00 a.m., Eastern Daylight Savings Time, or any adjournment
thereof, for the purposes set forth in the accompanying Notice of Annual
Meeting. This Proxy Statement, Notice of Annual Meeting and accompanying proxy
card are first being mailed or delivered to stockholders commencing on or about
April 24, 1998.
VOTING; QUORUM
Only holders of the Company's Class A Convertible Common Stock, par value
$.01 per share (the "Class A Common Stock"), as of the close of business on
April 16, 1998 (the "Record Date"), will be entitled to vote at the Annual
Meeting. As of the Record Date, there were 21,449,825 shares of the Class A
Common Stock outstanding, each of which is entitled to one vote with respect to
each matter to be voted on at the meeting. A majority of such shares of the
Class A Common Stock present in person or by proxy will constitute a quorum for
the transaction of business at the meeting.
At the Annual Meeting, stockholders will have the opportunity to (i) elect
three directors, each for a term of three years, and (ii) approve the
Non-Employee Director Stock Option Plan. The affirmative vote of the holders of
a plurality of the shares of the Class A Common Stock present or represented by
proxy at the Annual Meeting is required for the election of directors. The
approval of the Non-Employee Director Stock Option Plan and of all other matters
which may come before the meeting require the affirmative vote of a majority of
the shares of the Class A Common Stock present or represented by proxy at the
Annual Meeting.
At the close of business on the Record Date, The Morgan Stanley Leveraged
Equity Fund II, L.P. ("MSLEF II"), and Morgan Stanley Capital Partners III,
L.P., Morgan Stanley Capital Investors, L.P. and MSCP III 892 Investors, L.P.
(collectively, the "MSCP Funds"; and together with MSLEF II, the "Morgan Stanley
Stockholders"), beneficially owned and were entitled to vote 10,441,079 shares
of the Class A Common Stock representing approximately 49% of the Company's
Class A Common Stock outstanding on such date. In addition, the Morgan Stanley
Stockholders own all of the Company's outstanding shares of the Class B
Convertible Non-Voting Common Stock, par value $.01 per share (the "Class B
Common Stock"; and together with the Class A Common Stock, the "Common Stock"),
which together with the Class A Common Stock held by the Morgan Stanley
Stockholders, represents approximately 53% of the Company's total outstanding
Common Stock on the Record Date. The Morgan Stanley Stockholders have indicated
their present intention to vote, or cause to be voted, the Class A Common Stock
owned by them "FOR" the election of the nominees for director and the other
proposal to be presented at the Annual Meeting.
The Company has filed a registration statement with the Securities and
Exchange Commission (the "SEC") for a secondary offering of 10 million shares of
its Class A Common Stock (the "Secondary Offering"). The Morgan Stanley
Stockholders propose to sell all 10 million shares in the Secondary Offering
and, if the underwriters' over-allotment is exercised, up to an additional 1.5
million shares. The Secondary Offering is expected to be made in May through a
syndicate of underwriters led by Morgan Stanley & Co. Incorporated ("MS&Co.").
See "--Security Ownership of Certain Beneficial Owners and Management" for more
information on beneficial ownership of the Company's Common Stock by the Morgan
Stanley Stockholders.
Each share of the Class A Common Stock represented at the Annual Meeting by
a properly executed proxy will be voted according to the instructions indicated
on the proxy. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF CLASS A COMMON
STOCK WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR AND "FOR"
THE OTHER PROPOSAL CONTAINED IN THIS PROXY STATEMENT. A stockholder who executes
a proxy may revoke it at any time before it is exercised by giving written
notice to the Secretary of the Company, by subsequently filing another proxy or
by attending the Annual Meeting and voting in person.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed for the meeting, who also will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
SOLICITATION EXPENSES
The expenses of the preparation of proxy materials and the solicitation of
proxies for the Annual Meeting will be borne by the Company. In addition to the
solicitation of proxies by mail, proxies may be solicited personally, by
telephone or other means of communication by officers, directors and other
regular employees of the Company. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting materials to the owners of stock held in
their names. The Company will reimburse banks and brokers, and other nominees
for their reasonable costs incurred in connection with the distribution of proxy
materials.
PROPOSAL 1--ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides for the
classification of the Board of Directors into three classes with each class of
directors serving staggered three-year terms. Three directors are to be elected
at the Annual Meeting to serve for a term of three years expiring in 2001.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. Except as otherwise described below, the Company does not presently
know of any reason that would preclude any nominee from serving if elected. All
of the nominees are current directors of the Company.
If the Secondary Offering is completed, it is the intention of Alan E.
Goldberg and Robert H. Niehaus to either resign from, or not stand for
re-election to, the Board of Directors of the Company. In the event that Mr.
Niehaus does not stand for re-election, the Board of Directors may make an
appropriate reduction in the number of directors to be elected. If either of the
other nominees, for any reason, should become unable or unwilling to stand for
election as a director, the shares of the
2
Class A Common Stock represented by all proxies authorizing votes for such
nominee will be voted for the election of such other person as the Board of
Directors may recommend.
For each of the three nominees, as well as the five directors whose terms
continue after the Annual Meeting, information follows as to age, length of
services as a director of the Company, positions and offices with the Company,
principal occupations during the past five years and other directorships of
publicly-held companies as of the Record Date.
NOMINEES FOR CLASS I DIRECTORS--TERMS EXPIRING IN 2001
DUDLEY J. GODFREY, JR., age 72, has been a Director of the Company since
February 1994. He has been a senior shareholder in the law firm of Godfrey &
Kahn, S.C., Milwaukee, Wisconsin, since 1957. Mr. Godfrey serves on the Board of
Directors of Manpower, Inc. and Clarcor, Inc. and other closely and privately
held corporations.
JOHN R. LINDHOLM, age 49, was elected as a Director of the Company in April
1998. He has served as President--Retail Business Division of the Company since
January 1997. He had been Executive Vice President and Chief Marketing Officer
of both the retail and institutional business units of the Company since July
1993. Until November 1993, Mr. Lindholm served as the Chief Marketing Officer of
Oldarm L.P., a position he held since its inception in March 1992. From June
1990 to February 1992, Mr. Lindholm was the Chief Marketing Officer and a
Managing Director of the ICH Capital Management Group of ICH Corporation. From
1980 to 1990, he was employed by the former Capital Holding Corporation, first
as Vice President--Compensation and Benefits and then as Chief Marketing Officer
and Managing Director of its Accumulation and Investment Group. Mr. Lindholm is
also Chairman of the Board of The Legends Fund, Inc.
ROBERT H. NIEHAUS, age 42, has been a Director of the Company since February
1998. He has been a Managing Director of MS &Co. since January 1990. Mr. Niehaus
is also a Managing Director and a director of Morgan Stanley Leveraged Equity
Fund II, Inc. ("MSLEF II, Inc."), the general partner of MSLEF II, and of Morgan
Stanley Capital Partners III, Inc. ("MS Capital Partners III, Inc."), the
general partner of the general partner of the MSCP Funds. Mr. Niehaus also
serves on the Board of Directors of American Italian Pasta Company, Fort James
Corporation, Silgan Holdings Inc., Waterford Wedgwood UK plc. (of which he is
Chairman) and several privately held companies.
CLASS II DIRECTORS--TERMS EXPIRING IN 1999
EDWARD D. POWERS, age 66, has been a Director of the Company since September
1994. Mr. Powers currently serves as Chairman and Chief Executive Officer of
Powers Holding Co. He served as Chairman and Chief Executive Officer of Burnham
Service Co., Columbus, Georgia, from 1989 through 1993. Prior to 1989, he served
as Chairman and Chief Executive Officer of The Mueller Co., Decatur, Illinois.
Mr. Powers also serves on the Board of Directors of Red Roof Inn Inc.
COLIN F. RAYMOND, age 27, has been a Director of the Company since January
1997. He has been an Associate of MS&Co. since April 1996, and is an Associate
of MS Capital Partners III, Inc. From January 1995 to April 1996, Mr. Raymond
was an Associate with Wolfensohn & Co. Prior to that time, he had been an
Associate in J.P. Morgan & Co.'s corporate finance division. Mr. Raymond also
serves on the Board of Directors of several privately held companies.
MARTIN H. RUBY, age 47, has been Chairman of the Board and Chief Executive
Officer of the Company since February 1998. Prior to that time, he had served as
Co-Chairman of the Board and Co-Chief Executive Officer of the Company since
July 1993. From its inception in March 1992 until November 1993, Mr. Ruby served
as Co-Chief Executive Officer of Oldarm L.P. From May 1990 to
3
January 1992, Mr. Ruby was President and Managing Director of the ICH Capital
Management Group, ICH Corporation, and the President of Constitution Life
Insurance Company, the accumulation product subsidiary of ICH Corporation. From
1986 to 1989, Mr. Ruby was the Chief Executive Officer and Managing Director of
Capital Initiatives Corporation, a subsidiary of the former Capital Holding
Corporation. From 1980 to 1986, Mr. Ruby held various other positions with
Capital Holding Corporation.
CLASS III DIRECTORS--TERMS EXPIRING IN 2000
ALAN E. GOLDBERG, age 43, has been a Director of the Company since February
1998. He is the head of the Private Equity Group of Morgan Stanley Dean Witter &
Co. ("MSDW"), which includes Morgan Stanley Capital Partners, Morgan Stanley
Venture Partners and Morgan Stanley Global Emerging Markets. Mr. Goldberg has
been a Managing Director of MS&Co. since January 1988. Mr. Goldberg is also a
Managing Director and a director of MSLEF II, Inc., and of MS Capital Partners
III, Inc. He also serves as a director of Catalytica, Inc., Amerin Corporation,
Jefferson Smurfit Corporation, Direct Response Corporation, Homeowners Direct
Corporation, SITA Telecommunications Holdings, N.V. and other privately held
companies.
IRWIN T. VANDERHOOF, age 70, has been a Director of the Company since
November 1993. Mr. Vanderhoof has been a clinical professor of Finance at the
Stern School of Business at New York University since 1989. He is the principal
of Actuarial Investment Consulting. Prior to 1988, Mr. Vanderhoof was the Chief
Actuary and Investment Officer for the individual lines of business of The
Equitable Life Assurance Company of the United States.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Company's Board of Directors has established an Audit
Committee comprised of directors who are independent of the management of the
Company and are free of any relationship that, in the opinion of the Board of
Directors, would interfere with their exercise of independent judgment as
committee members. The Audit Committee's primary responsibilities include:
engaging independent accountants; appointing the chief internal auditor;
approving independent audit fees; reviewing quarterly and annual financial
statements, audit results and reports, including management comments and
recommendations thereto; reviewing the Company's system of controls and
policies, including those covering conflicts of interest and business ethics;
evaluating reports of actual or threatened litigation; considering significant
changes in accounting practices; and examining improprieties or suspected
improprieties, with the authority to retain outside counsel or experts. Messrs.
Godfrey, Powers and Vanderhoof are the current members of the Audit Committee.
The Audit Committee met three times during 1997.
COMPENSATION COMMITTEE. The Board of Directors has established a
Compensation Committee, the members of which are directors who are not employees
of the Company. The Compensation Committee's responsibilities are to make
determinations with respect to salaries and bonuses payable to the Company's
executive officers and to administer the Option Plan (as defined below) and the
1997 Equity Plan (as defined below), except that it is currently anticipated
that the Board of Directors will approve grants of awards under the 1997 Equity
Plan to those officers who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Messrs. Powers and Raymond, an
employee of MS&Co., are the members of the Compensation Committee which met once
during 1997. The functions of the Compensation Committee were performed in 1997
by the Board of Directors, as a whole, provided that any member of the Board who
was also employed by the Company did not participate in the decisions with
respect to such person's compensation. See "--Compensation Committee Interlocks
and Insider Participation."
4
MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors held five meetings in 1997. In addition,
management confers frequently with its directors on an informal basis to discuss
Company affairs. Each director attended at least 75 percent of all Board and
committee meetings held in 1997 during the period which he was a director and
committee member, with the exceptions of James S. Cole and Frank V. Sica, who
resigned as directors of the Company in February 1998.
COMPENSATION OF DIRECTORS
Messrs. Godfrey, Powers and Vanderhoof, three of the Company's independent
directors, are compensated annually in the amount of $10,000 plus $1,000 per
Board meeting attended and their expenses of each attendance. Messrs. Godfrey,
Powers and Vanderhoof are also directors of National Integrity Life Insurance
Company, a New York life insurance company which is an indirect subsidiary of
the Company ("National Integrity"), and each receive $20,000 annually plus
$1,000 per Board meeting attended and the expenses of attendance (unless such
Board meeting is held concurrently with a Board meeting of the Company, in which
case they receive a total of $1,000 and the expenses of attendance at the
concurrent meetings). In addition, Messrs. Godfrey, Powers and Vanderhoof serve
on the Audit Committee for both the Company and National Integrity and receive
$1,000 per committee meeting attended if held separately from the respective
Board meetings. Mr. Powers also serves on the Company's Compensation Committee
and receives $1,000 per committee meeting attended plus reimbursement of
expenses if held separately from the respective Board and Audit Committee
meetings. The Board of Directors has adopted, subject to approval by the
Company's stockholders, the ARM Financial Group, Inc. 1998 Non-Employee Director
Stock Option Plan pursuant to which certain eligible directors will receive
grants of options to purchase shares of the Class A Common Stock, as more fully
described herein under "Proposal 2--Approval of the ARM Financial Group, Inc.
1998 Non-Employee Director Stock Option Plan."
5
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION SUMMARY TABLE
The following table sets forth compensation information for the Chief
Executive Officer, the former Co-Chief Executive Officer, and the four other
most highly compensated executive officers (collectively, the "Named Executive
Officers") for services rendered to the Company during the years ended December
31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
--------------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS GRANTED(2) COMPENSATION(3)
- ---------------------------------------------- --------- ----------- --------- ------------- -----------------
Martin H. Ruby................................ 1997 $ 413,333 $ 314,000 205,015 $ 20,667
Chairman of the Board and Chief Executive 1996 $ 400,000 $ 314,000 49,420 $ 20,000
Officer (as of February 10, 1998) 1995 $ 375,000 $ 224,300 218,154 $ 7,500
John Franco(4)................................ 1997 $ 413,333 $ 314,000 205,015 $ 20,667
Former Co-Chairman of the Board and Co-Chief 1996 $ 400,000 $ 314,000 49,420 $ 20,000
Executive Officer 1995 $ 375,000 $ 224,300 218,154 $ 7,500
John R. Lindholm.............................. 1997 $ 310,000 $ 234,000 102,430 $ 15,500
President--Retail Business Division 1996 $ 300,000 $ 185,000 14,120 $ 15,000
1995 $ 250,000 $ 146,400 112,254 $ 7,500
David E. Ferguson............................. 1997 $ 288,250 $ 188,500 68,576 $ 14,412
Executive Vice President and Chief 1996 $ 279,500 $ 170,000 -- $ 13,975
Technology Officer 1995 $ 215,000 $ 133,900 79,778 $ 7,500
Edward L. Zeman............................... 1997 $ 206,667 $ 124,800 13,743 $ 10,333
Executive Vice President and Chief Financial 1996 $ 200,000 $ 105,000 -- $ 75,151
Officer 1995 $ 106,971 $ 87,600 26,828 $ 804
Daniel R. Gattis(5)........................... 1997 $ 225,000 $ 157,500 10,851 $ 11,250
Former Executive Vice 1996 $ 145,481 -- 21,180 $ 11,996
President--Institutional Business Group 1995 -- -- -- --
- ------------------------
(1) Includes amounts contributed by each of the Named Executive Officers to
various deferred compensation plans of the Company.
(2) All stock options are for shares of Class A Common Stock of the Company. The
total number of options granted to the Named Executive Officers in 1995
(excluding Mr. Zeman) includes a certain number of replacement options that
were issued in exchange for Series 2 Options (as defined herein under the
heading "--Stock Option Plan") originally granted in 1993 and 1994 as part
of the amendment and restatement of the ARM Financial Group, Inc. Stock
Option Plan effective as of June 14, 1995 (as amended, the "Option Plan"),
as more fully described herein under the heading "--Stock Option Plan." The
options granted to the Named Executive Officers in 1997 include options that
were allocated under the terms of the Option Plan as a result of the initial
public offering of the Company's Class A Common Stock in June 1997 (the
"Initial Public Offering"), or allocated as a result of options having been
surrendered or forfeited without being exercised in full. See "--Stock
Option Plan." The number of securities underlying the options granted has
been restated to give effect to the 706-to-one stock split that occurred
upon the consummation of the Initial Public Offering.
(3) The amounts presented in this column for all other compensation paid to the
Named Executive Officers in 1997 represent matching contributions made by
the Company under the ARM Financial Group, Inc. Savings Plan (the "Savings
Plan"), and the ARM Financial Group, Inc. Nonqualified Savings Plan (the
"Nonqualified Plan"). In 1997, the Company contributed $8,000 to each of the
Named Executive Officers under the Savings Plan. Under the Nonqualified
Plan, the following contributions were made during 1997: Mr. Ruby received
$12,667, Mr. Franco received $12,667, Mr. Lindholm received $7,500, Mr.
Ferguson received $6,412, Mr. Zeman received $2,333 and Mr. Gattis received
$3,250.
(4) Mr. Franco retired as Co-Chairman of the Board and Co-Chief Executive
Officer of the Company effective February 10, 1998. See "--Employment
Contracts, Change in Control Arrangements and Other Agreements" for a
description of Mr. Franco's retirement agreement.
(5) Mr. Gattis resigned as Executive Vice President--Institutional Business
Group of the Company on February 13, 1998. A description of his resignation
agreement is provided herein under the heading "--Employment Contracts,
Change in Control Arrangements and Other Agreements."
6
OPTION GRANTS
The following table sets forth information regarding those Named Executive
Officers who received stock option grants during the year ended December 31,
1997:
OPTIONS GRANTED DURING 1997
INDIVIDUAL GRANTS
-----------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE MARKET OPTION TERM(4)
OPTIONS 1997 PRICE PER PRICE PER EXPIRATION -------------------------------
NAME GRANTED(1) IN 1997 SHARE(2) SHARE(3) DATE 0% 5% 10%
- ---------------------- ----------- ------------- ----------- ----------- ----------- --------- --------- ---------
Martin H. Ruby
Old Options......... 148,800 18.31% $ 11.14 $ 20.28 11/26/2003 $1,360,032 $3,258,143 $6,170,188
New Options......... 43,355 5.34% $ 12.18 $ 21.09 6/14/2005 $ 386,293 $ 961,424 $1,843,778
New Options......... 12,860 1.58% $ 12.18 $ 21.09 1/1/2006 $ 114,583 $ 285,178 $ 546,903
John Franco
Old Options......... 148,800 18.31% $ 11.14 $ 20.28 11/26/2003 $1,360,032 $3,258,143 $6,170,188
New Options......... 43,355 5.34% $ 12.18 $ 21.09 6/14/2005 $ 386,293 $ 961,424 $1,843,778
New Options......... 12,860 1.58% $ 12.18 $ 21.09 1/1/2006 $ 114,583 $ 285,178 $ 546,903
John R. Lindholm
Old Options......... 76,526 9.42% $ 11.14 $ 20.28 11/26/2003 $ 699,448 $1,675,622 $3,173,252
New Options......... 22,230 2.74% $ 12.20 $ 21.09 6/14/2005 $ 197,625 $ 492,519 $ 944,941
New Options......... 3,674 0.45% $ 12.20 $ 21.09 1/1/2006 $ 32,662 $ 81,400 $ 156,172
David E. Ferguson
Old Options......... 53,143 6.54% $ 11.14 $ 20.28 11/26/2003 $ 485,727 $1,163,625 $2,203,645
New Options......... 15,433 1.90% $ 12.24 $ 21.09 6/14/2005 $ 136,582 $ 341,310 $ 655,400
Edward L. Zeman
New Options......... 5,365(5) 0.66% $ 11.97(5) -- 1/1/2007 -- $ 31,745 $ 88,597
New Options......... 1,396 0.17% $ 11.91 $ 21.09 1/1/2007 $ 12,819 $ 31,343 $ 59,762
New Options......... 6,981 0.86% $ 11.91 $ 21.09 9/1/2005 $ 64,086 $ 156,693 $ 298,769
Daniel R. Gattis
New Options......... 4,236(5) 0.52% $ 11.97(5) -- 1/1/2007 -- $ 25,062 $ 69,945
New Options......... 1,104 0.14% $ 11.97 $ 21.09 1/1/2007 $ 10,068 $ 24,714 $ 47,182
New Options......... 1,837 0.23% $ 11.97 $ 21.09 1/11/2006 $ 16,753 $ 41,122 $ 78,509
New Options......... 3,674 0.45% $ 11.97 $ 21.09 11/1/2006 $ 33,507 $ 82,245 $ 157,017
- ------------------------
(1) Upon consummation of the Initial Public Offering, all unallocated Old
Options and New Options (as such terms are defined below) and all options
that were subsequently surrendered or forfeited during 1997, were allocated
pro rata to existing holders of Old Options and New Options based on the
number of Old Options and New Options originally granted to the respective
holders. Except for the options awarded to Messrs. Gattis and Zeman as noted
in Footnote 5 below, the options granted to the Named Executive Officers in
1997 consist of options that were allocated under the terms of the Option
Plan as a result of the Initial Public Offering in the manner described
above, or allocated as a result of options having been surrendered or
forfeited. See "--Stock Option Plan." Subject to certain rounding
calculations, the options will become exercisable in equal installments on
the first through fifth anniversaries of the respective date of the original
date of grant.
(2) The exercise prices and vesting schedules applicable to the options that
were allocated to the Named Executive Officers as a result of the Initial
Public Offering or having been forfeited or surrendered, are the average
weighted exercise prices and vesting percentages of the options previously
held by such holders.
(3) Represents the average weighted values of the market price of the Class A
Common Stock on the respective dates of grant.
(4) Amounts for the Named Executive Officers shown under the "Potential
Realizable Value" columns above have been calculated by multiplying the
average weighted values of the market price of the Class A Common Stock on
the respective dates of grant (or $10.98 with respect to the options awarded
to Messrs. Gattis and Zeman noted below), by the annual appreciation rates
shown (compounded annually for the term of the options), subtracting the
exercise price per share and multiplying the gain per share by the number of
shares covered by the options. Such numbers are calculated based on the
requirements promulgated by the SEC and are not intended to forecast future
price appreciation of the Class A Common Stock.
(5) Upon grant, the options had an exercise price of $10.98 per share, the then
fair market value of the Class A Common Stock on the date of grant. Such
exercise price increased by 3% on each three-month anniversary of the date
of grant, compounded annually. Pursuant to the terms of the Option Plan, on
the date of the consummation of the Initial Public Offering, the exercise
price applicable to the options granted to Messrs. Gattis and Zeman shown
above was fixed at $11.97. Subject to certain rounding calculations, the
options will become exercisable in equal installment on the first through
fifth anniversaries of the date of grant.
7
OPTION EXERCISES
No options to purchase shares of the Class A Common Stock were exercised by
the Named Executive Officers during 1997. The following table sets forth with
respect to each of the Named Executive Officers information concerning the value
of their options on December 31, 1997:
OPTION VALUES AT DECEMBER 31, 1997
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR END OPTIONS AT YEAR END(*)
---------------------------- -----------------------------
NAME EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
- ----------------------------------------------- ----------- --------------- ------------ ---------------
Martin H. Ruby................................. 373,628 245,103 $ 5,589,998 $ 3,553,609
John Franco.................................... 373,628 245,103 $ 5,589,998 $ 3,553,609
John R. Lindholm............................... 189,172 114,468 $ 2,831,901 $ 1,660,908
David E. Ferguson.............................. 128,888 69,592 $ 1,930,725 $ 1,010,907
Edward L. Zeman................................ 13,523 27,048 $ 195,717 $ 391,088
Daniel R. Gattis............................... 5,337 26,694 $ 76,879 $ 384,527
- ------------------------
(*) In accordance with the SEC's rules, the value of unexercised in-the-money
options is calculated by subtracting the exercise price from the fair market
value of the underlying Class A Common Stock. For purposes of this table,
fair market value is deemed to be $26.375, the closing price of the Class A
Common Stock as reported on the American Stock Exchange on December 31,
1997. There is no assurance that the values of unexercised in-the-money
options reflected in this table will be realized.
EMPLOYMENT CONTRACTS, CHANGE IN CONTROL ARRANGEMENTS AND OTHER AGREEMENTS
The Company has entered into employment agreements with Messrs. Ruby,
Lindholm and Ferguson, as amended. The term of each employment agreement
currently expires on July 1, 1999, but may be extended automatically for
additional one-year periods by means of the Board of Directors giving written
notice to such executives of its intention to extend the term at least sixty
days (in the case of Mr. Ruby, twelve months) prior to the expiration of the
then effective term. Each employment agreement specifies salary levels and
describes the bonus plan, employee benefits and other perquisites available. The
present base salaries for Messrs. Ruby, Lindholm and Ferguson are $500,000,
$330,000, and $301,000, respectively.
The employment agreement with respect to Mr. Ruby establishes his
responsibilities and title with the Company, and provides that his base salary
may be increased by the Board of Directors at any time, but may not be
decreased. The employment agreements with respect to Messrs. Lindholm and
Ferguson prohibit any decrease in base salary, but, in contrast to Mr. Ruby's
agreement, do not fix such executives' responsibilities or titles (other than
providing that each will serve the Company in a professional capacity). Each of
the employment agreements provides that the executives shall be entitled to
participate in the Company's bonus plan.
The benefits provided by the employment agreements include, to the extent
each executive is eligible, any plans, programs or arrangements of the Company
providing for retirement benefits, incentive compensation, profit sharing,
bonuses, disability benefits, health, dental and life insurance, or vacation and
paid holidays. The executives will also receive indemnification from the Company
to the fullest extent permitted by Delaware law and the Certificate of
Incorporation and By-Laws of the
8
Company as currently in effect, and the Company will procure and maintain
insurance policies, to the extent reasonably available, for the benefit of its
directors and officers, including the executives.
Generally, the employment agreements provide that, upon a termination of the
executive's employment by the Company without "Cause" or a resignation for "Good
Reason" (as such terms are defined in the employment agreements; among other
things, a termination by the executive following a Change in Control (as defined
below under "--Stock Option Plan"), or a sale of substantially all of the
Company's business to a third party is a resignation for Good Reason), the
executive will receive (i) severance pay in an amount equal to the base salary
for the greater of the remainder of the employment term or two years, and (ii)
additional severance amounts for each full or partial calendar year during the
severance period in cash equal to the same percentage of base salary as of the
date of termination as the percentage of base salary used in calculating the
bonus paid to the executive for the year preceding the year of termination.
Severance pay will be subject to each executive's compliance with certain
restrictive covenants. In the event an executive's employment is terminated by
the Company for Cause or the executive resigns without Good Reason, he will be
entitled only to base salary through the relevant date of termination or
resignation of employment. In the event an executive dies or is permanently
disabled, he (or his beneficiary or estate in the event of his death) will be
entitled to receive base salary and benefits (including a pro rata cash bonus
for the year of death or disability) for the period ending on the date of death
or, in the case of disability, through the later of the date of termination or
the date (not later than one year following the date of termination) on which
the executive commences to receive disability benefits.
The Company formerly maintained an employment agreement with Mr. Franco
which was substantially identical to the employment agreement with Mr. Ruby. Mr.
Franco retired as Co-Chairman of the Board and Co-Chief Executive Officer and as
an employee of the Company effective February 10, 1998. The employment agreement
with Mr. Franco has been superseded by an agreement pursuant to which Mr. Franco
will receive (i) $314,000 as a bonus for services rendered during the year ended
December 31, 1997; (ii) $416,000 in base salary for 1998, paid in accordance
with the Company's standard payroll practices; (iii) on January 1, 1999, a lump
sum in the amount equal to base salary for the period January 1, 1999 to the
second anniversary of Mr. Franco's retirement date; (iv) on January 1, 1999,
$648,000 representing bonus payments that Mr. Franco would have otherwise earned
during fiscal years 1998 and 1999; (v) payment for accrued vacation days; and
(vi) Mr. Franco's accrued benefits under the Company's retirement plans. Options
granted to Mr. Franco under the Option Plan will continue to vest and become
exercisable in accordance with the vesting schedule in his agreement and the
Option Plan as if he remained in the employ of the Company (including, without
limitation, the provisions regarding acceleration of vesting in the event of a
Change in Control), subject to the terms and conditions thereof; provided, that
all options that are not vested as of January 1, 1999 will vest and become
exercisable on such date, subject to the terms and conditions thereof. The
agreement also includes restrictions on competition, solicitation of employees
and customers and disclosure of confidential information, as well as certain
"piggy back" registration rights and lock-up provisions with respect to the
shares of the Company's Class A Common Stock owned by Mr. Franco.
The Company has entered into change in control agreements, as amended, with
five executive officers, including Mr. Zeman, providing certain benefits upon
termination of employment following a Change in Control of the Company (as
defined in the agreements and described below). Pursuant to the agreements, if a
covered executive's employment is terminated within two years after the date of
a Change in Control by the Company without Cause or by the executive officer for
Good Reason (as such terms are defined in the agreements), the executive is
entitled to severance pay and certain other benefits. The severance payments are
based on (i) the executive's annual base salary and bonus,
9
multiplied by a factor of two, and (ii) the percentage of the two year protected
period remaining. At a minimum, if the employment is terminated by the Company
without Cause or by the executive officer for Good Reason, the applicable
executive is entitled to receive an amount equal to 50% of the executive's
annual base salary plus annual bonus. Under the agreements, a Change in Control
is defined to include the acquisition, directly or indirectly through merger or
otherwise in a single transaction or a series of transactions, by a third party,
of equity securities of the Company entitling such third party to elect a
majority of the members of the Company's Board of Directors, or a sale of
substantially all of the assets of the Company to a third party.
Mr. Gattis entered into an agreement with the Company in connection with his
resignation as an officer and an employee of the Company, pursuant to which Mr.
Gattis is entitled to receive his regular base pay for a period of six months,
payable in accordance with the Company's standard payroll practices, his bonus
earned during the 1997 fiscal year, and health coverage generally available to
other executives and employees of the Company for six months following the
effective date of his resignation. The agreement also includes restrictions on
disclosure by Mr. Gattis of confidential information about the Company.
STOCK OPTION PLAN
The Option Plan provides for the grant of options to purchase Class A Common
Stock to officers and other key employees of the Company. The maximum aggregate
number of shares of Class A Common Stock that may be issued under the Option
Plan is 2,428,640 (subject to adjustment in accordance with the terms of the
Option Plan), consisting of 1,242,560 Old Options and 1,186,080 New Options (as
such terms are defined below). Approximately 37 individuals currently
participate in the Option Plan. As of the Record Date, 277,184 Old Options and
124,827 New Options had been exercised, and an aggregate of 965,376 Old Options
and 1,061,253 New Options were outstanding and unexercised.
As originally adopted, the Option Plan provided for the grant of options to
purchase Class A Common Stock of the Company with an exercise price that
increased at a rate equal to 12% per annum ("Series 1 Options") or 30% per annum
("Series 2 Options"), in each case compounded annually. As of June 14, 1995 (the
"Amendment Date"), outstanding Series 2 Options were replaced by a number of
options with an exercise price that increases at a rate of 3% on each
three-month anniversary of the date of grant, compounded annually. All options
granted prior to the Amendment Date and all options granted to replace Series 2
Options are referred to as "Old Options" and all options that were granted on or
after the Amendment Date (other than the options issued to replace Series 2
Options) are referred to as "New Options."
Pursuant to the terms of the Option Plan, upon the consummation of the
Initial Public Offering, the exercise prices applicable to Old Options and New
Options outstanding were fixed at exercise prices ranging from $11.14 per share
to $12.24 per share.
The exercisability of the Old Options and the New Options will be
accelerated upon the occurrence of certain specified events, including, without
limitation, a Change in Control or a sale by the Company of all or substantially
all of its business to a third party. For purposes of the Option Plan, a "Change
in Control" means the acquisition of equity securities of the Company, directly
or indirectly, through a merger or otherwise, in a single transaction or a
series of transactions, by a person, entity or group that is not, directly or
indirectly, in control of, controlled by, or under common control with the
Company, MS&Co., MSLEF II or the MSCP Funds, entitling such person, entity or
group to elect a majority of the members of the Board of Directors.
10
Upon completion of the Initial Public Offering, all unallocated Old Options
were granted pro rata to existing participants holding Old Options and all
unallocated New Options were granted pro rata to existing participants holding
New Options, respectively, with the exercise prices and vesting schedules of
such Old Options and New Options being the average weighted exercise prices and
vesting percentages of the Old Options and New Options previously held by such
participants. As a result of the allocation described above, all options
available for grant under the Option Plan have been granted and, accordingly,
there are no further options available for grant thereunder. In the event that
options expire or are surrendered or forfeited without being exercised in full,
such options will be allocated in the manner described above, provided that no
options to purchase fractional shares shall be granted in connection with such
allocation.
1997 EQUITY INCENTIVE PLAN
The Company has adopted the 1997 Equity Incentive Plan (the "1997 Equity
Plan"). The 1997 Equity Plan is administered by the Compensation Committee,
except that the Board of Directors will approve grants of awards under the 1997
Equity Plan to those officers who are subject to Section 16 of the Exchange Act.
The 1997 Equity Plan provides for the granting of incentive stock options
(within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code")) and nonqualified stock options, stock appreciation rights,
restricted stock, performance units and performance shares (individually, an
"Award," or collectively, "Awards") to those officers, and other key employees
and consultants with potential to contribute to the future success of the
Company or its subsidiaries; provided, that only employees may be granted
incentive stock options. The Committee may also grant limited stock appreciation
rights (an "LSAR") under the 1997 Equity Plan. An LSAR becomes exercisable only
in the event of a "change in control" (as defined below). Any such LSAR will be
settled solely in cash. An LSAR must be exercised within the 30-day period
following a change in control. The maximum number of shares of Class A Common
Stock that may be subject to Awards under the 1997 Equity Plan is 1,600,000
shares, subject to adjustment in accordance with the terms of the 1997 Equity
Plan. As of the date of this Proxy Statement, no Awards have been made under the
1997 Equity Plan. However, it is the Company's intention to grant approximately
400,000 options during the second quarter of 1998.
In the event of a change in control and except as the Committee (as
constituted prior to such change in control) may expressly provide otherwise:
(i) all stock options or stock appreciation rights then outstanding will become
fully exercisable as of the date of the change in control, whether or not then
exercisable; (ii) all restrictions and conditions of all Awards of restricted
stock then outstanding will lapse as of the date of the change in control; (iii)
all Awards of performance shares and performance units will be deemed to have
been fully earned as of the date of the change in control; and (iv) in the case
of a change in control involving a merger of, or consolidation involving, the
Company in which the Company is (A) not the surviving corporation (the
"Surviving Entity") or (B) becomes a wholly owned subsidiary of the Surviving
Entity or a parent thereof, each outstanding stock option granted under the 1997
Equity Plan and not exercised (a "Predecessor Option") will be converted into an
option (a "Substitute Option") to acquire common stock of the Surviving Entity
or its parent, which Substitute Option will have substantially the same terms
and conditions as the Predecessor Option, with appropriate adjustments as to the
number and kind of shares and exercise prices. For purposes of the 1997 Equity
Plan, a "change in control" generally shall have occurred when (A) any person or
"group" within the meaning of Sections 13(d) or 14(d)(2) of the Exchange Act (an
"Acquiring Person"), becomes the beneficial owner of 20% or more of either (i)
the then outstanding shares of the Class A Common Stock or (ii) the combined
voting power of the Company's then outstanding voting securities (except
pursuant to an offer for all outstanding shares of Class A Common Stock at a
price and upon such terms and conditions as a majority of the
11
continuing directors determine to be in the best interests of the Company and
its stockholders (other than an Acquiring Person on whose behalf the offer is
being made)), (B) a change in the majority of the composition of the Board
(unless approved by the incumbent board), (C) the stockholders of the Company
approve a merger or consolidation of the Company 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 at
least 51% of the combined voting power of the voting securities of the Company
or such Surviving Entity or a parent thereof outstanding immediately after such
merger or consolidation, or (D) the stockholders of the Company approve a plan
of reorganization (other than a reorganization under the United States
Bankruptcy Code) or complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the Compensation Committee, the full Board of
Directors of the Company, including Messrs. Ruby and Franco, performed the
functions of a compensation committee, including the approval of the employment
agreements described herein. The Board of Directors has appointed a Compensation
Committee, the members of which are directors who are not employees of the
Company. Messrs. Powers and Raymond, an employee of MS&Co., are the members of
the Compensation Committee.
12
REPORT ON EXECUTIVE COMPENSATION
During 1997, decisions relating to the policies which govern the components
of compensation awarded to the Company's executives were made by the Board of
Directors, provided that any member of the Board who was also employed by the
Company did not participate in the decision with respect to such person's
compensation. Commencing in 1998, decisions with respect to the Company's
executive compensation programs that govern both annual compensation and stock
ownership programs will be administered by the Compensation Committee which is
composed of two non-employee directors. The following report of the Board of
Directors addresses the Company's compensation policies for the year ended
December 31, 1997, as they apply to the Company executives, including the Named
Executive Officers.
EXECUTIVE COMPENSATION COMPONENTS
The key components of the Company's compensation program are base salary, a
performance based annual bonus and periodic grants of stock options. The goals
of the compensation program are (i) to attract and retain the best and most
experienced executives, (ii) to integrate executive and stockholder interests by
means of equity, risk-based compensation, and (iii) to compensate executives
based on both corporate and individual performances. The Company believes that
this approach best serves the interests of stockholders by ensuring that
executive officers are compensated in a manner that advances both the short- and
long-term interests of stockholders. Thus, compensation for the executive
officers involves a high proportion of pay which is at risk: the performance
based annual bonus (which permits individual performance to be recognized on an
annual basis, and which is based, in part, on an evaluation of the contribution
made by the executive officer to Company performance) and stock options (which
directly correlates a significant portion of the executive officer's long-term
remuneration to stock price appreciation realized by the Company's
stockholders). The Compensation Committee has retained the services of an
independent compensation consultant to assist in developing, and periodically
assessing the reasonableness of, the Company's executive compensation program to
ensure that executive compensation levels are competitive and consistent with
industry standards.
BASE SALARY
The purpose of base salary is to attract and retain key executives who are
critical to the Company's success by providing a base level of income that
recognizes the market value of the position. Officers, as well as employees at
all levels of the Company, are paid salaries in line with their responsibilities
and market levels of compensation for comparable positions in companies of
relevant size and business profile. These salaries are targeted in the middle
range of the relevant market, with adjustments as appropriate to reflect the
individual's performance and experience. The base salaries for the Named
Executive Officers are based upon this policy. Base salaries are reviewed
annually and adjustments are made based on individual performance, assumption of
new responsibilities, the Company's overall annual salary budget guidelines, and
competitive data derived from reports of public companies in the insurance and
annuity industries and/or national surveys of compensation data. In March 1997,
the Named Executive Officers received salary increases generally averaging
approximately 4.0% which was based on the Board of Director's understanding of
the increase required to maintain salary levels consistent with reasonable
market practices. The results of the 1997 salary increases are reflected in the
Summary Compensation Table on page 6.
13
ANNUAL BONUS
Annual incentive bonuses are designed to reward executive officers for
achieving specific financial and strategic goals. To carry out this philosophy,
the Board of Directors adopted the Incentive Compensation Plan (the "Incentive
Compensation Plan") in June 1994, which is a performance based compensation plan
intended to further motivate and award executive officers (as well as all other
officers and employees of the Company) by directly linking cash bonuses to
specific Company performance targets. Bonuses payable under the Incentive
Compensation Plan are based on the Company's consolidated statutory after-tax
operating income. The amount of the bonus pool is calculated as 20% of
consolidated statutory-basis after-tax operating income in excess of a 12%
after-tax return on the average adjusted capital and surplus of the Company's
insurance subsidiaries during the year. The bonus pool is subject to adjustment
by, and the approval of, the Board of Directors. Potential awards for each
executive officer are based upon percentages of such officer's base salary,
generally ranging from 60% to 85%, depending upon the individual's position, the
assessment of such individual's contribution in such position, and competitive
pay. Nevertheless, the Board retains discretion to award bonuses in excess of or
lower than such percentages taking into account subjective factors, including an
individual's performance or other relevant criteria. Under the Incentive
Compensation Plan, executives will not receive any incentives until a specified
level of statutory earnings is achieved. Once the bonus pool is established, the
Board exercises its discretion to determine the exact amount of the bonus to be
paid to each executive officer. The bonuses earned by the Named Executive
Officers in 1997 as reported in the Summary Compensation Table reflect the
statutory earnings achieved by the Company and the attainment of individual
performance goals by the executive officers.
STOCK OPTIONS
The purpose of stock options is to motivate executives and key employees to
contribute to the Company's future growth and profitability and to reward their
performance in a manner that provides them with a means to increase their
holdings of the Company's Class A Common Stock and align their interests with
the interests of the stockholders. The Option Plan has been used to implement
this philosophy. Stock options have been granted periodically to key employees
at all levels of the Company. The specific number of options granted has been
based upon management's evaluation of the relative contribution or anticipated
contribution of each eligible individual to overall Company performance. The
options become exercisable based on continued employment with the Company and
generally remain exercisable for a period of ten years. The ultimate value of
the options, if any, depends on the extent to which the Company's Class A Common
Stock appreciates in market value. In 1997, 812,566 options were awarded or
allocated to 37 employees for shares of the Class A Common Stock, of which
605,630 were awarded to the Named Executive Officers. The awards to the Named
Executive Officers represented approximately 2.6% of the Common Stock
outstanding at the end of 1997.
CHIEF EXECUTIVE OFFICER COMPENSATION
Since the inception of the Company in July 1993 and until February 1998,
Messrs. Ruby and Franco served as Co-Chairmen of the Board and Co-Chief
Executive Officers of the Company. As noted elsewhere in this Proxy Statement,
Mr. Franco announced his retirement from the Company in February 1998. Mr. Ruby
was subsequently named Chairman of the Board and Chief Executive Officer. This
report on executive compensation covers the compensation of both Messrs. Ruby
and Franco in their capacities as the Company's Co-Chief Executive Officers
during 1997. Messrs. Ruby and Franco were compensated for the year ended
December 31, 1997 in accordance with the terms of
14
their respective employment agreements, taking into account individual and
Company performance measures and the criteria described above. The compensation
elements included base salary, annual bonus pursuant to the Incentive
Compensation Plan and long-term incentives through stock options. In 1997,
Messrs. Ruby's and Franco's base salaries were increased to $416,000, a 4%
increase over their 1996 salaries. They each earned a $314,000 bonus under the
Incentive Compensation Plan, and received options to purchase 205,015 shares of
the Company's Class A Common Stock pursuant to the Option Plan. The Board of
Directors believes that Messrs. Ruby's and Franco's total compensation for 1997,
based upon target levels of Company performance, was comparable to the
compensation paid to other chief executive officers of similar companies in the
insurance and annuity industries.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Code, enacted in 1993 and applicable to the Company
generally disallows a tax deduction to public companies for compensation over $1
million paid to the chief executive officer and four other most highly
compensated executive officers. Presently, because of the application of certain
transition rules, the Company does not expect any of the Named Executive
Officers' compensation to be subject to the deductibility limit. While it is the
Company's intention to maximize the deductibility of compensation paid to
executive officers to the extent deemed appropriate, the Company may, from time
to time, re-evaluate its policy with respect to Section 162(m).
THE BOARD OF DIRECTORS
Dudley J. Godfrey, Jr.
Alan E. Goldberg
John R. Lindholm
Robert H. Niehaus
Edward D. Powers
Colin F. Raymond
Martin H. Ruby
Irwin T. Vanderhoof
The preceding "Report on Executive Compensation" shall not be deemed
incorporated by reference into any filings by the Company under the Securities
Act of 1933, as amended (the "Securities Act"), or under the Exchange Act,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
15
PERFORMANCE GRAPH
Set forth below is a line-graph presentation comparing cumulative total
return for the Company's Class A Common Stock with the cumulative total returns
for the S&P 500 Stock Index and the S&P 500 Insurance (Life/Health) Index for
the period from June 19, 1997 (the date on which the Company's Class A Common
Stock first began trading on the American Stock Exchange) through December 31,
1997. The graph assumes an investment of $100 in the Class A Common Stock and in
each Index on June 19, 1997, and the reinvestment of all dividends. The line
graph is not intended to be indicative of future stock performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TOTAL SHAREHOLDER RETURN
S&P 500
ARM Financial Insurance S&P 500
Group, Inc. (Life/Health) Stock
CL A Index Index
19Jun97 $100.00 $100.00 $100.00
31Dec97 $ 138.19 $ 98.11 $ 108.99
TOTAL RETURN PERCENTAGE
(DIVIDENDS REINVESTED)
19 JUNE 97
THROUGH
COMPANY/INDEX 31 DEC 97
- ---------------------------------------------------------------------------- -------------------------------
ARM FINANCIAL GROUP, INC. --Class A Common Stock............................ 38.19%
S&P 500 INSURANCE (LIFE/HEALTH) INDEX....................................... -1.89%
S&P 500 STOCK INDEX......................................................... 8.99%
The preceding "Performance Graph" and related disclosure shall not be deemed
incorporated by reference into any filings by the Company under the Securities
Act or under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of the Record Date concerning
beneficial ownership of the Class A Common Stock, Class B Common Stock, and
9 1/2% Cumulative Perpetual Preferred Stock (the "Perpetual Preferred Stock") by
(i) each person known to the Company to own more than 5% of the outstanding
Class A Common Stock, (ii) by each director and each of the executive officers
named in the Summary Compensation Table included elsewhere herein, and (iii) all
directors and executive officers of the Company as a group. The information in
the table is based on information from the named persons regarding ownership of
Common Stock and Perpetual Preferred Stock. Unless otherwise indicated, each of
the stockholders has sole voting power and investment power with respect to the
shares shown as beneficially owned by them, exercised solely by the named person
or shared with a spouse.
NUMBER OF SHARES BENEFICIALLY OWNED
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B TOTAL PERPETUAL
COMMON STOCK COMMON STOCK COMMON STOCK PREFERRED STOCK
-------------------------- ------------------ --------------------------- ------------------------
BENEFICIAL OWNERS NUMBER %(1) NUMBER %(1) NUMBER %(1) NUMBER %(1)
- ------------------------- ------------- ------ ---------- ------ -------------- ------ ------------ -----
The Morgan Stanley
Leveraged Equity Fund II,
L.P.(2)(3)...............
1221 Avenue of the
Americas
New York, New York 10020 6,001,846 27.98% 1,119,565 57.48% 7,121,411 30.44% -- --
Morgan Stanley Capital
Partners III,
L.P.(2)(3)...............
1221 Avenue of the
Americas
New York, New York 10020 3,907,147 18.22% 728,827 37.42% 4,635,974 19.81% -- --
Morgan Stanley Capital
Investors, L.P.(2)(3)....
1221 Avenue of the
Americas
New York, New York 10020 114,847 * 21,423 1.10% 136,270 * -- --
MSCP III 892 Investors,
L.P.(2)(3)...............
1221 Avenue of the
Americas
New York, New York 10020 417,239 1.95% 77,831 4.00% 495,070 2.12% -- --
Directors and Named
Executive Officers:
Martin H. Ruby......... 644,120(4)(5) 2.94% -- -- 644,120(4)(5) 2.70% 1,600(6) *
John Franco............ 605,895(4) 2.82% -- -- 605,895(4) 2.59% 64,450(6) 3.22%
John R. Lindholm....... 241,679(4) 1.12% -- -- 241,679(4) 1.02% 800 *
David E. Ferguson...... 178,404(4)(5) * -- -- 178,404(4)(5) * 3,800(6) *
Edward L. Zeman........ 18,781(4) * -- -- 18,781(4) * -- --
Daniel R. Gattis....... (4)-- -- -- -- (4)-- -- -- --
Dudley J. Godfrey, 35,843 * -- -- 35,843 * -- --
Jr...................
Alan E. Goldberg....... -- -- -- -- -- -- -- --
Robert H. Niehaus...... -- -- -- -- -- -- -- --
Edward D. Powers....... 53,985 * -- -- 53,985 * -- --
Colin F. Raymond....... -- -- -- -- -- -- -- --
Irwin T. Vanderhoof.... 8,726 * -- -- 8,726 * -- --
All directors and 2,120,524(4)(5) 9.43% -- -- 2,120,524(4)(5) 8.67% 71,950(6) 3.60%
executive officers as a
group (18 persons).......
- ------------------------
(1) Based on the number of shares outstanding at, or acquirable within 60 days
of, the Record Date.
(2) Stock ownership information is based upon information set forth in Schedule
13G filed with the SEC with respect to beneficial ownership of the Company's
Class A Common Stock as of December 31, 1997.
(3) The general partner of MSLEF II and the general partner of the general
partner of the MSCP Funds are wholly owned subsidiaries of MSDW, the parent
of MS&Co.
(4) Includes 432,194, 25,196, 216,218, 145,059, 15,281 and 1,047,834 shares for
Messrs. Ruby, Franco, Lindholm, Ferguson and Zeman, and all directors and
executive officers as a group, respectively, that may be acquired upon the
exercise of options that are exercisable within 60 days after the Record
Date. Such options were granted pursuant to the Option Plan. Mr. Franco
exercised 386,084 of his vested options on February 17, 1998. Mr. Franco's
unvested options continue to vest and become exercisable in accordance with
the terms of his retirement agreement and the Option Plan, as more fully
described herein under "--Employment Contracts, Change in Control
Arrangements and Other Agreements." Mr. Gattis exercised his vested options
and simultaneously sold the underlying shares on April 6, 1998, in
connection with his resignation from the Company.
(5) All shares of Class A Common Stock are held directly with the following
exceptions: 32,285 shares held by Mr. Ruby are indirectly owned through
Woodstone Ventures LLC, a limited liability company ("Woodstone Ventures"),
the members of which are Mr. Ruby's two daughters, and 92,000 shares are
indirectly held through Ruby Ventures, L.P., a limited partnership, pursuant
to which Mr. Ruby's wife and two daughters are the limited partners, and Mr.
Ruby is the general partner with sole investment control and voting power
over such shares; and Mr. Ferguson beneficially owns 1,412 shares which are
held in the IRA account of his wife.
(6) Mr. Franco holds shared investment power over 25,400 shares of the Perpetual
Preferred Stock which are indirectly held by the John and Mary Franco Family
Foundation, Inc. Mr. Franco disclaims beneficial ownership of such shares of
Perpetual Preferred Stock held by the John and Mary Franco Family Foundation
in accordance with the Foundation's 501(c)(3) tax-exempt status. In
addition, 3,950 shares of Perpetual Preferred Stock are owned indirectly by
Mr. Franco's minor daughter under the Uniform Transfer to Minors Act. 1,600
shares of Perpetual Preferred Stock held by Mr. Ruby are indirectly owned
through Woodstone Ventures.
* Less than one percent.
17
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
STOCKHOLDERS' AGREEMENT AND REGISTRATION RIGHTS
The Company, MSLEF II, the MSCP Funds and certain other original
stockholders of the Company have entered into the Second Amended and Restated
Stockholders' Agreement (the "Stockholders' Agreement"), which sets forth
certain rights and obligations of each such holder of Common Stock. Pursuant to
the terms of the Stockholders' Agreement, no stockholder may make or solicit the
sale of, or create, incur, solicit or assume the encumbrance of, any share of
Common Stock except in a public offering, in accordance with Rule 144 or
otherwise in compliance with the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities law.
The Stockholders' Agreement grants the Morgan Stanley Stockholders the right
on up to three occasions to require the Company to file a registration statement
under the Securities Act covering the registration of shares of Common Stock
then held by the Morgan Stanley Stockholders. The Secondary Offering constitutes
one such occasion. In addition to such demand rights, the Morgan Stanley
Stockholders are entitled, subject to certain limitations, to register shares of
Common Stock in connection with a registration statement prepared by the
Company. The Stockholders' Agreement contains customary terms and provisions
with respect to, among other things, registration procedures and certain rights
to indemnification granted by the parties thereunder in connection with any such
registration of Common Stock.
The Stockholders' Agreement also provides that the Morgan Stanley
Stockholders will have the right to designate nominees for one-half of the
members of the Board of Directors of the Company for so long as the total number
of shares of Common Stock of the Company owned by the Morgan Stanley
Stockholders constitutes at least 50% of the outstanding Common Stock of the
Company. If such ownership falls below 50%, the number of directors that the
Morgan Stanley Stockholders will have the right to designate will be reduced to
the number of directors which constitutes a percentage representation on the
Board equal to the Morgan Stanley Stockholders' aggregate percentage ownership
of the outstanding Common Stock of the Company; provided that so long as the
Morgan Stanley Stockholders own at least 5% of the outstanding Common Stock of
the Company, the Morgan Stanley Stockholders will have the right to designate at
least one director. The Morgan Stanley Stockholders currently own, in the
aggregate, approximately 49% of the outstanding voting stock of the Company, and
approximately 53% of the Common Stock.
Mr. Franco, who resigned as Co-Chairman of the Board and Co-Chief Executive
Officer, and as an employee of the Company, was given certain "piggy back"
registration rights in accordance with the terms of his resignation agreement
with the Company. See "--Employment Contracts, Change in Control Arrangements
and Other Agreements."
OTHER TRANSACTIONS
MS&Co. served as lead underwriter of the Initial Public Offering in June
1997 for which it received underwriting fees of $2,774,905. From time to time
MS&Co. performs financial advisory services for the Company in connection with
specific transactions. The Company paid MS&Co. or accrued approximately $50,868
in 1997, and paid or accrued approximately $15,042 in the first quarter of 1998
for these and other miscellaneous services. In addition, from time to time, in
the ordinary course of business, certain of the Company's subsidiaries have
purchased, and may in the future purchase, securities in public offerings where
MS&Co. was the sole, lead or co-manager or underwriter. Based on transactions of
similar size and nature, the Company believes that the foregoing fees received
by MS&Co. were no less favorable to the Company than would be available from
unaffiliated third parties.
From time to time, in the ordinary course of business, certain of the
Company's directors and executive officers have purchased, and may in the future
purchase, annuity contracts and other
18
products from the Company's insurance subsidiaries which offered them certain
benefits not otherwise offered to the general public as a result of discounts in
the subsidiaries standard commission rates.
CERTAIN RELATIONSHIPS AND RELATED PARTIES
Four of the Named Executive Officers of the Company were limited partners
of, or were the beneficial owners of limited partnership interests in, Oldarm
L.P. which owned 706,000 shares of the Class A Common Stock, and two of the
Named Executive Officers managed New ARM, LLC which owned 120,020 shares of the
Class A Common Stock. On December 18, 1997, Oldarm L.P. and New ARM, LLC were
liquidated and the shares were distributed pro rata to the individual investors
in proportion to each investor's respective interests therein.
Three of the Company's eight directors are employees of MS&Co. Two of such
directors are officers and/or directors of affiliates of MS&Co. which control
the Morgan Stanley Stockholders.
On November 7, 1997, the Company transferred substantially all of the assets
and operations of ARM Capital Advisors, Inc. ("ARM Capital Advisors") to a newly
formed subsidiary, ARM Capital Advisors, LLC ("New ARMCA"), and sold an 80%
interest in New ARMCA to ARM Capital Advisors Holdings, LLC, an entity
controlled by Emad A. Zikry, the President of ARM Capital Advisors prior to the
sale. The Company recognized an immaterial gain on the sale. ARM Capital
Advisors is a registered investment adviser and wholly-owned subsidiary of the
Company that provided asset management services to the Company's subsidiaries
and certain institutional clients, primarily defined benefit pension plans.
Under the terms of the sale, New ARMCA provided the Company's subsidiaries with
investment management services through December 31, 1997 on the same basis as in
the past, and after December 31, 1997, the Company can continue to engage New
ARMCA as its investment adviser at agreed upon rates; but, the Company may also
consider retaining other investment management firms. In connection with the
consummation of the sale, Dr. Zikry resigned as an officer and director of ARM
Capital Advisors, and the Company and Dr. Zikry mutually agreed to terminate his
employment with the Company, without any severance obligation on the part of the
Company. Furthermore, all options having been granted to Dr. Zikry and certain
employees of ARM Capital Advisors under the Option Plan were forfeited in
accordance with the terms of such sale.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file with the
SEC and the American Stock Exchange initial reports of beneficial ownership and
reports of changes in beneficial ownership of any equity securities of the
Company. Such persons are also required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
which is based solely on a review of the copies of such reports furnished to the
Company and written representations that no other reports were required, during
1997 all Section 16(a) filing requirements applicable to such individuals were
complied with except that Form 3s were inadvertently filed late with respect to
MSLEF II, Inc., MSCP III, Inc., MS Capital Partners III, Inc., the Morgan
Stanley Stockholders and MSDW.
PROPOSAL 2--APPROVAL OF THE ARM FINANCIAL GROUP, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
RECOMMENDATION
The Board of Directors has adopted, subject to approval by the Company's
stockholders, the ARM Financial Group, Inc. 1998 Non-Employee Director Stock
Option Plan (the "Director Plan"). The Director Plan is designed to assist the
Company in attracting, retaining and compensating highly
19
qualified individuals who are not employees of the Company for service as
members of the Board and to provide them with a proprietary interest in the
Company's Class A Common Stock. The Board believes the Director Plan will be
beneficial to the Company and its stockholders by allowing non-employee
directors to have an ongoing personal financial stake in the Company, in
addition to underscoring their common interest with stockholders in increasing
the value of the Company's stock over the long term.
DESCRIPTION OF THE PLAN
The following summary description of the Director Plan is qualified in its
entirety by reference to the full text of the Director Plan which is attached to
this Proxy Statement as Annex A.
If approved by the Company's stockholders, the Director Plan will provide
for automatic, non-discretionary grants of nonqualified stock options to
directors who are not officers or employees of the Company or any of its
subsidiaries. Directors who are employees of MS&Co. are also ineligible to
participate in the Director Plan. Those directors who are eligible to
participate are herein referred to individually as an "Eligible Director", and
collectively as "Eligible Directors." There are currently three Eligible
Directors. The Director Plan will also give the Board of Directors the ability
to make awards of options to Eligible Directors for extraordinary service
(ratably for each Eligible Director) upon such terms and conditions to be
determined by the Board, provided that the exercise price for such options may
not be less than the fair market value of the Class A Common Stock on the date
of grant. Notwithstanding the foregoing, the Board of Directors does not
presently anticipate exercising such discretion. Options granted under the
Director Plan are herein referred to as "Director Options".
In April 1998, each Eligible Director will be granted (the "Initial Grant"),
subject to the approval of the Director Plan by the stockholders, options to
purchase 10,000 shares of the Class A Common Stock which are to be fully vested
(in recognition of their long tenure as directors of the Company) and have an
exercise price equal to the fair market value of the Class A Common Stock on the
date the Initial Grant is made. Each individual who subsequently becomes an
Eligible Director will receive, on the date of his or her initial appointment or
election to the Board, an option to purchase 10,000 shares of the Class A Common
Stock. Then, at each annual meeting of stockholders commencing with the annual
meeting to be held in 1999, each Eligible Director who will continue to serve
after such annual meeting (other than an Eligible Director who may have received
an initial grant of 10,000 options at such meeting or during the period
following the previous annual meeting) will receive an additional option to
purchase 2,000 shares of the Class A Common Stock. All Director Options will
have a per share exercise price equal to the fair market value of the shares on
the date of grant. Such exercise price may be paid in cash or previously owned
shares of the Class A Common Stock or a combination thereof or, with the
approval of the committee administering the Director Plan, pursuant to a
cashless exercise procedure through a broker previously designated or approved
by the Company.
Other than the Initial Grant and any discretionary grants of options,
Director Options will automatically vest and become exercisable in four equal
installments of 25% annually commencing on the first anniversary of the date of
grant. Notwithstanding such vesting schedule, Director Options will become
vested and exercisable with respect to 50% of such award (to the extent not
already so vested) upon an Eligible Director's termination of service due to
death, disability, retirement in accordance with the retirement policy for
non-employee directors then in effect or as otherwise determined by the Board of
Directors. The Director Options will become fully vested and exercisable upon
the occurrence of a Change in Control (as defined in the Director Plan attached
to this Proxy Statement as Annex A).
20
All Director Options will expire ten years from the date of grant. If an
Eligible Director's service as a member of the Board should terminate due to
death, disability, retirement or a Change in Control, all Director Options must
be exercised within one year following such termination. If an Eligible
Director's service as a member of the Board terminates for any other reason,
such Eligible Director must exercise any Director Options that have vested as of
the date of such termination within the 90 day period following such
termination, and all Director Options that have not vested as of the date of
such termination will immediately expire.
SHARES AVAILABLE UNDER THE DIRECTOR PLAN
A total of 100,000 shares of the Class A Common Stock will be reserved for
issuance under the Director Plan, which amount will be proportionately adjusted
in the event of certain changes in the Company's capitalization, a merger, or a
similar transaction. Shares issued pursuant to the Director Plan may be either
authorized but unissued shares, treasury shares or a combination thereof.
ADMINISTRATION
The Director Plan will be administered by a committee appointed by the Board
and consisting exclusively of members of the Board of Directors who are not
Eligible Directors. The committee will have full and final authority to construe
and interpret the Director Plan, adopt such rules and regulations as it deems
necessary to carry out the purposes thereof, and take such other actions
necessary or advisable for the administration of the Director Plan.
AMENDMENT AND TERMINATION OF THE DIRECTOR PLAN
The Board may amend or terminate the Director Plan at any time, except that
stockholder approval is required to increase the maximum number of shares
issuable under the Director Plan. The consent of an Eligible Director is
required to the extent that any amendment or termination would adversely affect
such Eligible Director's rights with respect to any previously Director Options
granted. By its terms, the Director Plan will remain in effect until terminated
by the Board. No awards may be granted under the Director Plan after the annual
meeting of the stockholders to be held in 2007.
NEW PLAN BENEFITS
The following table sets forth the number of Directors Options to be awarded
upon the Initial Grant under the Director Plan, all of which are subject to the
approval of the Director Plan by the stockholders.
ARM FINANCIAL GROUP, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ELIGIBLE DIRECTORS NUMBER OF OPTIONS
- -------------------------------------------------------------------- -------------------
Edward D. Powers.................................................... 10,000
Dudley J. Godfrey, Jr............................................... 10,000
Irwin T. Vanderhoof................................................. 10,000
------
Non-Employee Directors as a group................................... 30,000
21
FEDERAL INCOME TAX CONSEQUENCES
The Director Options granted under the Director Plan will be non-statutory
options not intended to qualify under Section 442 of the Code. The grant of the
Director Options will not result in the recognition of taxable income by the
Eligible Director or in a deduction to the Company. Upon exercise, an Eligible
Director will recognize ordinary income in an amount equal to the excess of the
fair market value of the Class A Common Stock purchased over the exercise price,
and a tax deduction is allowable to the Company equal to the amount of such
income. Gain or loss upon a subsequent sale of any Class A Common Stock received
upon the exercise of the Director Options generally would be taxed as capital
gain or loss (long-term or short-term, depending upon the holding period of the
Class A Common Stock sold.) Certain additional rules apply if the exercise price
for the Director Options is paid in shares of Class A Common Stock previously
owed by the Eligible Director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
ARM FINANCIAL GROUP, INC. 1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
INDEPENDENT AUDITORS
Ernst & Young LLP has served as the Company's independent auditors since the
formation of the Company in 1993, including for the year ended December 31,
1997. Representatives of the firm are expected to attend the Annual Meeting to
answer appropriate questions and to make a statement if they so desire.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no business
that will be presented for consideration at the Annual Meeting other than the
items described herein. Proxies in the enclosed form will be voted in respect of
any other business that is properly brought before the Annual Meeting in
accordance with the judgment of the person or persons voting the proxies.
STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Secretary of the Company for
inclusion in the Company's 1999 proxy materials no later than December 24, 1998.
FINANCIAL STATEMENTS
The Company's audited consolidated financial statements and notes thereto,
including selected financial data and management's discussion and analysis of
the financial condition and results of operations for the year ended December
31, 1997, are included on pages 18 through 57 of the Company's 1997 Annual
Report to Shareholders, which is being mailed concurrently herewith. Additional
copies of the Annual Report will be made available without charge upon request.
By Order of the Board of Directors
[SIGNATURE]
Robert H. Scott
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
Louisville, Kentucky
April 22, 1998
22
ANNEX A
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;
(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;
A-1
(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.
"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.
A-2
"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
an 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.
"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
A-3
(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.
(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 Options 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 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.
A-4
(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 Discretionary Options) 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
Discretionary Options) 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.
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
A-5
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. 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.
A-6
(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 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.
A-7
(h) NON-QUALIFIED STATUS OF OPTIONS. Options awarded under the Plan are not
intended to qualify, and shall not be treated, as an "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 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 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
A-8
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.
A-9
PROXY PROXY
ARM FINANCIAL GROUP, INC.
515 West Market Street
Louisville, KY 40202-3319
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS TO BE HELD ON MAY 27, 1998
The undersigned hereby constitutes and appoints Edward L. Zeman, Executive
Vice President and Chief Financial Officer, Robert H. Scott, Executive Vice
President, General Counsel and Secretary, and Peter S. Resnik, Treasurer, and
each of them, with full power of substitution, as proxies to vote in the
name, place and stead of the undersigned, all shares which the undersigned is
entitled to vote at the Annual Meeting of the Stockholders of ARM Financial
Group, Inc. (the "Company"), to be held in the Medallion Room of the Seelbach
Hilton Hotel, located at 500 Fourth Avenue, Louisville, Kentucky, on May 27,
1998 at 9:00 a.m., Eastern Daylight Savings Time, or any adjournment thereof,
upon all matters properly coming before the meeting.
1. ELECTION OF DIRECTORS: Nominees for directors are Dudley J. Godfrey, Jr.,
John R. Lindholm and Robert H. Niehaus.
(Note: The Company has filed a registration statement with the Securities and
Exchange Commission for a secondary offering of 10 million shares of its
Class A Common Stock (the "Secondary Offering"). Certain affiliates of Morgan
Stanley & Co. Incorporated ("MS&Co.") propose to sell all 10 million shares
in the Secondary Offering and, if the underwriters' over-allotment is
exercised, up to an additional 1.5 million shares. If the Secondary Offering
is completed, it is the intention of Robert H. Niehaus, an employee of
MS&Co., to either resign from, or not stand for re-election to, the Board of
Directors of the Company. In the event that Mr. Niehaus does not stand for
re-election, the Board of Directors may make an appropriate reduction in the
number of directors to be elected.)
2. APPROVAL OF THE ARM FINANCIAL GROUP, INC. 1998 NON-EMPLOYEE DIRECTOR STOCK
OPTION PLAN.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
X FOLD AND DETACH HERE X
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL LISTED
BELOW THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS.
1. ELECTION OF DIRECTORS: FOR WITHHELD
For, except vote withheld from the following nominee(s): / / / /
- -----------------------------------------------------------
Nominees for directors: Dudley J. Godfrey, Jr., John R. Lindholm and
Robert H. Niehaus
(Note: The Company has filed a registration statement with the Securities and
Exchange Commission for a secondary offering of 10 million shares of its
Class A Common Stock (the "Secondary Offering"). Certain affiliates of Morgan
Stanley & Co. Incorporated ("MS&Co.") propose to sell all 10 million shares
in the Secondary Offering and, if the underwriters' over-allotment is
exercised, up to an additional 1.5 million shares. If the Secondary Offering
is completed, it is the intention of Robert H. Niehaus, an employee of
MS&Co., to either resign from, or not stand for re-election to, the Board of
Directors of the Company. In the event that Mr. Niehaus does not stand for
re-election, the Board of Directors may make an appropriate reduction in the
number of directors to be elected.)
Please mark
your votes as /X/
indicated in
this example
2. APPROVAL OF THE ARM FINANCIAL GROUP, FOR AGAINST ABSTAIN
INC. 1998 NON-EMPLOYEE DIRECTOR STOCK / / / / / /
OPTION PLAN.
SIGNATURE(S) OF STOCKHOLDER(S)______________________________ DATE:___________
Please sign exactly as name(s) appears on this proxy card. If shares are held
jointly or by two or more persons, each stockholder named should sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name
by President or other authorized officer. If a partnership, please sign in
full partnership name by authorized persons.
- --------------------------------------------------------------------------------
X FOLD AND DETACH HERE X