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                                                                 Exhibit 10.38

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1999 (the "Effective Date"), by and between ARM
FINANCIAL GROUP, INC., a Delaware corporation with its principal place of
business in the Commonwealth of Kentucky (the "Company"), and Edward L. Zeman
("Executive").

         WHEREAS the parties have executed an employment agreement dated
December 4, 1997, which has been amended from time to time (the "1997
Agreement") and which provides certain benefits in the event of a change in
control of the Company; and

         WHEREAS the parties desire to terminate and replace the 1997 Agreement
with the present Agreement, and to restate the terms and conditions of
Executive's employment with the Company,

         NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties agree as follows:

1.       EMPLOYMENT.

         A. POSITION. The Company wishes to employ and the Executive hereby
accepts the position of Executive Vice President and Chief Financial Officer for
the Term (as defined in Section 2 below). Executive shall have such
responsibilities and powers normally associated with such office. Executive
shall perform such other duties as are commensurate with Executive's position,
and as may be determined by the Chief Executive Officer or the Board of
Directors of the Company (the "Board") from time to time.

         B. EXECUTIVE'S COMMITMENT. Executive shall consider his employment by
the Company as his principal employment, shall devote the necessary time and
attention to his duties and responsibilities under this Agreement, and shall
perform them to the best of his abilities. While subject to any provisions of
this Agreement, Executive shall maintain loyalty to the Company, and shall take
no action which would directly or indirectly promote any competitor without the
approval of the Company, or injure any of the Company's interests. Subject to
the foregoing and Section 7 below, Executive may engage in other charitable,
civic, or business activities to the extent that they do not interfere with his
obligations under this Agreement, provided that Executive's participation in
those activities shall be subject to the Company's ongoing approval.

2.       TERM OF EMPLOYMENT.

         Unless terminated earlier as provided in Sections 4 and 5, the initial
term of Executive's employment shall be three years to commence with the
Effective Date (as it may be extended pursuant to the following sentence, the
"Term"). Commencing on the third anniversary date of this Agreement and on each
anniversary date thereafter the term of this Agreement shall be 


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automatically extended for a period of one year, and shall continue in effect
from year-to-year, unless (i) either party gives written notice of its intent to
terminate this Agreement at least 180 days prior to an anniversary date (a
"Nonrenewal Notice"), or (ii) this Agreement is terminated as hereinafter set
forth in Sections 4 and 5.

3.       COMPENSATION AND BENEFITS.

         A. BASE SALARY. Commencing with the Effective Date, the Company shall
pay Executive a base salary of $235,000 per annum, payable in accordance with
the Company's prevailing payroll policies. The Compensation Committee of the
Board shall review the Executive's base salary no less frequently than annually,
and on the basis of such review, may increase (but not decrease) such base
salary (as it may be so increased, the "Base Salary").

         B. BONUS. Executive is entitled to participate in a cash bonus plan on
the same basis as similarly situated executives as may be determined by the
Compensation Committee, in its sole discretion.

         C. BENEFITS. The Executive shall, during his employment under this
Agreement, be included to the extent eligible thereunder in all employee benefit
plans, programs or arrangements (including, without limitation, any plans,
programs or arrangements providing for retirement benefits, incentive
compensation, profit sharing, bonuses, disability benefits, health, dental and
life insurance, or vacation and paid holidays) which shall be established by the
Company for, or made available to, similarly situated executives. The Company
shall indemnify Executive to the fullest extent permitted by Delaware law and
the Company's Certificate of Incorporation and ByLaws, and the Company shall
procure and maintain insurance policies, to the extent reasonably available, for
the benefit of its directors and officers, including Executive.

4.       TERMINATION OF EMPLOYMENT.

         A. TERMINATION WITHOUT CAUSE; FAILURE TO RENEW WITHOUT CAUSE;
RESIGNATION FOR GOOD REASON. If, during the Term, Executive's employment is
terminated without Cause, the Company delivers a Nonrenewal Notice without
Cause, or if Executive resigns from his employment for Good Reason, the Company
shall pay executive severance pay in an amount equal to two times the sum of:
(1) Executive's Base Salary and (2) the greater of (i) the percentage of
Executive's actual earnings used to calculate bonus paid to the Executive in the
year preceding termination of employment multiplied by Base Salary or (ii) the
average of bonuses paid Executive over the last three years preceding the
termination or resignation, (the "Severance Payment"). The Severance Payment
shall be paid over twenty-four months in such equal installments as are
consistent with the Company's prevailing payroll policies. The Severance Payment
is subject to Executive fulfilling certain stipulations set forth in Section
4(A) hereof. Executive shall also be entitled to receive a PRO RATA portion of
any bonus paid for the year of termination payable at such time as payments are
generally made under the bonus plan, such bonus shall equal the greater of (i)
the percentage of Executive's actual earnings used to calculate bonus paid to
the Executive in the year preceding termination of employment multiplied by Base
Salary or (ii) the average of bonuses paid Executive over the last three years



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preceding the termination or resignation, multiplied by a fraction where the
numerator is the number of days during the year that Executive was employed by
the Company and the denominator is 365. Additionally, the Company shall continue
to pay all (or the applicable portion) of the premiums for such group insurance
benefits (such as health, life, and disability insurance policies) that covered
Executive on the day next preceding Executive's termination of employment for
twenty-four months following termination under this Section 4(A). Executive
shall have no further right to receive any other compensation or benefits after
termination or resignation except as may be provided by the terms of the
Company's employee benefit plans or programs.

                  1. RELEASE OF CLAIMS. To receive the severance benefits
         described in this Section 4(A), Executive must execute in a form
         reasonably suitable to the Company a release and waiver of all claims
         Executive may have against the Company, or any of its subsidiaries,
         parents, officers, directors, and agents arising out of Executive's
         employment with the Company or the termination or resignation of
         employment, including any claims for employment discrimination under
         any and all statutes and regulations which prohibit employment
         discrimination because of race, sex, national origin, color, age,
         religion, disability, or veteran's status, including but not limited to
         the Federal Age Discrimination in Employment Act.

                  2. FURTHER STIPULATIONS. The Company may not terminate any
         severance payments and insurance premium payments due Executive under
         this Section 4(A) prior to a ruling or order issued by an arbitration
         panel or court of competent jurisdiction finding that the Executive has
         materially breached Section 6 or 7 of this Agreement and that such a
         remedy is equitable hereunder.

                  3. DEATH BEFORE SEVERANCE IS PAID. Any severance due Executive
         at the time Executive dies shall be paid when due under Section 4(A) to
         the beneficiary designated by the Executive in writing to receive these
         funds, or if no beneficiary is designated, to the Executive's estate.

         B. TERMINATION FOR CAUSE; FAILURE TO RENEW FOR CAUSE; RESIGNATION
WITHOUT GOOD REASON. If, during the Term, the Company terminates Executive's
employment for Cause or if Executive resigns without Good Reason, then Executive
shall be entitled to receive Base Salary through the date specified in the
notice of termination, or 10 business days after receipt by the Company of a
notice of resignation. Executive shall have no further rights to receive any
other form of compensation or benefits after such termination or resignation of
employment, except as determined in accordance with the terms of the Company's
employee benefit plans or programs.

               1. CAUSE. Termination for Cause shall mean termination of
          Executive's employment because of:

                           (i) any act or omission by Executive that constitutes
                  a material breach of this Agreement;



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                           (ii) the continued failure or refusal of Executive to
                  perform the material duties required of him as an employee of
                  the Company (other than because of death or disability);

                           (iii) any willful material violation by the Executive
                  of any law or regulation applicable to the business of the
                  Company or its subsidiaries, or the Executive's conviction of
                  a felony, or any willful perpetration by the Executive of a
                  common law fraud; or

                           (iv) any willful misconduct by Executive which causes
                  material financial injury to the Company or materially harms
                  its business reputation, or otherwise is materially injurious
                  to the Company, its subsidiaries, or affiliates;

provided, however, that if any such Cause relates to Executive's obligations
under this Agreement and is (x) susceptible to cure and (y) does not constitute
a repetition of Cause, then the Company shall not terminate Executive's
employment hereunder unless the Company first gives Executive notice of its
intention to terminate and of the grounds for such termination, and Executive
has not, within 10 business days following receipt of the notice, cured such
Cause, or in the event such Cause is not susceptible to cure within such 10
business day period, Executive has not taken all reasonable steps within such 10
business day period to cure such Cause as promptly as practicable thereafter;
and provided further that no action or omission shall be deemed to be Cause if
taken in reliance upon the clear directive of the Company's Chief Executive
Officer or Board of Directors.

                  2. GOOD REASON. Resignation with Good Reason, for purposes of
         this Agreement, shall mean any of the following (without Executive's
         written consent):

                           (i) a reduction in Executive's Base Salary or a
                  failure by the Company to pay material compensation when due
                  in connection with Executive's employment;

                           (ii) material diminution of authority, 
                  responsibilities or positions of Executive;

                           (iii) the failure of a successor to the Company to
                  assume and agree to and abide by the terms and condition of
                  this Agreement; or

                           (iv) the failure to fully compensate Executive for
                  any increase in Executive's cost of living associated with the
                  Company's relocation of Executive's place of employment,
                  including without limitation, costs associated directly with
                  such relocation, housing costs, and any differences in the
                  appropriate cost of living indices;

provided, however, that if any such Good Reason is (x) susceptible to cure and
(y) does not constitute a repetition of Good Reason, then Executive shall not
terminate his employment 



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hereunder unless Executive first gives the Company notice of his intention to
terminate and of the grounds for such termination, and the Company has not,
within 10 business days following receipt of the notice, cured such Good Reason,
or in the event such Good Reason is not susceptible to cure within such 10
business day period, the Company has not taken all reasonable steps within such
10 business day period to cure such Good Reason as promptly as practicable
thereafter.

         C. CHANGE OF CONTROL. In the event of a Change of Control (as defined
below), the Executive may terminate his employment and this Agreement upon 30
days' written notice to the Company during the 30-day period following the
18-month period after the occurrence of the Change of Control (or such shorter
period to the extent the acquiring company does not request the services of the
Executive for such 18-month period). In the event of such a termination by
Executive, Executive shall be entitled to receive all of the benefits described
in Section 4(A) above (subject to compliance with the conditions set forth
therein). For purposes of this Agreement, a "Change of Control" shall have the
meaning ascribed thereto in the Company's 1997 Equity Incentive Plan in its form
on the effective date of this Agreement.

5.       DEATH OR DISABILITY.

         In the event of the termination of Executive's employment by reason of
death or Permanent Disability (as herein defined) the Executive (or his estate,
if applicable) shall be entitled to compensation and benefits under Section 3
through the date of termination, which is the date of death or the date
Executive commences to receive permanent disability benefits under the Company's
disability insurance program. Executive shall also be entitled to receive a PRO
RATA portion of any bonus paid for the year of termination payable at such time
as payments are generally made under the bonus plan and subject to the
attainment of the performance goals thereunder. The Executive (or his estate or
guardian) shall have no further right to receive any other compensation or
benefits after such termination except as may be determined in accordance with
the terms of the Company's employee benefit plans or programs. For purposes of
this agreement, "permanent disability" means a physical or mental disability or
infirmity of the Executive which prevents the normal performance of
substantially all of his duties as an employee of the Company, which disability
or infirmity shall exist, or in the opinion of an independent physician is
reasonably likely to exist, for any continuous period of 180 days or days
aggregating 180 days in any one year period.

6.       CONFIDENTIALITY.

         A. CONFIDENTIAL INFORMATION. "Confidential Information" means
information in whatever form, including information that is written,
electronically stored, orally transmitted, or memorized, which has a commercial
value to the Company and which is created, discovered, developed, or otherwise
becomes known to the Company, or in which property rights are held, assigned to
or otherwise acquired by or conveyed to the Company, including any system,
method, technique, research and development, technology, software, technical
information, trade secret, trademark, copyrighted material, reports, records,
documentation, data, customer or supplier lists, tax or financial information
(including the revenues, profits, and costs associated 



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with any of the Company's products or services), business or marketing plans,
strategy, pricing information or forecasts. Confidential Information does not
include information which becomes generally known within the Company's industry
through no act or omission by Executive.

         B. OWNERSHIP; DISCLOSURE. Any Confidential Information, whether or not
developed by Executive, shall at all times be the Company's exclusive property.
Executive shall, upon termination of employment, return the original and any
copy of Confidential Information to the Company.

         C. RESTRICTION. During the term of this Agreement, and at any time
thereafter Executive shall not without the Company's prior written consent
specifically referring to this covenant,

                  (1) use any Confidential Information for the benefit of
         himself or any other party other than the Company or disclose it to any
         other person or entity;

                  (2) remove Confidential Information or documentation, device,
         plan, or other records pertaining to Company's business from the
         Company's premises, except when specifically authorized to do so in
         pursuit of the Company's business; or

                  (3) retain copies or other records of any such items.

         D. PURPOSE. The parties acknowledge and agree that the Confidential
Information is a valuable business asset, and this section is necessary to
protect the Company's legitimate business interests.

7.       COVENANT NOT TO COMPETE/NON-SOLICITATION.

         A. COVENANT. During the time of his employment and for a period of two
years following termination of employment, subject to the last sentence of this
Section 7(A), the Executive shall not, without prior written consent of the
Company, which in its exclusive discretion it may withhold, directly or
indirectly, for any reason:

                  (1) engage in, assist, or have any interest in, including
         without limitation as a principal, consultant, employee, owner,
         shareholder, director, officer, partner, member, advisor, agent or
         financier, any activity which is in competition with the Company where
         the Company does business; provided, this subsection shall not prohibit
         investment by the Executive not exceeding five percent (5%) of the
         outstanding securities of a publicly traded company so long as he does
         not serve as an employee, director or consultant with respect to any
         activities of such corporation which are in competition with the
         Company where the Company does business;

                  (2) directly or indirectly influence any of the Company's
         employees, officers, agents, or consultants to terminate their
         employment or relationship with the Company or accept employment or a
         business relationship with any of the Company's competitors;



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                  (3) interfere with or solicit for any purpose contrary to the
         best interests of the Company any of the Company' s contracts or
         business relationships, including without limitation those with
         customers, suppliers, consultants, attorneys, or other agents, whether
         evidenced by written or oral agreement; or

                  (4) at no time during or after termination of employment shall
         Executive or the Company utter, issue or circulate any false,
         inappropriate or disparaging statements, remarks or rumors about each
         other unless giving truthful testimony under subpoena.

Notwithstanding the foregoing, Section 7(A)(1) shall not apply following the
Company's termination of Executive's employment without Cause, the Executive's
resignation with Good Reason, either party's non-renewal by delivery of a
Nonrenewal Notice, or in any event after a Change in Control. For purposes of
Sections 6 and 7 of this Agreement, the "Company" shall mean the Company
together with its subsidiaries.

         B. EXTENSION OF RESTRICTED PERIOD. The period of applicability of
Section 7(A) shall be extended an additional day for each day on which Executive
is in breach of Section 7(A).

8.       REMEDIES.

         A. IRREPARABLE HARM. The parties acknowledge and agree that irreparable
harm would result in the event of a threatened or actual material breach by
either party of Section 6 or 7 of this Agreement. Therefore, in such an event,
and notwithstanding any other provision of this Agreement,

                  (1) The non-breaching party shall be entitled to a restraining
         order, order of specific performance, or other injunctive relief,
         without showing actual damage and without bond or other security;

                  (2) The Company's obligation in making payment or providing
         any benefit under this Agreement, including without limitation any
         severance benefits, shall immediately cease upon the Company's
         obtaining an order or ruling described in Section 4(A)(2) of this
         Agreement.

                  (3) If the Executive breaches Section 7 of this Agreement the
         parties agree that the Company may seek relief in any court having
         jurisdiction of the dispute and shall be entitled to an injunction to
         enforce Section 7 for a period of two (2) years following the
         Executive's last breach.

         B. REMEDIES NOT EXCLUSIVE. Neither party's remedies hereunder are
exclusive, they shall not prejudice or prohibit any other rights or remedies
under this Agreement or otherwise. To the extent required to be enforced by
applicable law, the cessation of the Company's obligations to make payments and
continue benefits under this Agreement shall deemed to be in the nature of
liquidated damages and not a penalty. If for any reason, it is held that the
restrictions under Section 6 or 7 are not reasonable or that consideration
therefor is inadequate, 



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such restrictions shall be interpreted or modified to include as much of the
duration and scope identified in Section 6 or 7 as will render such restrictions
valid and enforceable.

9.       ADDITIONAL PAYMENT.

         A. GROSS-UP PAYMENT. Notwithstanding anything herein to the contrary,
if it is determined that any Payment (as defined below) would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any interest or penalties with respect to such excise
tax (such excise tax, together with any interest or penalties thereon, is herein
referred to as an "Excise Tax"), then Executive shall be entitled to an
additional payment (a "Gross-Up Payment") in an amount that will place Executive
in the same after-tax economic position that Executive would have enjoyed if the
Excise Tax had not applied to the Payment. The amount of the Gross-Up Payment
shall be determined by the Accounting Firm (as defined below) in accordance with
the formula {(E x (1 - M)/(1 - T)) - E} (or such other formula as the Accounting
Firm deems appropriate which is intended to achieve the same result), where

                  E equals the Payments which are determined to be "excess
         parachute payments" within the meaning of Section 280G(b)(1) of the
         Code;

                  M equals the sum of the highest marginal rates(1) for Taxes 
         (as defined below) applicable to Executive at the time of the Payment;
         and


---------------
(1) To be expressed in up to three decimal places. For example, a combined 
federal, state and local marginal rate of 56% would be expressed as .560



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                  T equals M plus the rate of Excise Tax applicable to the
Payment.

No Gross-Up Payments shall be payable hereunder if the Accounting Firm
determines that the Payments are not subject to an Excise Tax.

         B. DETERMINATION OF GROSS-UP PAYMENT. Subject to the provisions of
Section 9(C), all determinations required under this Section 9, including
whether a Gross-Up Payment is required, the amount of the Payments constituting
excess parachute payments, and the amount of the Gross-Up Payment, shall be made
by the Accounting Firm, which shall provide detailed supporting calculations to
both Executive and the Company within fifteen days of the Change in Control
Date, Executive's Date of Termination or any other date reasonably requested by
Executive or the Company on which a determination under this Section 9 is
necessary or advisable. The Company shall pay to Executive the initial Gross-Up
Payment within 5 days of the receipt by Executive and the Company of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, the Company shall cause the Accounting Firm
to provide Executive with an opinion that the Accounting Firm has substantial
authority under the Code and Regulations not to report an Excise Tax on
Executive federal income tax return. Any determination by the Accounting Firm
shall be binding upon Executive and the Company. If the initial Gross-Up Payment
is insufficient to cover the amount of the Excise Tax that is ultimately
determined to be owing by Executive with respect to any Payment (hereinafter an
"Underpayment"), the Company, after exhausting its remedies under Section 9(C)
below, shall promptly pay to Executive an additional Gross-Up Payment in respect
of the Underpayment.

         C. PROCEDURES. Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notice shall be given as soon
as practicable after Executive knows of such claim and shall apprise the Company
of the nature of the claim and the date on which the claim is requested to be
paid. Executive agrees not to pay the claim until the expiration of the
thirty-day period following the date on which Executive notifies the Company, or
such shorter period ending on the date the Taxes with respect to such claim are
due (the "Notice Period"). If the Company notifies Executive in writing prior to
the expiration of the Notice Period that it desires to contest the claim,
Executive shall: (i) give the Company any information reasonably requested by
the Company relating to the claim; (ii) take such action in connection with the
claim as the Company may reasonably request, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company and reasonably acceptable to Executive; (iii)
cooperate with the Company in good faith in contesting the claim; and (iv)
permit the Company to participate in any proceedings relating to the claim.
Executive shall permit the Company to control all proceedings related to the
claim and, at its option, permit the Company to pursue or forgo any and all
administrative appeals, proceedings, hearings, and conferences with the taxing
authority in respect of such claim. If requested by the Company, Executive
agrees either to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner and to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts as the Company shall determine; PROVIDED, HOWEVER,
that, if the Company directs Executive to pay such 



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claim and pursue a refund, the Company shall advance the amount of such payment
to Executive on an after-tax and interest-free basis (the "Advance"). The
Company's control of the contest related to the claim shall be limited to the
issues related to the Gross-Up Payment and Executive shall be entitled to settle
or contest, as the case may be, any other issues raised by the Internal Revenue
Service or other taxing authority. If the Company does not notify Executive in
writing prior to the end of the Notice Period of its desire to contest the
claim, the Company shall pay to Executive an additional Gross-Up Payment in
respect of the excess parachute payments that are the subject of the claim, and
Executive agrees to pay the amount of the Excise Tax that is the subject of the
claim to the applicable taxing authority in accordance with applicable law.

         D. REPAYMENTS. If, after receipt by Executive of an Advance, Executive
becomes entitled to a refund with respect to the claim to which such Advance
relates, Executive shall pay the Company the amount of the refund (together with
any interest paid or credited thereon after Taxes applicable thereto). If, after
receipt by Executive of an Advance, a determination is made that Executive shall
not be entitled to any refund with respect to the claim and the Company does not
promptly notify Executive of its intent to contest the denial of refund, then
the amount of the Advance shall not be required to be repaid by Executive and
the amount thereof shall offset the amount of the additional Gross-Up Payment
then owing to Executive.

         E. FURTHER ASSURANCES. The Company shall indemnify Executive and hold
Executive harmless, on an after-tax basis, from any costs, expenses, penalties,
fines, interest or other liabilities ("Losses") incurred by Executive with
respect to the exercise by the Company of any of its rights under this Section
9, including, without limitation, any Losses related to the Company's decision
to contest a claim or any imputed income to Executive resulting from any Advance
or action taken on Executive's behalf by the Company hereunder. The Company
shall pay all reasonable legal fees and expenses incurred under this Section 9,
and shall promptly reimburse Executive for the reasonable expenses incurred by
Executive in connection with any actions taken by the Company or required to be
taken by Executive hereunder. The Company shall also pay all of the fees and
expenses of the Accounting Firm, including, without limitation, the fees and
expenses related to the opinion referred to in Section 9(B).

         F. DEFINITIONS.  "ACCOUNTING FIRM" shall mean Ernst & Young or, if such
firm is unable or unwilling to perform such calculations, such other national
accounting firm as shall be designated by agreement between Executive and the
Company.

         "CHANGE IN CONTROL DATE" shall mean the date on which the Change in
Control occurs.

         "EQUITY PLANS" means the Company's Amended and Restated Stock Option
Plan, the Company's 1997 Equity Incentive Plan, as each may be amended from time
to time and any successor plans.

         "PAYMENT" means (i) any amount due or paid to Executive under this
Agreement, (ii) any amount that is due or paid to Executive under any plan,
program or arrangement of the Company and its subsidiaries (including, without
limitation, the Equity Plans) and (iii) any amount or benefit that is due or
payable to Executive under this Agreement or under any plan, program or



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arrangement of the Company and its subsidiaries not otherwise covered under
clause (i) or (ii) hereof which must reasonably be taken into account under
Section 280G of the Code and the Regulations in determining the amount the
"parachute payments" received by Executive, including, without limitation, any
amounts which must be taken into account under the Code and Regulations as a
result of (A) the acceleration of the vesting of any option, restricted stock or
other equity award granted under the Equity Plans or otherwise, (B) the
acceleration of the time at which any payment or benefit is receivable by
Executive or (C) any contingent severance or other amounts that are payable to
Executive.

         "REGULATIONS" shall mean the proposed, temporary and regulations under
Section 280G of the Code or any successor provision thereto.

         "TAXES" shall mean the federal, state and local income taxes to which
Executive is subject at the time of determination, calculated on the basis of
the highest marginal rates then in effect, plus any additional payroll or
withholding taxes to which Executive is then subject.

         G. ALTERNATIVE TO THE GROSS-UP PAYMENT. Notwithstanding anything to the
contrary in this Agreement, Executive hereby agrees that the Payments to be made
to Executive shall be reduced (and no Gross-up Payment will be paid to
Executive) so that none of the Payments constitute "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, if, and only if, the Accounting
Firm determines that such reduction would result in the aggregate after excise
tax (but before income tax) value of the Payments so reduced being no more than
$20,000 less than the after excise tax (but before income tax) value of the sum
of the Payments and the relevant Gross-up Payment (assuming that the Payments
had not been reduced and a Gross-up Payment was paid to Executive).

10.      ARBITRATION.

         A. Any dispute or controversy arising under or in connection with this
Agreement and any claim by Executive that the Company breached any statutory or
common law duty to Executive (including but not limited to the law of tort,
contract, and all federal, state or local laws prohibiting employment
discrimination because of race, color, religion, sex, national origin, age,
veteran's status, or disability) that cannot be mutually resolved by the parties
hereto shall be settled exclusively by arbitration in Louisville, Kentucky
before one arbitrator of exemplary qualifications and stature, who shall be
selected jointly by the Company and the Executive, or, if the Company and the
Executive cannot agree on the selection of the arbitrator, shall be selected by
the American Arbitration Association (provided that any arbitrator selected by
the American Arbitration Association shall not, without the consent of the
parties hereto, be affiliated with the Company or the Executive or any of their
respective affiliates). Judgment may be entered on the arbitrator's award in any
court having jurisdiction. The parties hereby agree that the arbitrator shall be
empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement, or in the event the arbitrator is resolving a dispute
over the breach of a statutory or common law duty, the parties agree that the
arbitrator shall be empowered to fashion a remedy that would have been available
had the matter been litigated in a judicial or administrative proceeding. The
Company shall bear all expenses of the arbitrator incurred in any arbitration or



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any court costs incurred in any court proceeding hereunder and shall promptly
reimburse the Executive (within 30 days of invoice) for any related reasonable
legal fees and out-of-pocket expenses directly attributable to such arbitration
or any court proceeding related to this Agreement; provided that such legal fees
are calculated on an hourly, and not on a contingency fee, basis; and, that the
Executive shall bear all expenses of the arbitrator and all of his legal fees
and out-of-pocket expenses (and reimburse the Company for its portion of such
expenses) if the arbitrator or relevant trier-of-fact determines that the
Executive's claim or position was frivolous and without reasonable foundation.

         B. The parties agree that this requirement to arbitrate shall not apply
to any suit by either party seeking an injunction and/or damages for violation
of Sections 6 and/or 7 of this Agreement, it being specifically understood that
such claims arising under Sections 6 or 7 may be enforced in the first instance
in any court having jurisdiction of the parties.

         C. If either party appeals the decision of the arbitrator, each party
shall bear its own expenses until the outcome of such appeal has been
determined, whereupon the prevailing party's expenses, including reasonable
legal fees, shall be reimbursed promptly by the other party.

11.      MISCELLANEOUS.

         A.  NOTICES.  All notices or communications hereunder shall be in 
writing addressed as follows:

To the Company:

                  ARM Financial Group, Inc.
                  515 West Market Street
                  Louisville, Kentucky  40202-3271
                  Telecopier No.:  (502) 582-7903
                  Attention: General Counsel

To the Executive:

                  ARM Financial Group, Inc.
                  515 West Market Street
                  Louisville, Kentucky 40202-3271
                  Telecopier No.:  (502) 582-7903

or to such other address as either party may have furnished to the other in
writing in accordance herewith. All notices shall be conclusively deemed to be
received and shall be effective, (i) upon receipt if hand delivered; (ii) if
sent by telecopy or facsimile transmission, upon confirmation of receipt by the
sender of such transmission; or (iii) if sent by registered or certified mail,
on the fifth day after the day on which such notice is mailed.



                                       12
<PAGE>


         B. SEVERABILITY. Each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

         C. ASSIGNMENT. The Company's rights and obligations under this
Agreement shall not be assignable by the Company except as incident to a
reorganization, merger or consolidation, or transfer of all or substantially all
of the Company's business and properties (or portion thereof in which the
Executive is employed). Neither this Agreement nor any rights hereunder shall be
assignable or otherwise subject to hypothecation by the Executive. Nothing
herein is intended to affect the provisions of Sections 4(A)(3) and 5.

         D. ENTIRE AGREEMENT. Except as expressly set forth herein, this
Agreement represents the entire Agreement of the parties concerning the subject
matter hereof and shall supersede any and all previous contracts, arrangements
or understandings between the Company and the Executive, including, without
limitation, the 1997 Agreement. This Agreement may be amended at any time by
mutual written agreement of the parties hereto. The parties expressly disclaim
that there were any representations or other understandings made to the other as
an inducement to enter into this Agreement except those that appear within this
Agreement.

         E. WITHHOLDING. The payment of any amount pursuant to this Agreement
shall be subject to applicable withholding and payroll taxes, and such other
deductions as may be required under the company's employee benefit plans, if
any.

         F. GOVERNING LAW. This Agreement shall be governed by and in accordance
with the laws of the Commonwealth of Kentucky.

         IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand, as of the day and year
first above.

                                          ARM FINANCIAL GROUP, INC.

                                          By:   /s/ Martin H. Ruby
                                                -------------------------------
                                          Name:
                                                -------------------------------
                                          Title:


                                          EXECUTIVE

                                          By:   /s/ Edward L. Zeman
                                                -------------------------------
                                          Name: Edward L. Zeman