<PAGE>


                           RELEASE AND SETTLEMENT AGREEMENT

     THIS RELEASE AND SETTLEMENT AGREEMENT is entered into by and between DANIEL
R. GATTIS ("Gattis") and ARM FINANCIAL GROUP, INC. ("Company").

                                     WITNESSETH:

     WHEREAS, Gattis resigned his employment with the Company on February 13,
1998;
     WHEREAS, Gattis and the Company wish to clarify and memorialize certain
agreements made between them in regard to Gattis' employment and his
resignation;
     NOW, THEREFORE, in consideration of the foregoing premises and the terms
stated herein, it is mutually agreed between the parties as follows;
     1.   Gattis and the Company agree that Gattis shall receive from the
Company the following:

          (a)  SEVERANCE PAY. Gattis is eligible to receive his regular base pay
               for a period of six (6) months ("Severance Period"), payable in
               accordance with the Company's prevailing payroll practices;
          (b)  BONUS. Gattis will receive his 1997 bonus in the amount of One
               Hundred Fifty Seven Thousand Five Hundred Dollars ($157,500)
               based on the 1997 fiscal year;
          (c)  HEALTH COVERAGE. Gattis is eligible to continue his health
               coverage during his Severance Period at the same rates charged to
               active employees. Gattis has the option to continue his health
               insurance coverage at his expense after the Severance Period as
               set forth under COBRA.


                                        - 1 -
<PAGE>


     The Company will withhold from any payments made pursuant to this provision
of the Agreement any taxes required by law to be withheld.
     2.   For good and valuable consideration, the parties, in consideration of
the receipt of Gattis' severance pay, benefits and 1997 bonus, Gattis agrees to
waive and relinquish any other benefits and compensation arising out of or in
connection with his employment or the termination thereof, whether or not
accrued or contingent. The parties release each other, their affiliates and
their respective officers, directors and employees from any claim or lawsuit
whatsoever, whether known or unknown, arising out of or in connection with
Gattis' employment by the Company or the circumstances of Gattis' resignation,
including but not limited to any claim based on Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act of 1967, as amended by the
Older workers Benefit Protection Act, the Kentucky Civil Rights Act, or any
claims based on express or implied contract or tort, public policy, or the
common law, or any other federal, state or local laws.
     3.   Gattis and the Company mutually agree that this Agreement is not be
taken as an admission of liability on the part of either the Company or Gattis.
     4.   Gattis and the Company mutually agree not to disparage one another.
     5.   Gattis agrees to keep strictly confidential and not to use for his 
personal benefit or disclose to any others any confidential business, customer
lists, financial information or trade secrets of the Company for so long as such
confidential business, customer lists, financial information or trade secrets
remain confidential and protectable information of the Company under applicable
law.


                                        - 2 -
<PAGE>

     6.   Gattis and the Company agree to keep the terms and existence of this
Agreement confidential, except where necessary for processing payroll and
benefits information and as required for calculating taxes or as otherwise
required by law.
     7.   This Agreement constitutes the entire agreement between Gattis and the
Company, supersedes any and all prior agreements between the parties (including
the letter to Gattis on December 5, 1995 and the Agreement between Gattis and
the Company dated December 4, 1997), and may not be amended, modified or
supplemented in any way except by subsequent written agreement signed by both
parties.
     8.   The parties acknowledges that they have read and fully understand all
the provisions of this Agreement, that they are entering into this Agreement
freely and voluntarily and that the health benefits and 1997 bonus are in
consideration of his agreement to waive all possible claims against the Company
(including its affiliates and their respective employees).
     9.   Gattis acknowledges that he has been advised to consult an attorney
prior to executing this Agreement and that he was given a 21 day period to 
consider whether or not to enter into this Agreement.
     10.  The Company agrees that for a period of seven (7) days following the
execution of this Agreement, Gattis may revoke this Agreement personally or
through his attorney by written notice to the Company via certified mail, return
receipt requested and must be accompanied by the return of all payments received
by Gattis in connection with this Agreement. Upon the expiration of the seven
(7) day period, Gattis agrees that this Agreement becomes irrevocable.


                                        - 3 -
<PAGE>


     WITNESS the signatures of the parties this 2nd day of April, 1998.

ARM FINANCIAL GROUP, INC.                    /S/ DANIEL R. GATTIS
                                             -----------------------------
By: /s/   [ILLEGIBLE]                        DANIEL R. GATTIS
   -----------------------------------
Its: E.V.P GENERAL COUNSEL & SECRETARY





                                        - 4 -