UNITED STATES DISTRICT COURTWESTERN DISTRICT OF KENTUCKYAT LOUISVILLE

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IN RE: ARM FINANCIAL GROUP, INC . : Civil Action No . 3 :99-CV-539-HSECURITIES LITIGATION

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STIPULATION AND AGREEMENT OF SETTLEMENTWITH CERTAIN DEFENDANT S

This Stipulation and Agreement of Settlement with Certain Defendants (th e

"Stipulation") is submitted pursuant to Rule 23 of the Federal Rules of Civil Procedure . Subject

to the approval of the Court, this Stipulation is entered into among lead plaintiffs Helen e

Gottlieb, Frank Casey, Tony Totis, Bruce Thomas, Mark Suna, Hugh Glidewell, William Kopp ,

Geraldine Kehoe and Jim Sweem (collectively referred to hereinafter as the "Lead Plaintiffs") ,

on behalf of themselves and the Settlement Class (as hereinafter defined) and defendants Marti n

H. Ruby, John R. Lindholm, Edward L . Zeman, Barry G . Ward, David E . Ferguson, William H .

Panning, Colin Raymond, Alan Goldberg and Robert H . Niehaus (collectively referred to

hereinafter as the "Settling Defendants"), by and through their respective counsel . This

Settlement does not settle or release any claims against, or preclude any claims or defenses mad e

or to be made by, the other defendants named in this action (who are sometimes hereinafte r

referred to as the "Non-Settling Defendants")

WHEREAS :

A. Beginning on August 18, 1999, seven putative class actions alleging violation of

federal securities laws - Gottlieb v. ARM Financial Group, Inc ., et al . , Civil Action No .

3 :99CV-539-H; Kehoe v. ARM Financial Group, Inc ., et al. , Civil Action No . 3:99CV-542-H;

Yurkoski v. ARM Financial Group , Inc ., et al . , Civil Action No. 3 :99CV -571-H ; Trust Advisors

Equity Plus, LLC v . ARM Financial Group , Inc ., et al . , Civil Action No. 3 :99CV-577-H ; Galli V .

ARM Financial Group , Inc., et al . , Civil Action No. 3:99CV-580-H ; Gross, et al . v . ARM

Financial Group , Inc., et al . , Civil Action No. 3:99CV-596-H ; and Shaheen v . ARM Financia l

Group, Inc ., et al . , Civil Action No. 3 :99CV-605-H - were filed in this Court and were

subsequently consolidated under the caption above, and are hereinafter referred to as th e

"Action" ;

B. The Third Consolidated and Amended Class Action Complaint dated June 8, 200 1

filed in the Action (the "Complaint") alleges, among other things, that defendants issued fals e

and misleading press releases and other statements - including a false and misleadin g

registration statement and prospectus in connection with the secondary offering of AR M

Financial Group, Inc . ("ARM") common stock in or about May 1998 (the "Secondary

Offering") - regarding ARM's financial condition during the Settlement Class Period - Februar y

10, 1998 through and including August 3, 1999 - in a scheme to artificially inflate the value of

ARM's common stock , thereby violating Sections 11, 12(a )(2) and 15 of the Securities Act of

1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule lOb-5

promulgated thereunder;

C. The Complaint further alleges that Lead Plaintiffs and other Settlement Clas s

Members purchased ARM securities during the Settlement Class Period and/or pursuant o r

traceable to the Registration Statement and Prospectus issued in connection with the Secondar y

Offering during the Settlement Class Period and were damaged as a result thereof ,

D. The Non-Settling Defendants moved to dismiss the claims raised in the Complaint

on Statute of Limitations grounds . By Memorandum Opinion dated July 17, 2002, the Court

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determined that the claims asserted under Sections 11, 12(a)(2) and 15 of the Securities Act o f

1933 were untimely and should be dismissed as against the Non-Settling Defendants, but that th e

claims asserted under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rul e

I Ob-5 promulgated thereunder should not be dismissed as untimely . By Order dated July 17 ,

2002 the claims asserted in the Complaint under Sections 11, 12(a)(2) and 15 of the Securitie s

Act of 1933 were dismissed . Lead Plaintiffs moved to alter, amend or vacate that Order . By

Order dated September 3, 2002, the Court denied Lead Plaintiffs' motion to alter vacate or

modify the July 17, 2002 Order . On September 30, 2002 , the Court issued a Memorandum

Opinion and Order in which it dismissed Lead Plaintiffs' claims brought under Section 10(b) o f

the Securities Exchange Act of 1934 and rule 1Ob-5 promulgated thereunder.

E . The Settling Defendants deny any wrongdoing and this Stipulation shall in no

event be construed or deemed to be evidence of or an admission or concession on the part of an y

Settling Defendant with respect to any claim or of any fault or liability or wrongdoing or damag e

whatsoever, or any infirmity in the defenses that the Settling Defendants have asserted . The

parties to this Stipulation recognize, however, that the litigation has been filed by plaintiffs an d

defended by the Settling Defendants in good faith and with adequate basis in fact under Federa l

Rule of Civil Procedure 11, that the litigation is being voluntari ly settled after advice of counsel ,

and that the terms of the settlement are fair, adequate and reasonable . This Stipulation shall no t

be construed or deemed to be a concession by any plaintiff of any infirmity in the claims asse rted

in the Action ;

F. In addition to this Settlement, certain of the Settling Defendants have also settled

two private actions, Mercury Insurance Co. v. Ruby, No. CV-00-03448 CAS (JWJx) (C .D . Cal)

and Credit Suisse First Boston Corp. v. Ruby, No. 99-CV-12046 (S .D.N.Y.), pursuant to which

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National Union Fire Insurance Company of Pittsburgh, PA, the Settling Defendants' insure r

under the Directors, Officers and Corporate Liability Insurance Policy # 45-68-72 with a limit

of liability of $10,000,000 (the "Primary Insurance Policy") agreed to pay $6 .6 million to the

plaintiffs in those private actions (the "Preferred Actions Settlement Payment") . Any balance of

the proceeds of the Primary Insurance Policy, after deduction of defense costs, shall be payabl e

to the Settlement Class in this Action ;

G. Plaintiffs' Co-Lead Counsel have conducted an investigation relating to the

claims and the underlying events and transactions alleged in the Complaint . Plaintiffs' Co-Lea d

Counsel have analyzed the evidence adduced during a substantial investigation which included

interviews with numerous relevant witnesses and consultation with experts and have researche d

the applicable law with respect to the claims of plaintiffs and the Settlement Class against th e

Settling Defendants and the potential defenses thereto ;

H. Lead Plaintiffs, by their counsel, have conducted discussions and arm's length

negotiations with counsel for Settling Defendants with respect to a compromise and settlement o f

the Action as against the Settling Defendants with a view to settling the issues in dispute an d

achieving the best relief possible consistent with the interests of the Settlement Class ; and

Based upon their investigation and pretrial discovery as set forth above, Plaintiffs '

Co-Lead Counsel have concluded that the terms and conditions of this Stipulation are fair ,

reasonable and adequate to Lead Plaintiffs and the Settlement Class, and .n their best interests ,

and have agreed to settle the claims raised in the Action pursuant to the terms and provisions o f

this Stipulation, after considering (a) the substantial benefits that the members of the Settlement

Class will receive from settlement of the Action, (b) the attendant risks of litigation, and (c) th e

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desirability of permitting the Settlement to be consummated as provided by the terms of thi s

Stipulation .

NOW THEREFORE, without any admission or concession on the part of the

Lead Plaintiffs of any lack of merit of the Action whatsoever, and without any admission or

concession of any liability or wrongdoing or lack of merit in the defenses whatsoever by th e

Settling Defendants , it is hereby STIPULATED AND AGREED , by and among the parties to

this Stipulation, through their respective attorneys, subject to approval of the Court pursuant t o

Rule 23(e) of the Federal Rules of Civil Procedure, in consideration of the benefits flowing to the

parties hereto from the Settlement, that all Settled Claims (as defined below) as against th e

Released Parties (as defined below) shall be compromised, settled, released and dismissed with

prejudice, upon and subject to the following terms and conditions :

CERTAIN DEFINITION S

As used in this Stipulation, the following terms shall have the followin g

meanings :

(a) "ARM" means ARM Financial Group, Inc .

(b) "Authorized Claimant" means a Settlement Class Member who submits a

timely and valid Proof of Claim form to the Claims Administrator.

(c) "Claims Administrator" means the firm of The Garden City Group, Inc .

which shall administer the Settlement .

(d) "Defendants" means the Settling Defendants and the Non-Settlin g

Defendants .

(e) "Defense Costs" means the Defense Costs as defined in the Primary

Insurance Policy ( i .e . reasonable and necessary fees, costs and expenses consented to by the

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Insurer (including premiums for any appeal bond, attachment bond of similar bond, but withou t

any obligation to apply for or furnish any such bond) resulting solely from . the investigation,

adjustment , defense and appeal of a Claim against the insureds , but excluding salaries of Officers

or employees of the Company . )

(f) "Effective Date" means the date upon which the Settlement contemplated

by this Stipulation shall become effective, as set forth in paragraph 26 below .

(g) "Non-Settling Defendants" means Morgan Stanley Dean Witter & Co . ,

Morgan Stanley Leveraged Equity Fund II, L .P., Morgan Stanley Capital Partners III, L .P

Morgan Stanley Capital Investors, L .P., and MSCP 111 892 Investors, L .P .

(h) "Notice" means the Notice of Pendency of Class Action, Hearing On

Proposed Settlement with Certain Defendants and Attorneys' Fee Petition and Right to Share i n

Settlement Fund, which is to be sent to members of the Settlement Class substantially in the for m

attached hereto as Exhibit 1 to Exhibit A .

(i) "Order and Final Judgment" means the proposed order to be entere d

approving the Settlement substantially in the form attached hereto as Exhibit B .

(j) "Plaintiffs' Counsel" means Plaintiffs' Co-Lead Counsel and all of the

other attorneys representing plaintiffs listed at the end of this Stipulation .

(k) "Plaintiffs' Co-Lead Counsel" means the law firms of Milberg Weis s

Bershad & Schulman LLP and Wolf Haldenstein Adler Freeman & Herz LLP .

(1) "Preliminary Approval Order" means the proposed . order preliminaril y

approving the Settlement and directing notice thereof to the Settlement Class substantially in th e

form attached hereto as Exhibit A .

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(m) "Publication Notice" means the summary notice of proposed Settlement

and hearing for publication substantially in the form attached as Exhibit 3 to Exhibit A .

(n) "Released Parties" means any and all of the Settling Defendants, their pas t

or present subsidiaries, parents, successors and predecessors, officers, directors, agents ,

employees, attorneys, auditors, accountants, National Union Fire Insurance Company o f

Pittsburgh, PA ("National Union"), the Kentucky Insurance Guaranty Association ("KIGA") ,

and any person, firm, trust, corporation, officer, director or other individual or entity in whic h

any Settling Defendant has a controlling interest or which is related to or affiliated with any o f

the Settling Defendants, and the legal representatives, heirs, successors in interest or assigns o f

the Settling Defendants . Released Parties does not mean and does not include any and all of th e

Non-Settling Defendants, their past or present subsidiaries, parents, successors and predecessors ,

officers, directors (except for Settling Defendants Colin Raymond, Alan Goldberg and Robert H .

Niehaus), agents, employees, attorneys, auditors, accountants and any person, firm, trust ,

corporation, officer, director or other individual or entity in which any Non-Settling Defendan t

has a controlling interest or which is related to or affiliated with any of th,- Non-Settling

Defendants, and the legal representatives , heirs, successors in interest or assigns of the Non-

Settling Defendants . Released Parties does not include ARM or its Estate, or Reliance Insurance

Company ("Reliance") or its Estate, and/or the statutory liquidator for Reliance .

(o) "Settled Claims" means any and all claims, rights or causes of action o r

liabilities whatsoever, whether based on federal, state, local, statutory or common law or an y

other law, rule or regulation, including both known claims and Unknown Claims (as define d

below), that have been or could have been asserted in any forum by the Settlement Clas s

Members or any of them against any of the Released Parties which arise out of or relate in any

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way to the allegations, transactions, facts, matters or occurrences, representations or omission s

involved, set forth, referred to or that could have been asserted in the Complaint relating to th e

purchase of ARM common stock during the Settlement Class Period. Settled Claims does no t

mean or include any claims that the Settling Defendants are assigning to Lead Plaintiffs o n

behalf of the Settlement Class pursuant to this Settlement .

(p) "Settled Defendants' Claims" means any and all claims, rights or causes of

action or liabilities whatsoever, whether based on federal, state, local, statutory or common la w

or any other law, rule or regulation, including both known claims and Unknown Claims (as

defined below), that have been or could have been asserted in the Action or any forum by th e

Settling Defendants or any of them or the successors and assigns of any of them against any of

the plaintiffs, Settlement Class Members or their attorneys, which arise out of or relate in an y

way to the institution, prosecution, or settlement of the Action .

(q) "Settlement" means the settlement contemplated by this Stipulation .

(r) "Settlement Class" and "Settlement Class Members" means, for the

purposes of this Settlement only, all persons and entities who purchased ARM common stoc k

during the period February 10, 1998 through and including August 3, 1999 and who were

damaged thereby. Excluded from the Settlement Class are the Defendants in the Action ,

members of the immediate families (parents, spouses, siblings, and children) of each of th e

individuals who were named as defendants in the Action, any entity in which any Defendant ha s

a controlling interest, and the legal affiliates, representatives, heirs, controlling persons ,

successors and predecessors in interest or assigns of any such excluded party . Also excluded

from the Settlement Class are any putative Settlement Class Members who exclude themselve s

by filing a request for exclusion in accordance with the requirements set fo rth in the Notice .

(s) "Settlement Class Period" means, for the purposes of this Stipulation only,

the period of time from February 10, 1998 through and including August 3, 1999 .

(t) "Settling Defendants" means Martin H . Ruby, John R . Lindholm, Edward

L. Zeman, Barry G . Ward, David E . Ferguson, William H. Panning, Colin Raymond, Alan

Goldberg and Robert H . Niehaus .

(u) "Settling Defendants' Counsel" means the law firm of Greenebaum Dol l

& McDonald PLLC, the law firm of Kirkland & Ellis LLP, the law firm of Paul, Weiss , Rifkind,

Wharton & Garrison, the law firm of Wyatt, Tarrant & Combs, LLP and the law firm of Cravath ,

Swaine & Moore LLP.

(v) "Unknown Claims" means any and all Settled Claims which any Lead

Plaintiff or Class Member does not know or suspect to exist in his , her or its favor at the time o f

the release of the Released Parties , and any Settled Defendants ' Claims which any Settlin g

Defendant does not know or suspect to exist in his, her or its favor, which if known by him, he r

or it might have affected his, her or its decision(s) with respect to the Settlement . With respect to

any and all Settled Claims and Settled Defendants' Claims, the parties stipulate and agree that

upon the Effective Date, the Lead Plaintiffs and the Settling Defendants shall expressly waive ,

and each Class Member shall be deemed to have waived, and by operation of the Judgment shal l

have expressly waived, any and all provisions, rights and benefits conferred by any law of an y

state or territory of the United States, or principle of common law, which is similar, comparable ,

or equivalent to Cal . Civ. Code § 1542, which provides :

A general release does not extend to claims which the creditor does

not know or suspect to exist in his favor at the time of executing

the release, which if known by him must have materially affectedhis settlement with the debtor .

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Lead Plaintiffs and Settling Defendants acknowledge, and Class Members by operatio n

of law shall be deemed to have acknowledged, that the inclusion of "Unknown Claims" in the

definition of Settled Claims and Settled Defendants' Claims was separately bargained for an d

was a key element of the Settlement .

SCOPE AND EFFECT OF SETTLEMENT

The obligations incurred pursuant to this Stipulation shall be in full and fina l

disposition of the Action as against the Settling Defendants and any and all Settled Claims a s

against all Released Parties and any and all Settled Defendants' Claims .

3 . (1) Pursuant to the Order and Final Judgment, upon the Effective Date of thi s

Settlement, Lead Plaintiffs and all members of the Settlement Class on behalf of themselves ,

their heirs, executors, administrators, successors and assigns shall, with respect to each and ever y

Settled Claim, (i) release and forever discharge, and shall forever be enjoined from prosecuting ,

any Settled Claims against any of the Released Parties, and (ii) covenant not to sue ARM, an d

shall be enjoined from asserting any Settled Claims against ARM .

(a) Pursuant to the Order and Final Judgment, upon the Effective Date of thi s

Settlement, each of the Settling Defendants, on behalf of themselves and the Released Parties ,

shall release and forever discharge each and every of the Settled Defendants' Claims, and shal l

forever be enjoined from prosecuting the Settled Defendants' Claims .

THE SETTLEMENT CONSIDERATION

4. Settling Defendants shall cause the payments referred to in paragraphs 4(a) and

(b) below to be made within five (5) business days after entry of the Preliminary Approval Orde r

(a) The Settling Defendants shall cause National Union to pay any balance o f

the Primary Insurance Policy (face amount of $10,000,000 . less the $6 .6 million Preferre d

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Actions Settlement Payment, and less Defense Costs of approximately $3 .3 million) (the

"Primary Insurance Policy Cash Settlement Amount") into a client trust account at the law fir m

of D'Amato & Lynch (the "D&L Trust Account") . D'Amato & Lynch agrees to hold and

disburse such funds in the D&L Trust Account pursuant to the terms hereof for the benefit of th e

Settlement Class . Within fourteen (14) calendar days after the Effective Date, D'Amato &

Lynch shall transfer the Primary Insurance Policy Cash Settlement Amount, including all interest

earned in the D&L Trust Account, less the costs of administration , if any, disbursed from the

D&L Trust Account pursuant to paragraph 10 hereof, and less fee and expense amounts, if any,

disbursed from the client trust account pursuant to paragraph 11 hereof, to an escrow accoun t

(the "Escrow Account") held by Milberg Weiss Bershad & Schulman LLP ("Milberg Weiss" )

and Wolf Haldenstein Adler Freeman & Herz LLP ("Wolf Haldenstein") as Joint Escrow Agents

for the Gross Settlement Fund on behalf of the Class . The Escrow Account including any

interest earned thereon shall be the "Gross Settlement Fund . "

(b) Settling Defendants shall cause the KIGA to pay $1,000,000 (the "KIGA

Excess Insurance Policy Cash Settlement Amount"), on behalf of Reliance with respect t o

Excess Financial Products Insur ance Policy No. NDA 0138767-97, underw ritten by Reliance ,

which policy has a limit of liability of $5,000,000 (the ` Excess Insurance Policy"), into th e

Escrow Account for the benefit of the Settlement Class .

(c) The Settling Defendants ("Assignors"), for good and valuabl e

consideration received, hereby assign, transfer and set over to the Lead Plaintiffs, on behalf o f

the Settlement Class (the "Assignees"), all of Assignors' right, title and interest in, and to claim s

and causes of action against Reliance arising out of the Excess Insurance Policy, together with al l

of the payments, proceeds, compensation and any and all monies due to the Assignors i n

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connection with or pursuant to the above, including all payments, proceeds, compensation an d

any and all monies which the Assignors, in any way or manner, are or will be entitled to receiv e

under and pursuant thereto . If such assignment shall not be effective to enable Lead Plaintiffs

and the Settlement Class to obtain payment on such policy, the Settling Defendants shal l

prosecute claims on such policy on behalf of Lead Plaintiffs and the Settlement Class at Lea d

Plaintiffs' expense . The Settling Defendants make no representation or warranty as to the valu e

of any such claims or causes of action against Reliance arising out of the Excess Insuranc e

Policy or its assignment .

(d) In addition, the Settling Defendants hereby stipulate,- that Lead Plaintiff s

and the Settlement Class are entitled to an "Additional Settlement Amount" in the amount o f

$5,000,000 .

The Primary Insurance Policy Cash Settlement Amount, the KIGA Exces s

Insurance Policy Cash Settlement Amount, any proceeds from the Excess Insurance Polic y

(including any amounts collected as a result of the assignment referred to in paragraph 4(c )

above), any amounts collected based on the Additional Settlement Amount referred to i n

paragraph 4(d) above, and any interest earned on all such sums, shall be the Gross Settlemen t

Fund.

6. The Settling Defendants will provide Lead Plaintiffs and the Settlement Clas s

access to all discovery, except for confidential documents, but will provide Lead Plaintiffs an d

the Settlement Class with an index thereof, made in the actions Mercury Insurance Co . v. Ruby ,

No. CV-00-03448 (JWJx) (C .D. Cal) and Credit Suisse First Boston Corp. v. Ruby, No. 99-

CV 12046 (S .D.N.Y.) . To the extent that plaintiffs move either court for discovery of documents

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prohibited from disclosure by court order, the Settling Defendants agree not to oppose such a

motion .

7 . The Lead Plaintiffs , on behalf of themselves and the Settlement Class, i n

exchange for the assignments referred to in paragraph 4 hereof, hereby covenant that any attemp t

to collect the Additional Settlement Amount referred to in paragraph 4(d) hereof, will be pursue d

solely against Reliance or its Estate, and/or the statutory liquidator for Re' :iance, and will not b e

pursued or enforced against the Settling Defendants or National Union . The foregoing is not

intended, nor should it be construed, to prejudice any potential claim, whether valid or invalid ,

that the Settlement Class may decide to pursue against Reliance or its Estate, and/or the statutor y

liquidator for Reliance . Lead Plaintiffs, on behalf of themselves and the Settlement Class, agre e

that to the extent that there is a recovery from Reliance or its Estate, and/or the statutor y

liquidator for Reliance, the first $1,000,000 of net recovery (after any fees and expenses inciden t

to obtaining such recovery) shall be paid to KIGA in reimbursement of the amounts KIGA pay s

under paragraph 4(b) above .

(2) The Gross Settlement Fund, net of any Taxes (as defined below) on th e

income thereof, shall be used to pay (i) the notice and administration costa referred to in

paragraph 9 hereof, to the extent not previously paid from the D&L Trust Account, (ii) th e

attorneys' fee and expense award referred to in paragraph 11 hereof, to the extent not previousl y

paid from the D&L Trust Account, and (iii) the remaining administration expenses referred to in

paragraph 12 hereof. The balance of the Gross Settlement Fund after the above payments shal l

be the Net Settlement Fund which shall be distributed to the Authorized Claimants as provided i n

paragraphs 13-15 hereof. All funds held by the Joint Escrow Agents shall be deemed to be in th e

custody of the Court and shall remain subject to the jurisdiction of the Court until such time as

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the funds shall be distributed or returned to the persons paying the same pursuant to thi s

Stipulation and/or further order of the Court . The Joint Escrow Agents shall invest any funds i n

excess of $100,000 in short term United States Agency or Treasury Securities, and shall collec t

and reinvest all interest accrued thereon . Any funds held in escrow in an amount of less than

$100,000 maybe held in an interest bearing bank account insured by the FDIC . The partie s

hereto agree that the Settlement Fund is intended to be a Qualified Settlement Fund within th e

meaning of Treasury Regulation § 1 .468B-1 and that Milberg Weiss, as administrator of th e

Settlement Fund within the meaning of Treasury Regulation § 1 .468B-2(k)(3), shall b e

responsible for filing tax returns for the Settlement Fund and paying from the Settlement Fund

any Taxes owed with respect to the Settlement Fund . Counsel for Settling Defendants agree t o

provide promptly to the Joint Escrow Agents the statement described in Treasury Regulatio n

§ 1 .468B-3(e) .

(a) All (1) taxes on the income of the Gross Settlement Fund and (ii) expenses

and costs incurred in connection with the taxation of the Gross Settlement Fund (including ,

without limitation, expenses of tax attorneys and accountants, interest, deficiencies and penalties )

(collectively "Taxes") shall be paid out of the Gross Settlement Fund, shall be considered to be a

cost of administration of the settlement and shall be timely paid by the Joint Escrow Agent s

without prior Order of the Court .

ADMINISTRATIO N

9. The Claims Administrator shall administer the Settlement under Plaintiffs' Co-

Lead Counsel's supervision and subject to the jurisdiction of the Court . Except as stated i n

paragraph 17 hereof, Settling Defendants shall have no responsibility for the administration o f

the Settlement and shall have no liability to the Settlement Class in connection with suc h

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administration. Settling Defendants' Counsel shall cooperate in the administration of the

Settlement to the extent reasonably necessary to effectuate its terms, including providing withou t

charge all information from ARM's transfer records concerning the identity of Settlement Clas s

Members and their transactions .

10. Upon written request of Plaintiffs' Co-Lead Counsel, and subject to the amount o f

funds available in the D&L Trust Account, D'Amato & Lynch shall pay from the D&L Trust

Account pursuant to paragraph 4(a) above, without further approval from the Defendants or th e

Court, the costs and expenses associated with the administration of the Settlement as set forth in

such request, not to exceed One Hundred Thousand Dollars ($100,000), including withou t

limitation, the reasonable costs and expenses actually incurred and payable in connection wit h

providing notice to Class Members of the Settlement, including without limitation, the cost o f

identifying members of the Class, the costs of publication, printing and mailing the Settlement

Notice, reimbursements to nominee owners for forwarding notice to the b~ .-neficial owners, and

the administrative expenses incurred and fees charged by the Claims Administrator in connectio n

with providing notice and processing the submitted claims .

ATTORNEYS' FEES AND EXPENSES

11 . Plaintiffs' Co-Lead Counsel will apply to the Court for an award from th e

Primary Insurance Policy Cash Settlement Amount and the KIGA Excess Insurance Policy Cas h

Settlement Amount of attorneys' fees for all Plaintiffs' Counsel, in an amount not to exceed one-

third (33-1/3 % ) of these amounts and reimbursement of expenses , plus interest. Such attorneys '

fees, expenses, and interest as are awarded by the Court shall be payable from the Primar y

Insurance Policy Cash Settlement Amount and the Escrow Account to Plaintiffs' Co-Lea d

Counsel upon award, notwithstanding the existence of any timely filed objections thereto, o r

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potential for appeal therefrom, or collateral attack on the settlement or any part thereof, subjec t

to Plaintiffs ' Co-Lead Counsel ' s obligation to make approp riate refunds or repayments to the

Escrow Account and to the D&L Trust Account, plus accrued interest at the same net rate as i s

earned by these amounts, if and when, as a result of any appeal and/or further proceedings o n

remand, or successful collateral attack, the fee or cost award is reduced or reversed or if for an y

reason the Effective Date cannot occur . D'Amato & Lynch shall disburse from the D&L Trust

Account the amounts awarded as fees and expenses to Plaintiffs ' Co-Lead. Counsel from the

Primary Insurance Policy Cash Settlement Amount upon receipt of such undertaking in form an d

substance satisfactory to the Settling Defendants and National Union and a written request fro m

Plaintiffs ' Co-Lead Counsel , and subject to the amount of funds available in the D&L Trus t

Account .

ADMINISTRATION EXPENSE S

12. Plaintiffs' Co-Lead Counsel will apply to the Court, on notice to Settling

Defendants' Counsel, for an order (the "Class Distribution Order") approving the Claim s

Administrator's administrative determinations concerning the acceptance and rejection of th e

claims submitted herein and approving any fees and expenses not previously applied for ,

including the fees and expenses of the Claims Administrator, and, if the Effective Date ha s

occurred, directing payment of the Net Settlement Fund to Authorized Claimants .

DISTRIBUTION TO AUTHORIZED CLAIMANTS

13. The Claims Administrator shall determine each Autho rized Claimant's fro rata

share of the "Net Settlement Fund" based upon each Authorized Claimant's Recognized Claim

(as defined in the Plan of Allocation described in the Notice annexed hereto as Exhibit 1 t o

Exhibit A, or in such other Plan of Allocation as the Court approves) .

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14. The Plan of Allocation proposed in the Notice is not a necessary term of thi s

Stipulation and it is not a condition of this Stipulation that that Plan of Allocation be approved.

15 . Each Authorized Claimant shall be allocated a fro rata share of the Ne t

Settlement Fund based on his or her Recognized Claim compared to the total Recognized Claim s

of all accepted claimants . This is not a claims-made settlement . The Settling Defendants shal l

not be entitled to get back any of the settlement monies once the Settlement becomes final . The

Defendants shall have no involvement in reviewing or challenging claims .

ADMINISTRATION OF THE SETTLEMENT

16 . Any member of the Settlement Class who does not submit a valid Proof of Clai m

will not be entitled to receive any of the proceeds from the Net Settlement Amount but wil l

otherwise be bound by all of the terms of this Stipulation and the Settlement, including the term s

of the Judgment to be entered in the Action and the releases provided for herein, and will b e

barred from bringing any action against the Released Parties concerning the Settled Claims .

17. Plaintiffs' Co-Lead Counsel shall be responsible for supervising the

administration of the Settlement and disbursement of the Net Settlement Fund by the Claims

Administrator. Except for their obligation to pay the Settlement Amount , and to cooperate in th e

production of information, without charge to any party, with respect to the identification o f

Settlement Class Members from ARM's shareholder transfer records, as provided herein ,

Settling Defendants shall have no liability, obligation or responsibility for the administration o f

the Settlement or disbursement of the Net Settlement Fund . Plaintiffs' Co-Lead Counsel shal l

have the right, but not the obligation, to waive what they deem to be formal or technical defect s

in any Proofs of Claim submitted in the interests of achieving substantial justice .

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18 . For purposes of determining the extent, if any, to which a Settlement Class

Member shall be entitled to be treated as an "Authorized Claimant", the following conditions

shall apply :

(a) Each Settlement Class Member shall be required to submit a Proof of

Claim (see attached Exhibit 2 to Exhibit A), supported by such documents as are designated

therein, including proof of the Claimant's loss, or such other documents or proof as Plaintiffs'

Co-Lead Counsel, in their discretion, may deem acceptable ;

(b) All Proofs of Claim must be submitted by the date specified in the Notic e

unless such period is extended by Order of the Court . Any Settlement Class Member who fails

to submit a Proof of Claim by such date shall be forever barred from receiving any payment

pursuant to this Stipulation (unless, by Order of the Court, a later submitted Proof of Claim by

such Settlement Class Member is approved), but shall in all other respects be bound by all of the

terms of this Stipulation and the Settlement including the terms of the Judgment to be entered in

the Action and the releases provided for herein, and will be barred from bringing any action

against the Released Parties concerning the Settled Claims . Provided that it is received before

the motion for the Class Distribution Order is filed, a Proof of Claim shall be deemed to have

been submitted when posted, if received with a postmark indicated on the envelope and if mailed

by first-class mail and addressed in accordance with the instructions thereon . In all other cases,

the Proof of Claim shall be deemed to have been submitted when actually received by the Claims

Administrator ;

(c) Each Proof of Claim shall be submitted to and reviewed by the Claims

Administrator, under the supervision of Plaintiffs' Co-Lead Counsel, who shall determine i n

18

accordance with this Stipulation the extent, if any, to which each claim shall be allowed, subjec t

to review by the Court pursuant to subparagraph (e) below ;

(d) Proofs of Claim that do not meet the submission requirements may b e

rejected. Prior to rejection of a Proof of Claim, the Claims Administrator shall communicate

with the Claimant in order to remedy the curable deficiencies in the Proof of Claims submitted .

The Claims Administrator, under supervision of Plaintiffs' Co-Lead Counsel, shall notify, in a

timely fashion and in writing, all Claimants whose Proofs of Claim they propose to reject in

whole or in part, setting forth the reasons therefor, and shall indicate in such notice that the

Claimant whose claim is to be rejected has the right to a review by the Court if the Claimant s o

desires and complies with the requirements of subparagraph (e) below ;

(e) If any Claimant whose claim has been rejected in whole or in part desires

to contest such rejection, the Claimant must, within twenty (20) days after the date of mailing o f

the notice required in subparagraph (d) above, serve upon the Claims Administrator a notice an d

statement of reasons indicating the Claimant's grounds for contesting the -rejection along with

any support ing documentation, and requesting a review thereof by the Court . If a disput e

concerning a claim cannot be otherwise resolved, Plaintiffs' Co-Lead Counsel shall thereafte r

present the request for review to the Court ; and

(f) The administrative determinations of the Claims Administrator acceptin g

and rejecting claims shall be presented to the Court, on notice to Settling Defendants' Counsel ,

for approval by the Court in the Class Distribution Order .

19. Each Claimant shall be deemed to have submitted to the jurisdiction of the Cour t

with respect to the Claimant's claim, and the claim will be subject to investigation and discovery

under the Federal Rules of Civil Procedure, provided that such investigation and discovery shal l

19

be limited to that Claimant's status as a Settlement Class Member and the validity and amount of

the Claimant's claim . No discovery shall be allowed on the merits of the Action or Settlement i n

connection with processing of the Proofs of Claim .

20. Payment pursuant to this Stipulation shall be deemed final and conclusive agains t

all Settlement Class Members . All Settlement Class Members whose claims are not approved b y

the Court shall be barred from participating in distributions from the Net Settlement Fund, bu t

otherwise shall be bound by all of the terms of this Stipulation and the Settlement, including th e

terms of the Judgment to be entered in the Action and the releases provided for herein, and wil l

be barred from bringing any action against the Released Parties concerning the Settled Claims .

21 . All proceedings with respect to the administration, processing and determinatio n

of claims described by paragraph 18 of this Stipulation and the determination of all controversie s

relating thereto, including disputed questions of law and fact with respect to the validity o f

claims, shall be subject to the jurisdiction of the Court .

22. The Net Settlement Fund shall be dist ributed to Authorized Claimants by the

Claims Administrator only after the Effective Date and after : (i) all Claims have been processed ,

and all Claimants whose Claims have been rejected or disallowed, in whole or in part, have bee n

notified and provided the opportunity to be heard concerning such rejection or disallowance ; (ii )

all objections with respect to all rejected or disallowed claims have been resolved by the Court ,

and all appeals therefrom have been resolved or the time therefor has expired ; (iii) all matters

with respect to attorneys' fees, costs, and disbursements have been resolved by the Court, al l

appeals therefrom have been resolved or the time therefor has expired ; and (iv) all costs o f

administration have been paid .

20

TERMS OF PRELIMINARY APPROVAL ORD ER

23 . Promptly after execution of this Settlement Stipulation, Plaintiffs' Co-Lead

Counsel and Settling Defendants' Counsel jointly shall apply to the Court for entry of a

Preliminary Approval Order, substantially in the form annexed hereto as Exhibit A .

TERMS OF ORDER AND FINAL JUDGMENT

24. If the Settlement contemplated by this Stipulation is approved by the Court,

counsel for the parties shall request that the Court enter an Order and Final Judgment

substantially in the form annexed hereto as Exhibit B .

SUPPLEMENTAL AGREEMENT

25. Simultaneously herewith, Plaintiffs' Co-Lead Counsel and Settling Defendants'

Counsel are executing a "Supplemental Agreement" setting forth certain conditions under which

this Stipulation may be withdrawn or terminated by Settling Defendants ifpotential Settlement

Class Members who purchased in excess of a certain number of shares of ARM common stock

traded during the Settlement Class Period exclude themselves from the Settlement Class . The

Supplemental Agreement shall not be filed prior to the Settlement Fairness Hearing unless a

dispute arises as to its terms . In the event of a withdrawal from this Stipulation pursuant to the

Supplemental Agreement, this Stipulation shall become null and void and of no further force and

effect and the provisions of paragraph 28 shall apply . Notwithstanding the foregoing, the

Stipulation shall not become null and void as a result of the election by the Settling Defendants

to exercise their option to withdraw from the Stipulation pursuant to the S upplemental

Agreement until the conditions set forth in the Supplemental Agreement have been satisfied .

21

EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATIO N

26 . The Effective Date of Settlement shall be the date when all the following shal l

have occurred :

(a) approval by the Court of the Settlement, following notice to the Settlement

Class and a hearing, as prescribed by Rule 23 of the Federal Rules of Civil Procedure ; and

(b) entry by the Court of an Order and Final Judgment, in all mate rial respects

in the form set forth in Exhibit B annexed hereto, and the expiration of any time for appeal or

review of such Order and Final Judgment, or, if any appeal is filed and not dismissed, after suc h

Order and Final Judgment is upheld on appeal in all mate rial respects and is no longer subject t o

review upon appeal or review by writ of certiorari, or, in the event that the Court enters an orde r

and final judgment in form other than that provided above ("Alternative Judgment") and none o f

the parties hereto elect to terminate this Settlement, the date that such Alternative Judgmen t

becomes final and no longer subject to appeal or review .

27. Settling Defendants' Counsel or Plaintiffs' Co-Lead Counsel shall have the righ t

to terminate the Settlement and this Stipulation by providing a Termination Notice to all othe r

parties hereto commencing at any time after nine months after the date of the execution of thi s

Stipulation if the Order and Final Judgment has not been entered by the date of such Terminatio n

Notice. Settling Defendants' Counsel or Plaintiffs' Co-Lead Counsel shall also have the right t o

terminate the Settlement and this Stipulation by providing a Termination Notice to all othe r

parties hereto within thirty (30) days of: (a) the Court's declining to enter the Preliminary

Approval Order in any material respect ; (b) the Court 's refusal to approve this Stipulation or an y

material part of it ; (c) the Court's declining to enter the Order and Final Judgment in any

material respect ; (d) the date upon which the Order and Final Judgment is modified or reverse d

22

in any materi al respect by the Court of Appeals or the Supreme Court ; or (e) the date upon which

an Alternative Judgment is modified or reversed in any material respect by the Court of Appeal s

or the Supreme Court .

28 . Except as otherwise provided herein, in the event the Settlement is terminated o r

fails to become effective for any reason, then the parties to this Stipulation shall be deemed t o

have reverted to their respective status in the Action before the execution of this Stipulation and,

except as otherwise expressly provided, the parties shall proceed in all respects as if this

Stipulation and any related orders had not been entered, and any assigned assets shall be re-

assigned to the assignors, the KIGA Excess Insurance Policy Cash Settlement Amount shall b e

returned to KIGA from the Escrow Account, and the Primary Insurance Policy Cash Settlement

Amount, less the costs of administration and notice actually incurred and }paid or payable from

the Primary Insurance Policy Cash Settlement Amount (but no more than $100,000 of such cost s

of administration and notice), shall be returned to the National Union and any fee and expens e

award previously paid to Plaintiffs' Co-Lead Counsel shall be repaid by Plaintiffs' Co-Lea d

Counsel to KIGA and National Union, together with interest at the same rate as was earned in th e

Escrow Account from the date such fee and expense award was distributed to Plaintiffs' Co-Lea d

Counsel to the Date Plaintiffs' Co-Lead Counsel makes repayment of such fees and expenses .

KIGA and National Union shall be third party beneficiaries of this Stipulation for purposes of

enforcing their respective rights to the return of the entire $1,000,000 KIGA Excess Insuranc e

Policy Cash Settlement Amount and the Primary Insurance Cash Settlement Amount if, for an y

reason, the Settlement fails to become effective or is terminated.

23

NO ADMISSION OF WRONGDOIN G

29. This Stipulation, whether or not consummated, and any proceedings take n

pursuant to it :

(a) shall not be offered or received against the Settling Defendants as

evidence of or construed as or deemed to be evidence of any presumption , concession, o r

admission by any of the Settling Defendants with respect to the truth of any fact alleged b y

plaintiffs or the validity of any claim that had been or could have been asserted in the Action o r

in any litigation, or the deficiency of any defense that has been or could have been asserted in th e

Action or in any litigation, or of any liability, negligence, fault, or wrongdoing of the Settlin g

Defendants ;

(b) shall not be offered or received against the Settling Defendants a s

evidence of a presumption, concession or admission of any fault, misrepresentation or omission

with respect to any statement or written document approved or made by any Settling Defendant ,

or against the Lead Plaintiffs or the Settlement Class as evidence of any infirmity in the claims o f

Lead Plaintiffs or the Settlement Class ;

(c) shall not be offered or received against the Settling Defendants or against

the Lead Plaintiffs or the Settlement Class as evidence of a presumption, concession o r

admission with respect to any liability, negligence, fault or wrongdoing, or in any way referred to

for any other reason as against any of the parties to this Stipulation, in any other civil, criminal or

administrative action or proceeding, other than such proceedings as may be necessary t o

effectuate the provisions of this Stipulation ; provided, however, that if this Stipulation is

approved by the Court, Settling Defendants may refer to it to effectuate the liability protection

granted them hereunder ;

24

(d) shall not be construed against the Settling Defendants or the Lea d

Plaintiffs and the Settlement Class as an admission or concession that the consideration to b e

given hereunder represents the amount which could be or would have been recovered after trial ;

and

(e) shall not be construed as or received in evidence as an admission,

concession or presumption against Lead Plaintiffs or the Settlement Class or any of them tha t

any of their claims are without merit or that damages recoverable under the Complaint would no t

have exceeded the Settlement Fund .

MISCELLANEOUS PROVISION S

30 . All of the exhibits attached hereto are hereby incorporated by reference as though

fully set forth herein .

31 . Each Settling Defendant warrants as to himself, herself or itself that, as to th e

payments made by or on behalf of him, her or it, at the time of such payment that the Settlin g

Defendant made or caused to be made pursuant to paragraph 4 above, he, she or it was no t

insolvent nor did nor will the payment required to be made by or on behalf of him, her or i t

render such Settling Defendant insolvent within the meaning of and/or for the purposes of th e

United States Bankruptcy Code, including §§ 101 and 547 thereof. This warranty is made b y

each such Settling Defendant and not by such Settling Defendant's Counsel .

32 . If a case is commenced in respect of any Settling Defendant (or any insure r

contributing funds to the Gross Settlement Fund on behalf of any Settling Defendant) under Titl e

11 of the United States Code (Bankruptcy), or a trustee, receiver or conservator is appointed

under any similar law, and in the event of the entry of a final order of a court of competen t

jurisdiction determining the transfer of money to the Gross Settlement Fund or any portio n

25

thereof by or on behalf of such Settling Defendant to be a preference, voidable transfer ,

fraudulent transfer or similar transaction and any portion thereof is required to be returned, an d

such amount is not promptly deposited to the Gross Settlement Fund by others, then, at th e

election of Plaintiffs' Co-Lead Counsel, the parties shall jointly move the Court to vacate and set

aside the releases given and Judgment entered in favor of the Settling Defendants pursuant to thi s

Stipulation, which releases and Judgment shall be null and void, and the parties shall be restore d

to their respective positions in the litigation before the execution of this Stipulation and any cas h

amounts in the Gross Settlement Fund shall be returned as provided in paragraph 28 above .

33 . The parties to this Stipulation intend the Settlement to be a final and complet e

resolution of all disputes asserted or which could be asserted by the Settlement Class Member s

against the Released Parties with respect to the Settled Claims . Accordingly, Lead Plaintiffs and

the Settling Defendants agree not to assert in any forum that the litigation was brought by Lead

Plaintiffs or defended by the Settling Defendants in bad faith or without a reasonable basis . The

parties hereto shall assert no claims of any violation of Rule 11 of the Federal Rules of Civi l

Procedure relating to the prosecution, defense, or settlement of the Action . The parties agree that

the amount paid and the other terms of the Settlement were negotiated at arm's length in goo d

faith by the parties, and reflect a settlement that was reached volunta ri ly after consultation with

experienced legal counsel .

34. This Stipulation may not be modified or amended, nor may any of its provision s

be waived except by a writing signed by all parties hereto or their successors-in-interest . Thi s

Stipulation may not be modified or amended to deprive KIGA of its rights under paragraph 2 8

without the prior written consent of KIGA .

26

35. The headings herein are used for the purpose of convenience only and are no t

meant to have legal effect .

36. The administration and consummation of the Settlement as embodied in thi s

Stipulation shall be under the authority of the Court and the Court shall retain jurisdiction for th e

purpose of entering orders providing for awards of attorneys' fees and expenses to Plaintiffs' Co-

Lead Counsel and enforcing the terms of this Stipulation .

37. The waiver by one party of any breach of this Stipulation by any other party shal l

not be deemed a waiver of any other prior or subsequent breach of this Stipulation .

38. This Stipulation and its exhibits and the Supplemental Agreement constitute the

entire agreement among the parties hereto concerning the Settlement of the Action, and n o

representations, warranties, or inducements have been made by any party hereto concerning thi s

Stipulation and its exhibits and the Supplemental Agreement other than those contained an d

memorialized in such documents .

39 . This Stipulation may be executed in one or more counterparts . All executed

counterparts and each of them shall be deemed to be one and the same instrument provided tha t

counsel for the parties to this Stipulation shall exchange among themselves original signe d

counterparts .

40. This Stipulation shall be binding upon, and inure to the benefit of, the successor s

and assigns of the parties hereto .

41 . The construction, interpretation, operation , effect and validity ofthis Stipulation,

and all documents necessary to effectuate it, shall be governed by the internal laws of the State o f

Kentucky without regard to conflicts of laws, except to the extent that federal law requires that

federal law governs .

27

42. This Stipulation shall not be construed more strictly against : one party than

another merely by virtue of the fact that it, or any part of it, may have been prepared by counse l

for one of the parties, it being recognized that it is the result of arm's-leng :h negotiations

between the parties and all parties have contributed substantially and materially to th e

preparation of this Stipulation .

43. All counsel and any other person executing this Stipulation and any of th e

exhibits hereto, or any related settlement documents, warrant and represent that they have the ful l

authority to do so and that they have the authority to take appropriate action required o r

permitted to be taken pursuant to the Stipulation to effectuate its terms .

44. Plaintiffs' Co-Lead Counsel and Settling Defendants' Counsel agree to cooperat e

fully with one another in seeking Cou rt approval the Preliminary Approval Order , the Stipulation

and the Settlement, and to promptly agree upon and execute all such other documentation as ma y

be reasonably required to obtain preliminary and final approval of the Settlement in the Distric t

Court .

DATED : January 2005PARRY , DEERING, FUTSCHER &SPARKS P .S.C.

By :Ron Pah-y

411 Garrard S reetP.O. Box 261 8Covington, Kentucky 41 .011(859) 291-9000

Liaison Counsel for Plaintiffs

28

MILBERG WEISS BERSHAD& SCHULMAN LLP

By :EWine S . Kusel

One ennsylvania PlazaNew York, New York 10119-0165(212) 594-5300

Co-Lead Counsel for Plaintiffs

WOLF HALDENSTEIN ADLERFREEMAN & HERZ LL P

B}(/ Fred T. Isqulfh

Gregory M. NespoleJeffrey SmithJulie SullivanNikki Montgomery

270 Madison Avenu eNew York, New York 10016(212) 545-4600

Co-Lead Counsel for Plaintiffs

LAW OFFICES OF MARC S . HENZELMarc S. Henzel273 Montgomery Avenue, Suite 202Bala Cynwyd, Pennsylvania 19004(610) 660-8000

STRAUSS & TROY LLPRichard S . WayneWilliam K. Flynn150 E. Fourth StreetFederal Reserve BuildingCincinnati, Ohio 45202-4018(513) 621-2120

29

SHALOV STONE & BONNER LLPLee S . ShalovRalph M. StoneJames P. Bonner

485 Seventh Avenue, Suite 1000New York, New York 10018(212) 239-4340

WEISS & YOUR MAN LLPJoseph H. WeissJack I . Zwick

551 Fifth Avenue

New York, New York 10176(212) 682-3025

STULL STULL & BRODY LLPJules Brody6 E. 45th StreetNew York, New York "10017(212) 687-723 0

SCHATZ & NOBEL LLPAndrew M . Schat zJeffrey S . Nobel330 Main Stree tHartford, Connecticut 06106(860) 493-6292

FINKELSTEIN & KRINSK LLPJeffrey KrinskArthur L. Shingle r501 W. Broadway, Suite 125 0San Diego, California 92101-3579(619) 238-1333

LAW OFFICES OF STEPHENGORDINIERStephen Gordinier12700 Shelbyville Rd .Danville BuildingLouisville, Kentucky 40243-1537(502) 244-422 2

30

GOLD BENNETT & CERA, LLPPaul F . Benne ttSteven O . SidenerJoseph M. Barton595 Market Stree tSan Francisco, California . 94105

(415) 777-223 0

LEONARD FELKER ALTFELDGREENBERG & BATTAILE, P .C .Clifford B. Altfeld250 N . Meyer Avenue

Tucson, Arizona 85701(520) 622-773 3

Attorneys for Plaintiffs

GREENEBAUM DOLL & McDONALDPLLC

a n +

By: 1',`

Janet JakubowiczJohn . Bush

3300 Tower101 S. 5th StreetLouisville, Kentucky 40202(502) 589-420 0

KIRKLAND & ELLIS LLP

By :John F. Hartmann, P.C .Andrea R. Wood

200 East Randolph DriveChicago, Illinois 60601(312) 861-2000

Attorneys for Settling Defendants Martin H .Ruby, John R. Lindholm , Edward L .Zeman , Barry G. Ward, David E. Ferguson,and William H . Panning

31

GOLD BENNETT & CERA, LLPPaul F . BennettSteven O . SidenerJoseph M. Barton595 Market StreetSan Francisco, California 94105(415) 777-223 0

LEONARD FELKER ALTFELDGREENBERG & BATTAILE, P.C.Clifford B . Altfeld250 N . Meyer AvenueTucson, Arizona 85701(520) 622-773 3

Attorneys for Plaintiffs

GREENEBAUM DOLL & McDONALDPLLC

By :Janet P . JakubowiczJohn K. Bush

3300 National City Tower101 S . 5th Stree tLouisville , Kentucky 40202(502) 589-420 0

KIRKLAND & ELLIS LDP-- -'

B

ann, P .C .drea R. Wood

0 East Randolph DriveChicago , Illinois 60601(312) 861-200 0

Attorneys for Settling Defendants Martin H .Ruby, John R . Lindholm , Edward L .Zeman, Barry G. Ward., David E. Ferguson,and William H. Panning

31

PAUL, WEISS, RIFKIND ., WHARTON &

GARRISON LLP

By:_,~~ ---Martin Flumenbaum

1285 Avenue of the AmericasNew York, New York 10019-6064(212) 373-3000

Attorneys for Settling Defendant Colin F .

Raymond

WYATT, TARRANT & COMBS, LLP

By :Gregory HaynesMichelle D. Wyrick

Citizens PlazaLouisville, Kentucky 40202(502) 589-523 5

CRAVATH, SWAINE & MOORE LL P

By :Evan R. CheslerDaniel Slifkin

Worldwide Plaza825 Eighth AvenueNew York, New York 10019-7475(212) 474-1000

Attorneys for Settling Defendants AlanGoldberg and Robert H. Niehaus

32

PAUL , WEISS, RIFKIND , WHARTON &GARRISON LLP

By :Martin Flumenbaum

1285 Avenue of the AmericasNew York, New York 10019-6064(212) 373-300 0

Attorneys for Settling Defendant Colin F .Raymond

WYATT, TARRANT & COMBS, LLP

By : 1V Grego ry Haynes

Michelle D. WyrickCitizens PlazaLouisville , Kentucky 40202(502) 589-523 5

CRAVATH , SWAINE & MOORE LLP

By :Evan R. CheslerDaniel Sliflcin

Worldwide Plaza825 Eighth AvenueNew York, New York 10019-7475(212) 474-100 0

Attorneys for Settling Defendants AlanGoldberg and Robert H. Niehaus

32

PAUL, WEISS, RIFKIND , WHARTON &GARRISON LLP

By:Martin Flumenbaum

1285 Avenue of the AmericasNew York, New York 10019-6064(212) 373-3000

Attorneys for Settling Defendant Colin F .Raymond

WYATT, TARRANT & COMBS, LLP

By :Gregory HaynesMichelle D . Wyrick

Citizens PlazaLouisvi lle, Kentucky 40202(502) 589-523 5

CRAVATII, SWAINE & MOORE LL P

-t -4 Z& -By:Evan R. CheslerDaniel Sliflcin

Worldwide Plaza825 Eighth AvenueNew York, New York 10019-7475(212) 474-100 0

Attorneys for Settling Defendants AlanGoldberg and Robert H. Niehaus

32

AGREED as to the provisions of Paragraphs4,8, 10, 11, and 28

D'AMATO & LYNC H

By 444LLuke D . A~nch, JY'Harry J . Arnold, Jr.

70 Pine StreetNew York, New York 10270Telephone: (212) 269-0927Facsimile : (212) 269-3559

33

EXHIBIT A

UNITED STATES DISTRICT COURTWESTERN DISTRICT OF KENTUCK Y

AT LOUISVILLE

IN RE : ARM FINANCIAL GROUP, INC . : Civil Action No . 3 :99-CV-539-H

SECURITIES LITIGATION ,

PRELIMINARY ORDER IN CONNECTIONWITH SETTLEMENT PROCEEDINGS

WHEREAS, on November -, 2004, the parties to the above-entitled action (the

"Action") entered into a Stipulation and Agreement of Settlement with Certain Defendants (the

"Stipulation") which is subject to review under Rule 23 of the Federal Rul .-s of Civil Procedure

("F .R.Civ.P.") and which, together with the exhibits thereto, sets forth the terms and conditions

for the proposed settlement of the claims alleged in the Complaint on the merits and with

prejudice upon the terms and conditions set forth in the Stipulation ; and th,,- Court having read

and considered the Stipulation and the accompanying documents ; and the parties to the

Stipulation having consented to the entry of this Order; and all capitalized terms used herein

having the meanings defined in the Stipulation ;

NOW, THEREFORE, IT IS HEREBY ORDERED, this day of

2004 that :

1 . Pursuant to F.R.Civ.P. 23(b)(3), and for the purposes of the settlement only, thi s

Action is hereby certified as a class action on behalf of all persons and entities who purchased

ARM Financial Group, Inc . common stock during the period February 10, 1998 through and

including August 3, 1999 and who were damaged thereby (the "Settlemeni Class"). Excluded

from the Settlement Class are the Defendants in the Action, members of the immediate families

(parents, spouses, siblings, and children) of each of the individuals who were named as

defendants in the Action, any entity in which any Defendant has a controlling interest, and the

legal affiliates, representatives, heirs, controlling persons, successors and predecessors in interest

or assigns of any such excluded party . The definition and certification of this Settlement Class

shall have no preclusive effect on any Non-Settling Defendant .

2 . The Court finds that the prerequisites for a class action under Rules 23(a) an d

(b)(3) of the Federal Rules of Civil Procedure have been satisfied in that : (a) the number of

Settlement Class Members is so numerous that joinder of all members thereof is impracticable ;

(b) there are questions of law and fact common to the Settlement Class ; (c) the claims of the

named representatives are typical of the claims of the Settlement Class they seek to represent ; (d)

the Lead Plaintiffs will fairly and adequately represent the interests of the Settlement Class ; (e )

the questions of law and fact common to the members of the Settlement Class predominate ove r

any questions affecting only individual members of the Settlement Class ; and (f) a class action i s

superior to other available methods for the fair and efficient adjudication of the controversy .

3 . Pursuant to Rule 23 of the Federal Rules of Civil Procedure, Lead Plaintiff s

Helene Gottlieb, Frank Casey, Tony Totis, Bruce Thomas, Mark Suna, Hugh Glidewell, William

Kopp, Geraldine Kehoe and Jim Sweem are certified as Settlement Class Representatives .

4. A hearing (the "Settlement Fairness Hearing") pursuant to Rule 23(e) of th e

Federal Rules of Civil Procedure is hereby scheduled to be held before the Court o n

2005, at _.m. for the following purposes :

2

(a) to finally determine whether this Action satisfies the applicable

prerequisites for class action treatment under Rules 23(a) and (b)(3) of the Federal Rules of Civi l

Procedure ;

(b) to determine whether the proposed Settlement is fair, reasonable, an d

adequate, and should be approved by the Court ;

(c) to determine whether the Order and Final Judgment as provided under th e

Stipulation should be entered, dismissing the Complaint filed herein, on the merits and wit h

prejudice, and to determine whether the release by the Settlement Class of the Settled Claims, a s

set forth in the Stipulation, should be provided to the Released Parties ;

(d) to determine whether the proposed Plan of Allocation for the proceeds o f

the Settlement is fair and reasonable, and should be approved by the Court ;

(e) to consider Plaintiffs' Counsel's application for an award of attorneys '

fees and expenses; and

(f) to rule upon such other matters as the Court may deem appropriate .

5 . The Court reserves the right to approve the Settlement with or without

modification and with or without further notice of any kind . The Court further reserves the right

to enter its Order and Final Judgment approving the Stipulation and dismissing the Complaint o n

the merits and with prejudice regardless of whether it has approved the Plan of Allocation o r

awarded attorneys' fees and expenses .

6 . The Court approves the form, substance and requirements of the Notice of

Pendency of Class Action, Hearing On Proposed Partial Settlement with the ARM Individual

Defendants and Attorneys' Fee Petition and Right to Share in Settlement Fund (the "Notice"),

and the Proof of Claim form annexed hereto as Exhibits 1 and 2 respectively.

7 . Plaintiffs' Co-Lead Counsel shall cause the Notice and the Proof of Claim,

substantially in the forms annexed hereto, to be mailed, by first class mail, postage prepaid, on or

before , 2004, to all Settlement Class Members who can be identified with

reasonable effort by Plaintiffs' Co-Lead Counsel . The Settling Defendants shall cooperate in

making ARM's transfer records and shareholder information available, without charge to any

party, to Plaintiffs' Co-Lead Counsel or their agent for the purpose of identifying and giving

notice to the Settlement Class . Plaintiffs' Co-Lead Counsel shall use reasonable efforts to give

notice to nominee owners such as brokerage firms and other persons or entities who purchased

ARM common stock during the Settlement Class Period as record owners but not as beneficial

owners . Such nominee purchasers are directed to forward copies of the Notice and Proof of

Claim to their beneficial owners or to provide the Claims Administrator with lists of the names

and addresses of the beneficial owners, and the Claims Administrator is ordered to send th e

Notice and Proof of Claim promptly to such beneficial owners . Additional copies of the Notice

shall be made available to any record holder requesting such for the purpose of distribution to

beneficial owners, and such record holders shall be reimbursed from the S,-,ttlement Fund, upon

receipt by the Claims Administrator of proper documentation, for the reasonable expense of

sending the Notices and Proofs of Claim to beneficial owners . Plaintiffs' Co-Lead Counsel shall,

at or before the Settlement Fairness Hearing, file with the Court proof of mailing of the Notice

and Proof of Claim .

4

8 . The Court approves the form of Publication Notice of the Pendency of this clas s

action and the proposed settlement in substantially the form and content annexed hereto a s

Exhibit 3 and directs that Plaintiffs' Co-Lead Counsel shall cause the Publication Notice to be

published over the Business Wire within ten days of the mailing of the Notice . Plaintiffs' Co-

Lead Counsel shall, at or before the Settlement Fairness Hearing, file with the Court proof o f

publication of the Published Notice .

9. The form and method set forth herein of notifying the Settlement Class of th e

Settlement and its terms and conditions meet the requirements of Rule 23 of the Federal Rules o f

Civil Procedure, Section 21D(a)(7) of the Securities Exchange Act of 1934, 15 U .S .C. 78u-

4(a)(7) as amended by the Private Securities Litigation Reform Act of 1995, and due process ,

constitute the best notice practicable under the circumstances, and shall constitute due an d

sufficient notice to all persons and entities entitled thereto .

10. In order to be entitled to participate in the Net Settlement Find, in the event the

Settlement is effected in accordance with all of the terms and conditions set forth in th e

Stipulation, each Settlement Class Member shall take the following actions and be subject to th e

following conditions :

(a) A properly executed Proof of Claim (the "Proof of Claim "), substantially

in the form attached hereto as Exhibit 2, must be submitted to the Claims Administrator, at th e

Post Office Box indicated in the Notice, postmarked not later than 52005.

Such deadline may be further extended by Court Order . Each Proof of Claim shall be deemed t o

have been submitted when postmarked (if properly addressed and mailed by first class mail ,

postage prepaid) provided such Proof of Claim is actually received prior to the motion for an

order of the Court approving distribution of the Net Settlement Fund . Any Proof of Claim

submitted in any other manner shall be deemed to have been submitted when it was actually

received at the address designated in the Notice .

(b) The Proof of Claim submitted by each Settlement Class Member mus t

satisfy the following conditions : (i) it must be properly completed, signed and submitted in a

timely manner in accordance with the provisions of the preceding subparagraph ; (ii) it must be

accompanied by adequate supporting documentation for the transactions reported therein, in the

form of broker confirmation slips, broker account statements, an authorized statement from the

broker containing the transactional information found in a broker confirmation slip, or such other

documentation as is deemed adequate by Plaintiffs' Co-Lead Counsel ; (iii) if the person

executing the Proof of Claim is acting in a representative capacity, a certification of his current

authority to act on behalf of the Settlement Class Member must be included in the Proof of

Claim; and (iv) the Proof of Claim must be complete and contain no material deletions or

modifications of any of the printed matter contained therein and must be signed under penalty of

perjury .

(c) As part of the Proof of Claim, each Settlement Class Member shall submi t

to the jurisdiction of the Court with respect to the claim submitted, and shall (subject t o

effectuation of the Settlement) release all claims as provided in the Stipulation .

11 . Settlement Class Members shall be bound by all determinations and judgments in

this Action, whether favorable or unfavorable, unless such persons request exclusion from th e

Settlement Class in a timely and proper manner, as hereinafter provided . A Settlement Clas s

Member wishing to make such request shall mail the request in written form by first class mail

postmarked no later than 2005 to the address designated in the Notice . Such

request for exclusion shall clearly indicate the name and address of the person seeking exclusion,

that the sender requests to be excluded from the Settlement Class in the ARM Financial Group,

Inc. Securities Litigation, and must be signed by such person . Such persons requesting exclusion

are also requested to state: their telephone number and the date(s), price(s), and number(s) of

shares of all purchases and sales of ARM common stock during the Settlement Class Period .

The request for exclusion shall not be effective unless it provides the required information and is

made within the time stated above, or the exclusion is otherwise accepted by the Court .

12. Settlement Class Members requesting exclusion from the Settlement Class shal l

not be entitled to receive any payment out of the Net Settlement Fund as described in th e

Stipulation and Notice .

13 . The Court will consider comments and/or objections to the Settlement, the Plan o f

Allocation, or the award of attorneys' fees and reimbursement of expenses only if such

comments or objections and any supporting papers are filed in writing with the Clerk of th e

Court, United States District Court, 601 West Broadway, Louisville , Kentucky 40202, and

copies of all such papers are served, on or before 2005, upon each of the

following: Elaine S . Kusel, Esq., Milberg Weiss Bershad & Schulman LLP, One Pennsylvani a

Plaza, New York, New York 10119-0165 and Fred T . Isquith , Esq., Wolf Haldenstein Adler

Freeman & Herz LLP, 270 Madison Avenue, New York, New York 10015 on behalf of Lea d

Plaintiffs and the Settlement Class ; and John F. Hartmann, Esq ., Kirkland & Ellis LLP, 200 East

Randolph Drive, Chicago, Illinois 60601, Martin Flumenbaum, Esq ., Paul, Weiss, Rifkind,

Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064, an d

Daniel Slifkin, Esq., Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, Ne w

7

York, New York 10019-7475 , on behalf of the Settling Defendants . Attendance at the hearing is

not necessary; however, persons wishing to be heard orally in opposition t o the approval of the

Settlement, the Plan of Allocation , and/or the request for attorneys ' fees are required to indicate

in their w ritten objection their intention to appear at the hearing. Persons who intend to object to

the Settlement , the Plan of Allocation, and/or counsel ' s application for an award of attorneys'

fees and expenses and desire to present evidence at the Settlement Fairness Hea ring must include

in their w ritten objections the identity of any witnesses they may call to testify and exhibits they

intend to introduce into evidence at the Settlement Fai rness Hearing. Settlement Class Members

do not need to appear at the hea ring or take any other action to indicate their approval .

14 . Pending final determination of whether the Settlement should be approved, the

Lead Plaintiffs, all Settlement Class Members, and each of them, and anyone who acts or

purports to act on their behalf, shall not institute, commence or prosecute any action which

asserts Settled Claims against any Released Party .

15 . If. (a) any specified condition to the Settlement set forth in the Stipulation is not

satisfied and the satisfaction of such condition is not waived in writing by Plaintiffs' Co-Lead

Counsel and Counsel for the Settling Defendants ; (b) the Court rejects, in any respect, the Order

and Final Judgment in substantially the form and content annexed to the Stipulation as Exhibit B

and/or Plaintiffs' Co-Lead Counsel and Counsel for the Settling Defendants fail to consent to th e

entry of another form of order in lieu thereof ; (c) the Court rejects the Stipulation, including any

amendment thereto approved by Plaintiffs' Co-Lead Counsel and Counsel for the Settling

Defendants ; or (d) the Court approves the Stipulation, including any amendment thereto

approved by Plaintiffs' Co-Lead Counsel and Counsel for the Settling Defendants, but such

approval is reversed on appeal and such reversal becomes final by lapse of time or otherwise ,

8

then, in any such event, the Stipulation, including any amendment(s) thereof, and thi s

Preliminary Order certifying the Settlement Class and the Settlement Class Representatives fo r

purposes of the Settlement shall be null and void, of no further force or effect, and withou t

prejudice to any party, and may not be introduced as evidence or referred to in any actions o r

proceedings by any person or entity, and each party shall be restored to his, her or its respectiv e

position as it existed prior to the execution of the Stipulation .

16 . The Court retains exclusive jurisdiction over the Action to consider all further

matters arising out of or connected with the Settlement .

Dated: Louisville, Kentucky, 2004

HONORABLE JOHN G. HEYBURN IIUNITED STATES DISTRICT JUDGE

9

EXHIBIT 1

UNITED STATES DISTRICT COURTWESTERN DISTRICT OF KENTUCKYAT LOUISVILLE

IN RE: ARM FINANCIAL GROUP, INC . Civil Action No . 3 :99-CV-539-HSECURITIES LITIGATION

x

NOTICE OF PENDENCY OF CLASS ACTION AND PROPOSED SETTLEMENTWITH CERTAIN DEFENDANTS, MOTION FOR ATTORNEYS' FEES AN D

SETTLEMENT FAIRNESS HEARING

If you purchased Arm Financial Group, Inc. ("ARM") common stock during the period

February 10, 1998 through and including August 3, 1999 (the "Settlement Class Period"),

and where damaged thereby, then you could get a payment from a class action settlement .

A federal court authorized this notice. This is not a solicitation from a lawyer.

The settlement will provide at least a $1,000,000 settlement fund for the benefit ofinvestors who bought shares of ARM common stock during the period February 10, 1998through and including August 3, 1999, and where damaged thereby (the "SettlementClass") .

• The proposed settlement is a partial settlement of lawsuit regarding whether ARM,certain of its officers and directors, and certain of its underwriters misled investors aboutARM's financial condition.

• Your legal rights are affected whether you act, or do not act . Read this notice carefully .

YOUR LEGAL RIGHTS AND OPTIONS IN THIS SETTLEMENT :

SUBMIT A CLAIM FORM The only way to get a payment.

EXCLUDE YOURSELF Get no payment . This is the only option that allows you t oever be part of any other lawsuit against ARM and theReleased Parties about the legal claims in this case .

OBJECT Write to the Court about why you do not like the settlement .

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GO TO A HEARING Ask to speak in Court about the fairness of the settlement .

DO NOTHING Get no payment . Give up rights .

• These rights and options - and the deadlines to exercise them - are explained in this

notice .

The Court in charge of this case still has to decide whether to approve the settlement .

Payments will be made if the Court approves the settlement and after appeals are

resolved. Please be patient .

SUMMARY NOTICE

Statement of Plaintiff Recovery

Pursuant to the settlement described herein, a Settlement Fund consisting of $1,000,000 in cash,

plus interest, has been established . In addition the Settlement provides for Defendants Insurer to

pay a balance of a policy after other payments are deducted, which balance is expected to be

approximately $150,000 . Plaintiffs estimate that there were approximately 30 million shares of

ARM common stock traded during the Settlement Class Period which may have been damaged .

Plaintiffs estimate that the average recovery per damaged share of ARM common stock under

the settlement is 3 .80 per damaged share before deduction of Court-awarded attorneys' fees and

expenses . A Settlement Class Member's actual recovery will be a proportion of the Net

Settlement Fund determined by his, her or its Recognized Claim as compared to the total

Recognized Claims of all Settlement Class Members who submit acceptable Proofs of Claim .

Depending on the number of claims submitted, when during the Settlement Class Period a

Settlement Class Member purchased shares of ARM common stock, and whether those shareswere held at the end of the Settlement Class Period or sold during the Settlement Class Period,

and if sold, when they were sold, an individual Settlement Class Member may receive more or

less than this average amount . See the Plan of Allocation beginning on page [] for more

information on your Recognized Claim .

Statement of Potential Outcome of Cas e

The parties disagreed on both liability and damages and do not agree on the average amount ofdamages per share that would be recoverable if plaintiffs were to have prevailed on each claimalleged. The Settling Defendants deny that they are liable to the plaintiffs or the SettlementClass and deny that plaintiffs or the Settlement Class have suffered any damages .

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Statement of Attorneys' Fees and Costs Sought

Plaintiffs' Co-Lead Counsel are moving the Court to award from the recoveries obtained in thisSettlement a total of one-third (33'/3%) of the amounts recovered for the reimbursement only of

expenses incurred in this litigation. No attorneys' fees are being sought at this time . Plaintiffs'

Counsel reserve the right to seek attorneys' fees from any future recoveries that they obtain . The

requested expenses would amount to an average of 1 .30 per damaged share in total for expenses .

Plaintiffs' Counsel have expended considerable time and effort in the prosecution of thi s

litigation on a contingent fee basis, and have advanced the expenses of the litigation, in theexpectation that if they were successful in obtaining a recovery for the Settlement Class theywould be paid from such recovery.

Further Information

Further information regarding the Action and this Notice may be obtained by contacting

Plaintiffs' Co-Lead Counsel : Elaine S . Kusel, Esq ., Milberg Weiss Bershad & Schulman LLP,

One Pennsylvania Plaza, New York, New York 10119-0165, Telephone ( .212) 594-5300; or

Fred T. Isquith, Esq., Wolf Haldenstein Adler Freeman & Herz LLP, 270 Madison Avenue, New

York, New York 10016, Telephone (212) 545-4600 .

Reasons for the Settlement

The principal reason for the settlement is the benefit to be provided to the Settlement Class now .

This benefit must be compared to the risk that Lead Plaintiffs and the Settlement Class might not

have prevailed on all their claims of liability and the additional risk in establishing damages,

including risk that the decline in the price of ARM common stock could be attributed, in whole

or in part, to non-actionable factors . Therefore, Lead Plaintiffs and the Settlement Class could

have recovered nothing or substantially less than the amount of the settlerr. ent . For example, the

Court dismissed the claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the

"Securities Act") as being barred by the Statute of Limitations . The remaining claims under

Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule lOb-5 promulgated

thereunder, require proof of a Defendant's culpable state of mind (known as scienter), which is

difficult to show. In addition, even if plaintiffs were successful on appeal of the Court's Order

dismissing the claims under the Securities Act, there would be risks that a smaller recovery or no

recovery might be obtained after a contested trial and likely appeals, possily years into the

future .

[END OF COVER PAGE]

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WHAT THIS NOTICE CONTAIN S

Table of Contents

Page

SUMMARY NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Statement of Plaintiff Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Statement of Potential Outcome of Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Statement of Atto rneys ' Fees and Costs Sought . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Reasons for the Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

BASIC INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Why did I get this notice package? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

What is this lawsuit about? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Why is this a class action ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Why is there a settlement ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

WHO IS IN THE SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

How do I know if I am part of the settlement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Are there exceptions to being included ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

What if I am still not sure if I am included? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

THE SETTLEMENT BENEFITS - WHAT YOU GET .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

What does the settlement provide? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

How much will my payment be? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

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HOW YOU GET A PAYMENT SUBMITTING A CLAIM FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1

How can I get a payment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1

When would I get my payment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1

What am I giving up to get a payment or stay in the Settlement Class? . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1

EXCLUDING YOURSELF FROM THE SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2

How do I get out of the proposed settlement ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2

If I do not exclude myself, can I sue ARM and the Released Part ies for the sam ething later? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3

If I exclude myself, can I get money from the proposed settlement " . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3

THE LAWYERS REPRESENTING YOU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3

Do I have a lawyer in this case? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3

How will the lawyers be paid? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

OBJECTING TO THE SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

How do I tell the Court that I do not like the proposed settlement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

What is the difference between objecting and excluding? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5

THE COURT'S FAIRNESS HEARING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5

When and where will the Court decide whether to approve the proposedsettlement ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5

Do I have to come to the hearing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6

May I speak at the hearing? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6

IF YOU DO NOTHING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6

What happens if I do nothing at all? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6

GETTING MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6

Are there more details about the proposed settlement? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

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How do I get more information ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 7

PLAN OF ALLOCATION OF NET SETTLEMENT FUND AMONG SETTLEMEN T

CLASS MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 7

SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEES . . . . . . . . . . . . . . . . . . . . . . . .20

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BASIC INFORMATION

1 . Why did I get this notice package ?

You or someone in your family may have purchased shares of ARM common stock du ring the

pe riod February 10, 1998 through and including August 3, 1999 .

The Court directed that this Notice be sent to Settlement Class Members because they have aright to know about a proposed settlement of a class action lawsuit , and about all of their options,

before the Court decides whether to approve the settlement . If the Court approves it and after

objections and appeals are resolved , an administrator appointed by the Court will make the

payments that the settlement allows .

This package explains the lawsuit, the settlement, Settlement Class Members' legal rights, what

benefits are available , who is eligible for them , and how to get them .

The Court in charge of the case is the United States Dist rict Court for the Western Dist rict of

Kentucky at Louisville , and the case is known as In re: Arm Financial Group, Inc. Securities

Litigation , Civil Action No . 3 :99-CV-539-H. This case was assigned to United States Dist rict

Judge John G . Heyburn II . The people who sued are called plaintiffs , and the entities and

individuals they sued -- the company (ARM Financial Group, Inc .), the Settling Defendants

(Mart in H . Ruby, John R. Lindholm , Edward L . Zeman, Barry G . Ward , David E . Ferguson,

William H . Panning, Colin Raymond , Alan Goldberg and Robert H . Niehaus), and the Non-

Settling Defendants (Morgan Stanley Dean Witter & Co ., Morgan Stanley Leveraged Equity

Fund II , L.P., Morgan Stanley Capital Partners III , L.P., Morgan Stanley Capital Investors, L .P.,

and MSCP 111 892 Investors , L.P.) -- are collectively referred to as the Defendants .

2 . What is this lawsuit about?

This action arises from the rapid growth and dramatic collapse of the fortunes of ARM Financial

Group, Inc. During the period February 10, 1998 through and including August 3, 1999, ARM

was engaged in the business of selling retirement savings and investment products to retail and

institutional customers . ARM's retail products included a variety of fixed. indexed and variable

annuities and face-amount certificates . ARM's institutional products included debt instruments,

or "funding agreements," institutional spread products, including GICs (guaranteed investment

certificates) and installment face-amount certificates . ARM used the cash it raised from selling

the funding agreements to purchase higher yielding securities and its earnings derived from the

difference - or the "investment spread" -- between the income earned on the securities

-7-

investments (its asset portfolio) and the amount it paid out to investors on the fundingagreements (its liability portfolio) .

Lead Plaintiffs contended that during the Settlement Class Period the Defendants misrepresented

or concealed the following information, which was not disclosed until the end of the Settlement

Class Period : (a) that the value of ARM's asset portfolio was materially overstated ; (b) that the

credit quality and liquidity of ARM's asset portfolio was deteriorating, thereby exposing ARM to

increased risk of default and causing unrealized losses in ARM's asset portfolio to increase ; (c)

that Defendants had falsely deflected criticism of ARM's declining mark-' :o-market book value,

attributing it to widening credit spreads, when, in fact, the credit quality, value and illiquidity of

ARM's investment portfolio were declining ; (d) that ARM was beginning to experience, in its

liability portfolio an increase in GIC redemptions which it could not meet from its illiquid, over-

valued assets, because General American Insurance Company, its primary partner in that

business, was experiencing financial difficulties ; (e) that ARM's liability portfolio, more than

50% of which was comprised of GICs with 7 day put options, was subject to extreme risk that

redemptions would increase as General American's financial condition worsened and once

General American's financial condition became widely known it was highly likely that

redemptions would increase rapidly; (f) that ARM's exit from the institutional business would

cause ARM to incur charges of tens of millions of dollars, thereby causing ARM to report an

extraordinary loss in the second quarter of 1999 ; and (g) given the foregoi:ag, Defendants'

estimates, projections and opinions as to ARM's operations, products, earnings and income were

knowingly lacking in reasonable basis at all relevant times .

The Third Consolidated and Amended Class Action Complaint dated June 8, 2001 filed in theAction (the "Complaint") generally alleges, among other things, that the Settling Defendantsissued false and misleading press releases and other statements -- including a false an dmisleading registration statement and prospectus in connection with the secondary offering of

ARM common stock in or about May 1998 (the "Secondary Offering") -- regarding ARM's

financial condition during the period February 10, 1998 through and including August 3, 1999,

in a scheme to artificially inflate the value of ARM's common stock, thereby violating Sections11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities

Exchange Act of 1934, and Rule I Ob-5 promulgated thereunder . In addition to the Settling

Defendants, the other Defendants named in the Complaint are 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 111 892 Investors, L P . (the "Non-Settling

Defendants") . The Complaint further alleges that Lead Plaintiffs and other Settlement Class

Members purchased ARM common stock during the Settlement Class Pen od and were damaged

as a result thereof.

On December 20, 1999, ARM filed for bankruptcy protection under the Federal bankruptcy laws .

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3. Why is this a class action?

In a class action, one or more people called Class Representatives (in this case Lead PlaintiffsHelene Gottlieb, Frank Casey, Tony Totis, Bruce Thomas, Mark Suna, Hugh Glidewell, WilliamKopp, Geraldine Kehoe and Jim Sweem), sue on behalf of people who have similar claims . Allthese people are a Settlement Class or Settlement Class Members . One court resolves the issuesfor all Settlement Class Members, except for those who exclude themselves from the SettlementClass .

4. Why is there a settlement?

The Court did not decide in favor of plaintiffs or the Settling Defendants . Instead, both sidesagreed to a settlement . That way, they avoid the risks and cost of a trial, and the people affectedwill get compensation . The Class Representative and the attorneys think the settlement is bestfor all Settlement Class Members .

WHO IS IN THE SETTLEMEN T

To see if you will get money from this settlement, you first have to decide if you are a SettlementClass Member.

5 . How do I know if I am part of the settlement ?

The Court directed that , for the purposes of the proposed settlement , everyone who fits thisdescription is a Settlement Class Member : All persons and entities who purchased ARMFinancial Group, Inc. common stock during the period February 10, 1998 through and includingAugust 3, 1999.

6. Are there exceptions to being included?

Excluded from the Settlement Class are the Defendants in the Action, members of the immediatefamilies (parents, spouses, siblings, and children) of each of the individuals who were named asdefendants in the Action, any entity in which any Defendant has a controlling interest, and thelegal affiliates, representatives, heirs, controlling persons, successors and predecessors in interestor assigns of any such excluded party .

-9-

If one of your mutual funds own shares of ARM common stock, that alone does not make you a

Settlement Class Member . You are a Settlement Class Member only if you directly purchasedshares of ARM common stock during the Settlement Class Period . Contact your broker to see if

you have or held ARM common stock .

If you sold ARM common stock during the Settlement Class Period, that alone does not makeyou a Settlement Class Member . You are a Settlement Class Member only if you purchasedyour shares during the Settlement Class Period .

7. What if I am still not sure if I am included ?

If you are still not sure whether you are included, you can ask for free help . You can call 1-800-

276-1243 or visit www. gardencitygroup.com for more information. Or you can fill out andreturn the claim form described on page [], in question 10, to see if you qualify .

THE SETTLEMENT BENEFITS - WHAT YOU GE T

8. What does the settlement provide?

In exchange for the settlement and dismissal of the Action with respect to Settling Defendantsand ARM, the Settling Defendants have agreed to create a $1,000,000 fund to be divided, after

taxes, fees, and expenses, among all Settlement Class Members who send in a valid Proof of

Claim form. In addition the Settlement provides for Defendants Insurer to pay a balance of a

policy after other payments are deducted, which balance is expected to add approximately

$150,000 to the Settlement Fund. The Settlement also provides for the assignment of certain

claims to the Class, but it is not known whether or when such assigned claims might result in any

recovery . The Settlement may be terminated in the event that an Order and Final Judgment is

not entered within nine months from January 28, 2005, the date of the Stipulation, or if the Court

or any appellate court disapproves it .

9 . How much will my payment be?

Your share of the fund will depend on the number of valid Proof of Claim forms that SettlementClass Members send in, how many shares of ARM common stock you bought, and when youbought and sold them. Here is how it works :

By following the instructions beginning on page [ ] of this Notice, you can calculate what is

called your Recognized Claim. It is unlikely that you will get a payment for all of you r

-10-

Recognized Claim . After all Settlement Class Members have sent in their Proof of Claim forms,the payment you get will be a part of the Net Settlement Fund equal to your Recognized Claimdivided by the total of everyone's Recognized Claim . See the Plan of Allocation beginning onpage [] for more information on your Recognized Claim .

HOW YOU GET A PAYMENT - SUBMITTING A CLAIM FOR M

10. How can I get a payment ?

To qualify for a payment, you must send in a claim form . A Proof of Claim form is beingcirculated with this Notice . You may also get a Proof of Claim form on the Internet atwww.gardencitygroup.com . Read the instructions carefully, fill out the Proof of Claim form,include all the documents the form asks for, sign it, and mail it postmarked no later tha n

92005 .

11 . When would I get my payment ?

The Court will hold a hearing on , 2005, to decide whether to approve thesettlement. If the Court approves the settlement after that, there may be appeals . It is alwaysuncertain whether these appeals can be resolved, and resolving them can take time, perhaps morethan a year . It also takes time for all the Proofs of Claim to be processed . Please be patient .

1.2 . What am I giving up to get a payment or stay in the Settlement Class ?

Unless you exclude yourself, you are staying in the class, and that means that, if the settlement isapproved, you will (i) release all "Settled Claims" (as defined below) against the "ReleasedParties" (as defined below) and (ii) covenant not to sue ARM, and be enjoined from assertingany Settled Claims against ARM .

"Settled Claims" means any and all claims, rights or causes of action or liabilities whatsoever,

whether based on federal, state, local, statutory or common law or any other law, rule or

regulation, including both known claims and unknown claims, that have been or could have beenasserted in any forum by the Settlement Class Members or any of them against any of the

Released Parties which arise out of or relate in any way to the allegations, transactions, facts,matters or occurrences, representations or omissions involved, set forth, referred to or that could

have been asserted in the Complaint relating to the purchase of ARM common stock during the

Settlement Class Period . Settled Claims does not mean or include any claims that the Settlin g

-11-

Defendants are assigning to Lead Plaintiffs on behalf of the Settlement Class pursuant to this

settlement .

"Released Parties" means any and all of the Settling Defendants, their past or present

subsidiaries, parents, successors and predecessors, officers, directors, agents, employees,

attorneys, auditors, accountants, National Union Fire Insurance Company of Pittsburgh, PA, the

Kentucky Insurance Guaranty Association ("KIGA"), and any person, firm, trust, corporation,

officer, director or other individual or entity in which any Settling Defendant has a controllinginterest or which is related to or affiliated with any of the Settling Defendants, and the legal

representatives, heirs, successors in interest or assigns of the Settling Defendants . Released

Parties does not mean and does not include any and all of the Non-Settling Defendants, their past

or present subsidiaries, parents, successors and predecessors, officers, directors (except for

Settling Defendants Colin Raymond, Alan Goldberg and Robert H . Niehaus), agents, employees,

attorneys, auditors, accountants and any person, firm, trust, corporation, officer, director or other

individual or entity in which any Non-Settling Defendant has a controlling interest or which isrelated to or affiliated with any of the Non-Settling Defendants, and the legal representatives,

heirs, successors in interest or assigns of the Non-Settling Defendants . Released Parties does not

include ARM or its Estate, or Reliance Insurance Company ("Reliance") or its Estate, and/or the

statutory liquidator for Reliance.

If you remain a member of the Settlement Class, all of the Court's orders will apply to you andlegally bind you .

EXCLUDING YOURSELF FROM THE SETTLEMEN T

If you do not want a payment from this settlement, but you want to keep tr :e right to sue or

continue to sue ARM and the Released Parties, on your own, about the legal issues in this case,

then you must take steps to get out . This is called excluding yourself - or is sometimes referred

to as "opting out" of the Settlement Class . Settling Defendants may withdraw from and

terminate the settlement if in excess of a certain amount of claimants exclude themselves from

the Settlement Class .

13 . How do I get out of the proposed settlement ?

To exclude yourself from the Settlement Class, you must send a letter by mail stating that you

"request exclusion from the Settlement Class in In re: ARM Financial Group, Inc . Securities

Litigation, Civil Action No . 3 :99-CV-539-H." Your letter should include the date(s), price(s),

and number(s) of shares of all purchases and sales of ARM common stock during the Settlement

Class Period . In addition, be sure to include your name, address, telephone number, and your

signature . You must mail your exclusion request postmarked no later tha n

2005 to :

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In re ARM Financial Group, Inc . Securities Litigation Exclusionsc/o The Garden City Group, Inc ., Claims Administrator

P.O. Box 9000 #6277Merrick, NY 11566-900 0

You cannot exclude yourself by telephone or by e-mail . If you ask to be excluded, you will notget any settlement payment, and you cannot object to the settlement . You will not be legallybound by anything that happens in this lawsuit, and you may be able to sue (or continue to sue)ARM and the Released Parties in the future .

14. If I do not exclude myself, can I sue ARM and the Released Parties for the same thing

later?

No . Unless you exclude yourself, you give up any rights to sue ARM and the Released Partiesfor any and all Settled Claims. If you have a pending lawsuit speak to your lawyer in that case

immediately. You must exclude yourself from this Settlement Class to continue your ownlawsuit . Remember, the exclusion deadlineis , 2005.

15 . If I exclude myself, can I get money from the proposed settlement ?

No. If you exclude yourself, do not send in a claim form to ask for any money . But, you maysue, continue to sue, or be part of a different lawsuit against ARM and the Released Parties .

THE LAWYERS REPRESENTING YO U

16 . Do I have a lawyer in this case?

The Court ordered that the law firms of Milberg Weiss Bershad & Schulman in New York, NewYork and Wolf Haldenstein Adler Freeman & Herz LLP in New York, New York, will representyou and the other Settlement Class Members . These lawyers are called Plaintiffs' Co-Lead

Counsel . You will not be charged for these lawyers. If you want to be represented by your own

lawyer, you may hire one at your own expense .

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17. How will the lawyers be paid ?

Plaintiffs' Co-Lead Counsel are moving the Court to award reimbursement of litigation expenseslimited to one-third (33'/3%) of the Gross Settlement Fund from the present Settlement .Plaintiffs' Counsel are not requesting any attorneys' fees at this time from . this recovery.Plaintiffs' Counsel reserve the right to request attorneys' fees from any further recovery theyobtain in the continuing litigation . Plaintiffs' Co-Lead Counsel, without further notice to theSettlement Class, may subsequently apply to the Court for fees and expenses incurred inconnection with administering and distributing the settlement proceeds to the members of theSettlement Class and any proceedings subsequent to the Settlement Fairness Hearing .

OBJECTING TO THE SETTLEMENT

You can tell the Court that you do not agree with the settlement or some part of it .

18 . How do I tell the Court that I do not like the proposed settlement ?

If you are a Settlement Class Member, you can object to the proposed settlement if you do not

like any part of it . You can give reasons why you think the Court should not approve it . The

Court will consider your views . To object, you must send a signed letter saying that you object

to the proposed settlement in the In re Arm Financial Group, Inc . Securities Litigation . Be sure

to include your name, address, telephone number, and your signature, identify the date(s),

price(s), and number(s) of shares of all purchases and sales of the common stock of ARM you

made during the Settlement Class Period, and state the reasons why you object to the proposed

settlement . Mail the objection to each of the following addresses postmarked no later than

, 2005 :

COURT PLAINTIFFS' CO-LEADCOUNSEL

SETTLING DEFENDANTS'COUNSEL

Clerk of the CourtUnited States District Court

for the Western District ofKentucky at Louisville

United States Courthouse

601 West BroadwayLouisville, Kentucky 40202

Elaine S . Kusel, Esq .

Milberg Weiss Bershad

& Schulman LLPOne Pennsylvania PlazaNew York, New York 10119

John F . Hartmann, Esq .Kirkland & Ellis LLP

200 East Randolph DriveChicago, Illinois 6060 1

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Fred T. Isquith, Esq .Wolf Haldenstein Adler

Freeman & Herz LLP270 Madison Avenu eNew York, New York 10016

Daniel Slifkin, Esq .Cravath, Swaine & Moore LLPWorldwide Plaza825 Eighth Avenu eNew York, New York 1001 9

Martin Flumenbaum, Esq .Paul, Weiss, Rifkind ,

Wharton & Garrison LLP1285 Avenue of the AmericasNew York, New York 1011 9

1 9. What is the difference between objecting and excluding ?

Objecting is simply telling the Court that you do not like something about the proposedsettlement. You can object only if you stay in the Settlement Class. Excluding yourself is tellingthe Court that you do not want to be part of the Settlement Class . If you exclude yourself, youhave no basis to object because the case no longer affects you .

THE COURT'S FAIRNESS HEARIN G

The Court will hold a hearing to decide whether to approve the proposed settlement . You mayattend and you may ask to speak, but you do not have to .

20. When and where will the Court decide whether to approve the proposed settlement ?

The Court will hold a Fairness Hearing at : .m. on day, _

2005 , at the United States District Court for the Western District of Kentucky at Louisville,

United States Courthouse, 601 West Broadway, Louisville, Kentucky 40202 . At this hearing the

Court will consider whether the settlement is fair, reasonable and adequate . If there are

objections, the Court will consider them . The Court will listen to people who have asked to

speak at the hearing . The Court may also decide how much to pay to Plaintiffs' Counsel . After

the hearing, the Court will decide whether to approve the settlement . We do not know how long

these decisions will take .

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21 . Do I have to come to the hearing ?

No . Plaintiffs' Co-Lead Counsel will answer questions the Court may have. But, you are

welcome to come at your own expense. If you send an objection, you do not have to come to

Court to talk about it. As long as you mailed your written objection on time, the Court will

consider it . You may also pay your own lawyer to attend, but it is not necessary . Settlement

Class Members do not need to appear at the hearing or take any other action to indicate their

approval .

22 . May I speak at the hearing?

If you object to the Settlement, you may ask the Court for permission to speak at the Fairness

Hearing. To do so, you must include with your objection (see question 18 above) a statement

saying that it is your "Notice of Intention to Appear in In re: Arm Financial Group, Inc.

Securities Litigation, Civil Action No . 3 :99-CV-539-H." Persons who intend to object to theSettlement, the Plan of Allocation, and/or counsel's application for an award of attorneys' feesand expenses and desire to present evidence at the Settlement Fairness Hearing must include intheir written objections the identity of any witnesses they may call to testify and exhibits theyintend to introduce into evidence at the Settlement Fairness Hearing . You cannot speak at thehearing if you excluded yourself .

IF YOU DO NOTHING

23 . What happens if I do nothing at all ?

If you do nothing, you will get no money from this settlement . But, unless you exclude yourself,you will not be able to start a lawsuit, continue with a lawsuit, or be part o f any other lawsuitagainst ARM and the Released Parties about the legal issues in this case, ever again .

GETTING MORE INFORMATION

24 . Are there more details about the proposed settlement?

This notice summarizes the proposed settlement . More details are in a Stipulation andAgreement of Settlement with Certain Defendants dated December , 2004 (the "Stipulation") .

You can get a copy of the Stipulation by writing to Elaine S . Kusel, Esq ., Milberg Weiss Bershad

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& Schulman LLP, One Pennsylvania Plaza, New York, New York 10119-0165, or Fred T .

Isquith , Esq., Wolf Haldenstein Adler Freeman & Herz LLP, 270 Madison Avenue, New York,New York 10016; or by visiting www.gardencitygroup.com .

You also can call the Claims Administrator at (800) 276-1243 toll free ; write to In re ARMFinancial Group, Inc. Securities Litigation Settlement, c/o The Garden City Group, Inc . P .O. Box

#6277, Merrick, NY 11566-9000; or visit the website at www.gardencitygroup .com , where youwill find answers to common questions about the settlement, a claim form . . plus otherinformation to help you determine whether you are a Settlement Class Member and whether youare eligible for a payment .

25 . How do I get more information?

For even more detailed information concerning the matters involved in this Action, reference ismade to the pleadings, to the Stipulation, to the Orders entered by the Court and to the otherpapers filed in the Action, which may be inspected at the Office of the Clerk of the United StatesDistrict Court for the Western District of Kentucky at Louisville, United States Courthouse, 601West Broadway, Louisville, Kentucky 40202, during regular business hours .

PLAN OF ALLOCATION OF NET SETTLEMENT FUNI) AMONGSETTLEMENT CLASS MEMBER S

The Gross Settlement Fund, less all taxes, approved costs, fees and expenses (the "NetSettlement Fund") shall be distributed to members of the Settlement Class who submitacceptable Proofs of Claim ("Authorized Claimants") .

The Claims Administrator shall determine each Authorized Claimant 's prc . rata share of the Net

Settlement Fund based upon each Autho rized Claimant 's "Recognized Claim." The RecognizedClaim formula is not intended to be an estimate of the amount that a Settlement Class Membermight have been able to recover after a trial ; nor is it an estimate of the amount that will be paid

to Authorized Claimants pursu ant to the settlement . The Recognized Claim formula is the basis

upon which the Net Settlement Fund will be propo rtionately allocated to the Autho rized

Claimants .

The following proposed Plan of Allocation reflects the proposition that the price of ARMFinancial was inflated by reason of the allegedly false and misleading statements made byDefendants during the entire Settlement Class Period until ARM began a series o fannouncements starting on July 29, 1999 when ARM announced that it had lost $173 .9 million,

ending on August 3, 1999 when ARM announced that it had closed a transaction with General

American . The price of ARM common stock declined precipitously following thes e

announcements, from a closing price of $9 .75 on July 29, 1999, to a closing price of $3 .25 on

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August 3, 1999 a $6 .50 drop, which Lead Plaintiffs contend reflects the elimination of theartificial inflation that the Defendants' misrepresentations allegedly caused .

For shares of ARM common stock purchased during the period February : . 0, 1998 through andincluding July 29, 1999, "Recognized Claims" will be calculated for purposes of the Settlementas follows :

(a) If the shares purchased during the period February :10, 1998 through and

including July 29, 1999, were sold on or before July 29, 1999 an Authorized Claimant's

"Recognized Claim" from such shares shall mean 10%1 of the lesser of () $6 .50 per share, the

amount that the stock dropped upon the disclosure, or (b) the difference, if a loss, between the

purchase price (including commissions, etc .) and the sales proceeds received (net of

commissions, etc .) .

(b) If the shares purchased during the period February 1 .0, 1998 through an

including July 29, 1999, were still held as of the close of trading on July 29, 1999 an Authorized

Claimant's "Recognized Claim" shall mean the least of: (a) $6 .50 per share, the amount that the

stock dropped upon the disclosures, or (b) the purchase price (including commissions, etc .) less

$3.25 per share, the value of the shares as of the close of trading on August 3, 1999, or (c) the

difference between $9 .75 per share, and the sales proceeds, if any, received (net of commissions,

etc.) on a sale of such shares after July 29, 1999 and on or before August 3, 1999 .

For shares of ARM common stock purchased during the period July 30, 1999 through andincluding August 3, 1999, "Recognized Claims" will be calculated for purposes of the Settlementas follows :

(a) If the shares purchased during the period July 30, 1999 through and

including August 3, 1999, were sold on or before August 3, 1999 an Authorized Claimant's

"Recognized Claim" from such shares shall mean 25%2 of the difference, if a loss, between the

purchase price (including commissions, etc .) and the sales proceeds received (net of

commissions, etc . )

1 This substantial discount reflects the difficulties that a claimant who sold prior to thedisclosures would face in proving that the artificial inflation alleged to have been paid on thepurchase was not offset by the inflation received on the sale while the alleged misrepresentationsand omissions were still in effect .

2 This discount reflects the difficulties that a claimant who sold after the initial disclosureswould face in proving reliance on the p rior statements .

-18-

(b) If the shares purchased during the period July 30, 1999 through andincluding August 3, 1999, were still held as of the close of trading on August 3, 1999 anAuthorized Claimant's "Recognized Claim" shall mean the lesser of (a) $1 .625 per share (25%)

of the maximum $6 .50 loss per share, or (b) 25% of the difference between the purchase price

(including commissions, etc .) minus $3.25 per share .

Each Authorized Claimant shall be allocated a pro rata share of the Net Settlement Fund based

on his, her or its Recognized Claim as compared to the total Recognized Claims of all

Authorized Claimants .

Settlement Class Members who do not submit acceptable Proofs of Claim will not share in the

settlement proceeds . Settlement Class Members who do not either submit a request for exclusionor submit an acceptable Proof of Claim will nevertheless be bound by the settlement and theOrder and Final Judgment of the Court dismissing this Action .

Payments will be distributed to Authorized Claimants after all claims have been processed andafter the Court has finally approved the settlement . If any funds remain in the Net SettlementFund by reason of uncashed distributions or otherwise, then, after the Claims Administrator hasmade reasonable and diligent efforts to have Settlement Class Members who are entitled toparticipate in the distribution of the Net Settlement Fund cash their distribution checks, anybalance remaining in the Net Settlement Fund one (1) year after the initial distribution of suchfunds shall be re-distributed to Settlement Class Members who have cashed their distributionchecks and who would receive at least $10 .00 f r o m such re-distribution . I f after six months aftersuch re-distribution any funds shall remain in the Net Settlement Fund, then such balance shallbe contributed to non-sectarian, not-for-profit, 501(c)(3) organization(s) designated by Plaintiffs'Co-Lead Counsel .

Plaintiffs, Settling Defendants, their respective counsel, and all other Released Parties shall have

no responsibility for or liability whatsoever for the investment or distribution of the Settlement

Fund, the Net Settlement Fund, the Plan of Allocation or the determination, administration,calculation, or payment of any Proof of Claim or non-performance of the Claims Administrator,

the payment or withholding of taxes owed by the Settlement Fund or any losses incurred in

connection therewith .

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SPECIAL NOTICE TO SECURITIES BROKERS AND OTHER NOMINEE S

If you purchased the common stock of ARM during the period February 10, 1998 through andincluding August 3, 1999 for the beneficial interest of a person or organization other thanyourself, the Court has directed that, WITHIN SEVEN (7) DAYS OF YOUR RECEIPT OFTHIS NOTICE, you either (a) provide to the Claims Administrator the name and last knownaddress of each person or organization for whom or which you purchased such stock during suchtime period or (b) request additional copies of this Notice and the Proof of Claim form, whichwill be provided to you free of charge, and within seven (7) days mail the Notice and Proof ofClaim form directly to the beneficial owners of the securities referred to herein . If you choose tofollow alternative procedure (b), the Court has directed that, upon such mailing, you send astatement to the Claims Administrator confirming that the mailing was made as directed . Youare entitled to reimbursement from the Settlement Fund of your reasonable expenses actuallyincurred in connection with the foregoing, including reimbursement of postage expense and thecost of ascertaining the names and addresses of beneficial owners . Those expenses will be paidupon request and submission of appropriate supporting documentation . All communicationsconcerning the foregoing should be addressed to the Claims Administrator:

In re ARM Financial Group , Inc. Securities Litigation Exclusionsc/o The Garden City Group , Inc., Claims Administrator

P .O. Box 9000 #6277Merrick, NY 11566-9000

(800) 276-124 3

Dated : Louisville, Kentucky2004

By Order of the CourtCLERK OF THE COURT

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EXHIBIT 2

UNITED STATES DISTRICT COURTWESTERN DISTRICT OF KENTUCKYAT LOUISVILLE

x

IN RE : ARM FINANCIAL GROUP, INC . : Civil Action No . 3 :99-CV-539-H

SECURITIES LITIGATION,

PROOF OF CLAIM AND RELEASE

DEADLINE FOR SUBMISSION: , 2005.

IF YOU PURCHASED ARM FINANCIAL GROUP, INC . ("ARM") COMMONSTOCK DURING THE PERIOD FEBRUARY 10, 1998 THROUGH ANDINCLUDING AUGUST 3, 1999 AND WERE DAMAGED THEREBY, YOU ARE A"SETTLEMENT CLASS MEMBER" AND YOU MAY BE ENTITLED TO SHARE INTHE SETTLEMENT PROCEEDS . (EXCLUDED FROM THE SETTLEMENT CLASSARE THE DEFENDANTS IN THE ACTION, MEMBERS OF THE IMMEDIATEFAMILIES (PARENTS, SPOUSES, SIBLINGS, AND CHILDREN) OF EACH OF THEINDIVIDUALS WHO WERE NAMED AS DEFENDANTS IN THE ACTION, ANYENTITY IN WHICH ANY DEFENDANT HAS A CONTROLLING INTEREST, ANDTHE LEGAL AFFILIATES, REPRESENTATIVES, HEIRS, CONTROLLINGPERSONS, SUCCESSORS AND PREDECESSORS IN INTEREST OR ASSIGNS OFANY SUCH EXCLUDED PARTY.)

IF YOU ARE A SETTLEMENT CLASS MEMBER, YOU MUST COMPLETE ANDSUBMIT THIS FORM IN ORDER TO BE ELIGIBLE FOR ANY SETTLEMENTBENEFITS .

YOU MUST COMPLETE AND SIGN THIS PROOF OF CLAIM AND MAIL IT B Y

FIRST CLASS MAIL, POSTMARKED NO LATER THANTHE FOLLOWING ADDRESS :

2005 TO

IN RE ARM FINANCIAL GROUP, INC . SECURITIES LITIGATION EXCLUSIONSC/O THE GARDEN CITY GROUP, INC ., CLAIMS ADMINISTRATOR

P.O . BOX 9000 #6277MERRICK, NY 11566-9000

YOUR FAILURE TO SUBMIT YOUR CLAIM BY 2005 WILLSUBJECT YOUR CLAIM TO REJECTION AND PRECLUDE YOUR RECEIVINGANY MONEY IN CONNECTION WITH THE SETTLEMENT OF THISLITIGATION. DO NOT MAIL OR DELIVER YOUR CLAIM TO THE COURT ORTO ANY OF THE PARTIES OR THEIR COUNSEL AS ANY SUCH CLA IM WILL

BE DEEMED NOT TO HAVE BEEN SUBMITTED . SUBMIT YOUR CLAIM ONLYTO THE CLAIMS ADMINISTRATOR .

I purchased the common stock of ARM Financial Group, Inc . ("ARM") during

the period February 10, 1998 through and including August 3, 1999 and was damaged thereby .

(Do not submit this Proof of Claim if you did not purchase ARM common stock during thi s

period) .

2. By submitting this Proof of Claim, I state that I believe in good faith that I am a

Settlement Class Member as defined above and in the Notice of Pendency of Class Action an d

Proposed Settlement With Certain Defendants , Motion for Attorneys' Fees and Settlemen t

Fairness Hearing (the "Notice"), or am acting for such person; that I am not a Defendant in th e

Action or anyone excluded from the Settlement Class ; that I have read and understand th e

Notice; that I believe that I am entitled to receive a share of the Net Settlement Fund; that I elec t

to participate in the proposed Settlement described in the Notice ; and that I have not filed a

request for exclusion . (If you are acting in a representative capacity on behalf of a Settlemen t

Class Member (e.g., as an executor, administrator, trustee, or other representative), you must

submit evidence of your current authority to act on behalf of that Settlement Class Member .

Such evidence would include, for example, letters testamentary, letters of administration, or a

copy of the trust documents . )

3 . I have set forth where requested below all relevant information with respect to

each purchase of ARM common stock during the Settlement Class Period, and each sale, if any ,

of such ARM common stock .

4. I have enclosed photocopies of the stockbroker's confirmation slips , stockbroker' s

statements, relevant portions of my tax returns or other documents evidencing each purchase ,

2

sale or retention of ARM common stock listed below in suppo rt of my claim . (IF ANY SUC H

DOCUMENTS ARE NOT IN YOUR POSSESSION, PLEASE OBTAIN A COPY OR

EQUIVALENT DOCUMENTS FROM YOUR BROKER OR TAX ADVISOR BECAUS E

THESE DOCUMENTS ARE NECESSARY TO PROVE AND PROCESS YOUR CLAIM . )

5. I understand that the information contained in this Proof of Claim is subject t o

such verification as the Court may direct, and I agree to cooperate in any such verification .

6. Upon the occurrence of the Effective Date (as defined in the Notice) my signature

hereto will constitute a full and complete release, remise and discharge by me or, if I a m

submitting this Proof of Claim on behalf of a corporation, a partnership, estate or one or mor e

other persons, by it, him, her or them, and by my, its, his, her or their heirs, executors ,

administrators, successors, and assigns of each of the "Released Parties" of all "Settled Claims, "

as defined in the Notice .

7 . Statement of Claim

Name(s) of Beneficial Owner(s) :

Name

Name

Street No .

City

( )Telephone No . (Day)

State Zip Code

( )Telephone No . (Night)

3

Employer I .D. No . or Social Security No .

Check one :Individual IRA AccountEstate Trustee/CustodianCorporation Other (specify)

Joint Owner's Name (if any)

8. At the close of business on February 9, 1998, I owned shares o f

ARM common stock .

9. I made the following purchases of ARM common stock during the period

February 10, 1998 through and including August 3, 1999. (Persons who received ARM common

stock during the Settlement Class Period other than by purchase are not eligible to submit claim s

for those transactions .) :

Date(s) of Purchase Number of Shares of Purchase Price Per Aggregate Cost(List Common Stock Share of Common (includingChronologically) Purchased Stock commissions, taxes,(Month/Day/Year) and fees)

10. I made the following sales of ARM common stock during the period February 10 ,

1998 through and including August 3, 1999 :

Date(s) of Sale(Lis t

Chronologically)(Month/Day/Year)

/ /

Number of Shares of Sale Price Per ShareCommon Stock Sold of Common Stock

Amount Received,net of commissions,taxes, and fees)

4

/ /

/ /

/ /

$ $

$ $

$ $

11 . At the close of business on August 3, 1999, I still owned _ shares o f

ARM common stock .

12 . Substitute Form W- 9

Request for Taxpayer Identification Number :

Enter taxpayer identification number below for the Beneficial Owner(s) . For most

individuals, this is your Social Security Number . The Internal Revenue Service ("I .R.S.")

requires such taxpayer identification number . If you fail to provide this information, your claim

may be rejected .

Social Security Number (for individuals) or

Employer Identification Number(for estates, trusts, corporations, etc . )

13 . Certification

UNDER THE PENALTIES OF PERJURY, I (WE) CERTIFY THAT ALL OF THE

INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE .

I (We) certify that I am (we are) NOT subject to backup withholding under the provision s

of Section 3406 (a)(1)(c) of the Internal Revenue Code because : (a) I am (We are) exempt from

backup withholding, or (b) I (We) have not been notified by the I .R.S. that I am (we are) subject

to backup withholding as a result of a failure to report all interest or dividends, or (c) the I .R.S .

has notified me (us) that I am (we are) no longer subject to backup withholding .

5

NOTE : If you have been notified by the I .R.S. that you are subject to backup withholding, pleas e

strike out the language that you are not subject to backup withholding in the certification above .

Signature of Claimant (If this claim is beingmade on behalf of Joint Claimants, then eachmust sign)

Signature)

Date :(Signature)

THIS PROOF OF CLAIM MUST BE SUBMITTED NO LATER THA N

2005, AND MUST BE MAILED TO :

In re ARM Financial Group, Inc . Securities Litigation Exclusionsc/o The Garden City Group, Inc ., Claims Administrato r

P .O. Box 9000 #627 7Merrick, NY 11566-900 0

A Proof of Claim received by the Claims Administrator shall be deemed to have bee n

submitted when posted, if mailed by , 2005, and if a postmark is indicated on

the envelope and it is mailed first class, and addressed in accordance with the above instructions .

In all other cases, a Proof of Claim shall be deemed to have been submitted when actuall y

received by the Claims Administrator.

If you wish to be assured that your Proof of Claim is actually received by the Claim s

Administrator, then you should send it by Certified Mail, Return Receipt Requested . No

acknowledgment will be made as to the receipt of claim forms . You should be aware that it wil l

take a significant amount of time to process fully all of the Proofs of Claim and to administer th e

Settlement . This work will be completed as promptly as time permits , given the need to

investigate and tabulate each Proof of Claim . Please notify the Claims Administrator of an y

change of address .

6

EXHIBIT 3

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF KENTUCKY

AT LOUISVILLE

IN RE : ARM FINANCIAL GROUP, INC . : Civil Action No . 3 :99-CV-539-H

SECURITIES LITIGATION,

x

SUMMARY NOTICE OF PENDENCY OF CLASS ACTION,PROPOSED PARTIAL SETTLEMENT AND SETTLEMENT HEARIN G

TO: ALL PERSONS AND ENTITIES WHO PURCHASED ARM FINANCIAL GROUP,INC. COMMON STOCK DURING THE PERIOD FEBRUARY 10, 1998 THROUGHAND INCLUDING AUGUST 3, 1999 AND WHO WERE DAMAGED THEREBY(THE "SETTLEMENT CLASS") .

YOU ARE HEREBY NOTIFIED, that the above- captioned action has been certified as a

class action and that a settlement with certain Defendants has been proposed . A hearing will b e

held before the Honorable John G . Heyburn II in the United States Courthouse, 601 West

Broadway, Louisville, Kentucky 40202, at _.m., on , 2005 to

determine whether the proposed settlement should be approved by the Court as fair, reasonable ,

and adequate, and to consider the application of Plaintiffs' counsel for attorneys' fees an d

reimbursement of expenses .

IF YOU ARE A MEMBER OF THE SETTLEMENT CLASS DESCRIBED ABOVE ,

YOUR RIGHTS WILL BE AFFECTED AND YOU MAY BE ENTITLED TO SHARE IN TH E

SETTLEMENT FUND . If you have not yet received the full printed Notice of Pendency o f

Class Action, Hearing On Proposed Settlement with Certain Defendants and Attorneys' Fe e

Petition and Right to Share in Settlement Fund and a Proof of Claim form, you may obtai n

copies of these documents by contacting :

In re ARM Financial Group , Inc . Securities Litigation Exclusionsc/o The Garden City Group , Inc ., Claims Administrator

P.O. Box 9000 #6277Merrick, NY 11566-9000

(800) 276-1243www.gardencitygroup.com

Inquiries, other than requests for the forms of Notice and Proof of Claim, may be made t o

Plaintiffs' Co-Lead Counsel :

Elaine S . Kusel, Esq .MILBERG WEISS BERSHAD &SCHULMAN LLPOne Pennsylvania PlazaNew York, New York 10119-0165(212) 594-5300

Fred T . Isquith, Esq .WOLF HALDENSTEIN ADLER FREEMAN& HERZ LLP270 Madison AvenueNew York, New York 10016(212) 545-4600

To participate in the Settlement, you must submit a Proof of Claim no later tha n

2005 . If you are a Settlement Class Member and do not exclude yoursel f

from the Settlement Class, you will be bound by the Order and Final Judgment of the Court . To

exclude yourself from the Settlement Class, you must submit a request for exclusion postmarke d

no later than , 2005. If you are a Settlement Class Member and do not submi t

a proper Proof of Claim, you will not share in the Settlement but you nevertheless will be boun d

by the Order and Final Judgment of the Court .

Further information may be obtained by directing your inquiry in writing to the Claim s

Administrator .

By Order of The Court

2

EXHIBIT B

UNITED STATES DISTRICT COURTWESTERN DISTRICT OF KENTUCKYAT LOUISVILLE

IN RE : ARM FINANCIAL GROUP, INC . : Civil Action No . 3 :99-CV-539-H

SECURITIES LITIGATION

x

ORDER AND FINAL JUDGMENT

On the day of , 2005 , a hea ring having been held before thi s

Court to determine : (1) whether the terms and conditions of the Stipulation and Agreement o f

Settlement with Certain Defendants dated December , 2004 (the "Stipulation") are fair ,

reasonable and adequate for the settlement of all claims asserted by the Settlement Class agains t

the Settling Defendants in the Complaint now pending in this Court under the above caption,

including the release of the Settling Defendants and the Released Parties, and should be

approved ; (2) whether judgment should be entered dismissing the Complaint on the merits and

with prejudice in favor of the Settling Defendants only and as against all persons or entities who

are members of the Settlement Class herein who have not requested exclusion therefrom ; (3 )

whether to approve the Plan of Allocation as a fair and reasonable method to allocate th e

settlement proceeds among the members of the Settlement Class ; and (4) whether and in what

amount to award Plaintiffs' Counsel fees and reimbursement of expenses . The Court having

considered all matters submitted to it at the hearing and otherwise ; and it appearing that a notice

of the hearing substantially in the form approved by the Court was mailed to all persons o r

entities reasonably identifiable, who purchased ARM Financial Group, Inc . ("ARM") common

stock during the period February 10, 1998 through and including August 3, 1999 (the

"Settlement Class Period"), except those persons or entities excluded from the definition of th e

Settlement Class, as shown by the records of ARM' s transfer agent, at the respective addresses

set forth in such records, and that a summary notice of the hearing substantially in the for m

approved by the Court was published over the Business Wire pursuant to the specifications of th e

Court ; and the Court having considered and determined the fairness and reasonableness of th e

award of attorneys' fees and expenses requested ; and all capitalized terms used herein having the

meanings as set forth and defined in the Stipulation .

NOW, THEREFORE, IT IS HEREBY ORDERED THAT :

The Court has juri sdiction over the subject matter of the Action, the Lea d

Plaintiffs, all Settlement Class Members, and the Settling Defend an ts .

2. The Court finds that the prerequisites for a class action under Rules 23 (a) an d

(b)(3) of the Federal Rules of Civil Procedure have been satisfied in that : (a) the number of

Settlement Class Members is so numerous that joinder of all members thereof is impracticable ;

(b) there are questions of law and fact common to the Settlement Class ; (c) the claims of the

Settlement Class Representatives are typical of the claims of the Settlement Class they seek t o

represent ; (d) the Settlement Class Representatives have and will fairly and adequately represen t

the interests of the Settlement Class ; (e) the questions of law and fact common to the members o f

the Settlement Class predominate over any questions affecting only individual members of th e

Settlement Class ; and (f) a class action is superior to other available methods for the fair and

efficient adjudication of the controversy .

Pursuant to Rule 23 of the Federal Rules of Civil Procedure and for the purpose s

of the Settlement , this Court hereby finally certifies this action as a class action on behalf of al l

purchasers of ARM common stock during the period February 10, 1998 through and including

2

August 3, 1999 (the "Settlement Class Period") and who were damaged thereby . Excluded fro m

the Settlement Class are the Defendants in the Action, members of the immediate familie s

(parents, spouses , siblings, and children) of each ofthe individuals who were named as

defendants in the Action, any entity in which any Defendant has a controlling interest, and the

legal affiliates, representatives, heirs, controlling persons, successors and predecessors in interes t

or assigns of any such excluded party. Also excluded from the Settlement Class are the person s

and/or entities who requested exclusion from the Settlement Class as listed on Exhibit A annexed

hereto .

4. Notice of the pendency of this Action as a class action and of the proposed

Settlement was given to all Settlement Class Members who could be identified with reasonabl e

effort . The form and method of notifying the Settlement Class of the pendency of the action as a

class action and of the terms and conditions of the proposed Settlement met the requirements o f

Rule 23 of the Federal Rules of Civil Procedure, Section 21D(a)(7) of the Securities Exchang e

Act of 1934, 15 U.S.C. 78u-4(a)(7) as amended by the P rivate Secu rities Litigation Reform Act

of 1995 (the "PSLRA"), due process , and any other applicable law, constituted the best notice

practicable under the circumstances, and constituted due and sufficient notice to all persons and

entities entitled thereto .

The Settlement is approved as fair, reasonable and adequate, and the parties ar e

directed to consummate the Settlement in accordance with the terms and provisions of th e

Stipulation .

6. The Complaint, which the Court finds was filed on a good faith basis i n

accordance with the PSLRA and Rule 11 of the Federal Rules of Civil Procedure based upon al l

3

publicly available information, is hereby dismissed with prejudice and without costs, except as

provided in the Stipulation, as against the Settling Defendants only.

7. Members of the Settlement Class and the successors and assigns of any of them,

are hereby permanently barred and enjoined from instituting, commencing or prosecuting, either

directly or in any other capacity, any and all claims, rights or causes of action or liabilitie s

whatsoever, whether based on federal, state, local, statutory or common law or any other law ,

rule or regulation, including both known claims and unknown claims, that have been or could

have been asserted in any forum by the Settlement Class Members or any of them against any of

the Released Parties which arise out of or relate in any way to the allegations, transactions, facts,

matters or occurrences, representations or omissions involved, set forth, referred to or that could

have been asserted in the Complaint relating to the purchase of ARM common stock during the

Settlement Class Period (the "Settled Claims") against any and all of the Settling Defendants,

their past or present subsidiaries, parents, successors and predecessors, officers, directors, agents,

employees, attorneys, auditors, accountants, National Union Fire Insurance Company of

Pittsburgh, PA, the Kentucky Insurance Guaranty Association ("KIGA"), and any person, firm ,

trust, corporation, officer, director or other individual or entity in which any Settling Defendant

has a controlling interest or which is related to or affiliated with any of the Settling Defendants,

and the legal representatives, heirs, successors in interest or assigns of the Settling Defendants

(the "Released Parties") . Released Parties does not mean and does not include any and all of the

Non-Settling Defendants, their past or present subsidiaries, parents, successors and predecessors,

officers, directors (except for Settling Defendants Colin Raymond, Alan Goldberg and Robert H .

Niehaus), agents, employees, attorneys, auditors, accountants and any person, firm, trust,

corporation, officer, director or other individual or entity in which any Non-Settling Defendan t

4

has a controlling interest or which is related to or affiliated with any of the Non-Settling

Defendants, and the legal representatives, heirs, successors in interest or assigns of the Non-

Settling Defendants . Released Parties does not include ARM or its Estate, or Reliance Insurance

Company ("Reliance") or its Estate, and/or the statutory liquidator for Reliance . The Settled

Claims are hereby compromised, settled, released, discharged and dismissed as against the

Released Parties on the merits and with prejudice by virtue of the proceedings herein and this

Order and Final Judgment . By this Order and Final Judgment, plaintiffs and all members of the

Class shall be deemed to covenant not to sue ARM, and shall be enjoined from asserting any

Settled Claims against ARM .

8 . The Settling Defendants and the successors and assigns of any of them, are hereby

permanently barred and enjoined from instituting, commencing or prosecuting, either directly or

in any other capacity, any and all claims, rights or causes of action or liabilities whatsoever ,

whether based on federal, state, local, statutory or common law or any other law, rule o r

regulation, including both known claims and unknown claims, that have been or could have been

asserted in the Action or any forum by the Settling Defendants or any of them or the successors

and assigns of any of them against any of the plaintiffs, Settlement Class Members or thei r

attorneys, which arise out of or relate in any way to the institution, prosecution, or settlement of

the Action (the "Settled Defendants' Claims") against any of the Plaintiffs, Settlement Class

Members or their attorneys . The Settled Defendants' Claims are hereby compromised, settled,

released, discharged and dismissed on the merits and with prejudice by virtue of the proceedings

herein and this Order and Final Judgment .

9. Pursuant to the PSLRA, the Released Parties are hereby discharged from all

claims for contribution by any person or entity, whether arising under state, federal or common

law, based upon, arising out of, relating to, or in connection with the Settled Claims of the

Settlement Class or any Settlement Class Member . Accordingly, to the full extent provided by

the PSLRA, the Court hereby bars all claims for contribution : (a) against the Released Parties ;

and (b) by the Released Parties against any person or entity other than any person or entity

whose liability to the Settlement Class has been extinguished pursuant to the Stipulation and this

Order and Final Judgment .

10 . Neither this Order and Final Judgment, the Stipulation, nor any of its terms and

provisions, nor any of the negotiations or proceedings connected with it, nor any of the

documents or statements referred to therein shall be :

(a) offered or received against the Settling Defendants as evidence of or

construed as or deemed to be evidence of any presumption, concession, or admission by any of

the Settling Defendants with respect to the truth of any fact alleged by Lead Plaintiffs or the

validity of any claim that had been or could have been asserted in the Action or in any litigation,

or the deficiency of any defense that has been or could have been asserted in the Action or in any

litigation, or of any liability, negligence, fault, or wrongdoing of the Settling Defendants ;

(b) offered or received against the Settling Defendants as evidence of a

presumption, concession or admission of any fault, misrepresentation or omission with respect to

any statement or written document approved or made by any Settling Defendant, or against the

Lead Plaintiffs and the Settlement Class as evidence of any infirmity in the claims of the Lead

Plaintiffs and the Settlement Class;

(c) offered or received against the Settling Defendants or against the Lead

Plaintiffs or the Settlement Class as evidence of a presumption, concession or admission wit h

6

respect to any liability, negligence, fault or wrongdoing , or in any way referred to for any other

reason as against any of the part ies to the Stipulation , in any other civil, criminal or

administrative action or proceeding , other than such proceedings as may be necessary to

effectuate the provisions of the Stipulation ; provided, however, that Settling Defendants may

refer to the Stipulation to effectuate the liability protection granted them thereunder ;

(d) construed against the Settling Defendants or the Lead Plaintiffs and the

Settlement Class as an admission or concession that the consideration to be given hereunde r

represents the amount which could be or would have been recovered after trial ; or

(e) construed as or received in evidence as an admission, concession o r

presumption against Lead Plaintiffs or the Settlement Class or any of them that any of thei r

claims are without merit or that damages recoverable under the Complaint would not hav e

exceeded the Settlement Fund .

11 . The Plan of Allocation is approved as fair and reasonable , and Plaintiffs' Counsel

and the Claims Administrator are directed to administer the Stipulation in accordance with it s

terms and provisions .

12. The Court finds that all parties and their counsel have complied with eac h

requirement of Rule 11 of the Federal Rules of Civil Procedure as to all proceedings herein .

13 . Plaintiffs' Counsel are hereby awarded % of the all amounts collected

into the Gross Settlement Fund in reimbursement of expenses, which the Court finds to be fai r

and reasonable . Said expenses shall be paid to Plaintiffs' Co-Lead Counsel from the Settlemen t

Fund .

14. Exclusive jurisdiction is hereby retained over the parties and the Settlement Clas s

Members for all matters relating to this Action, including the administration, interpretation ,

effectuation or enforcement of the Stipulation and this Order and Final Judgment, and includin g

any application for fees and expenses incurred in connection with administering and distributing

the settlement proceeds to the members of the Settlement Class .

15 . Without further order of the Court, the parties may agree to reasonable extensions

of time to carry out any of the provisions of the Stipulation .

16 . There is no just reason for delay in the entry of this Order and Final Judgment an d

immediate entry by the Clerk of the Court is expressly directed pursuant to Rule 54 (b) of th e

Federal Rules of Civil Procedure .

Dated: Louisville, Kentucky

2005

HONORABLE JOHN G . HEYBURN IIUNITED STATES DISTRICT JUDGE

8