UNITED TRUST GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on on Tuesday, September 21, 1999
To the Shareholders of:
UNITED TRUST GROUP, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of United
Trust Group Inc., ("UTG"), will be held on Tuesday, September 21, 1999 at 9:00
a.m. at the Corporate headquarters, 5250 South Sixth Street Road, Springfield,
Illinois 62703 for the following purposes:
1. To elect eleven directors of UTG to serve for one year and until their
successors are elected and qualified; and
2. To consider and act upon such other business as may properly be
brought before the meeting.
The Board of Directors has fixed the close of business on August 24, 1999
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are urged to
mark, date and sign the enclosed proxy and return it promptly so that your vote
can be recorded. If you are present at the meeting and desire to do so, you may
revoke your proxy and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
UNITED TRUST GROUP, INC.
George E. Francis
Secretary
Dated: August 30, 1999
Springfield, Illinois
YOUR VOTE IS IMPORTANT!
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
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PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS OF
UNITED TRUST GROUP, INC.
GENERAL INFORMATION REGARDING SOLICITATION
The Annual Meeting of the Shareholders of United Trust Group, Inc. ("UTG")
will be held on Tuesday, September 21, 1999 at 9:00 a.m. at the at the Corporate
headquarters, 5250 South Sixth Street Road, Springfield, Illinois 62703
This proxy statement is being sent to each holder of record of the issued
and outstanding shares of Common Stock of UTG, no par value (the "Common
Stock"), as of August 24, 1999, in order to furnish to each shareholder
information relating to the business to be transacted at the meeting.
This proxy statement and the enclosed proxy are being mailed to
shareholders of UTG on or about August 30, 1999. The Annual Report has been
mailed under separate cover. UTG will bear the cost of soliciting proxies from
its shareholders. UTG may reimburse brokers and other persons for their
reasonable expenses in forwarding proxy materials to the beneficial owners of
UTG's stock. Solicitations may be made by telephone, telegram or by personal
calls, and it is anticipated that such solicitations will consist primarily of
requests to brokerage houses, custodians, nominees, and fiduciaries to forward
the soliciting material to the beneficial owners of shares held of record by
such persons. If necessary, officers and regular employees of UTG may by
telephone, telegram or personal interview request the return of proxies.
VOTING
The enclosed proxy is solicited by and on behalf of the Board of Directors.
If you are unable to attend the meeting on Tuesday, September 21, 1999, please
complete the enclosed proxy and return it to us in the accompanying envelope so
that your shares will be represented.
When the enclosed proxy is duly executed and returned in advance of the
meeting, and is not revoked, the shares represented thereby will be voted in
accordance with the authority contained therein. Any shareholder giving a proxy
may revoke it at any time before it is voted by delivering to the Secretary of
UTG a written notice of revocation or a duly executed proxy bearing a later
date, or by attending the meeting and voting in person. If a proxy fails to
specify how it is to be voted, it will be voted "FOR" Proposal 1.
Inspectors of election will be appointed to tabulate the number of shares
of Common Stock represented at the meeting in person or by proxy, to determine
whether or not a quorum is present and to count all votes cast at the meeting.
The inspectors of election will treat abstentions and broker non-votes as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. With respect to the tabulation of votes cast on a specific proposal
presented to the shareholders at the meeting, abstentions will be considered as
present and entitled to vote with respect to that specific proposal, whereas
broker non-votes will not be considered as present and entitled to vote with
respect to that specific proposal.
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AFFILIATE COMPANIES
UTG is the ultimate parent company in an insurance holding company system.
The following is the current organizational chart for the companies that are
members of UTG's insurance holding company system and affiliates of UTG, and the
acronyms that will be used herein to reference the companies:
Organizational Chart
United Trust Group, Inc. ("UTG") is the ultimate controlling company. UTG owns
79.8% of First Commonwealth Corporation ("FCC") and 100% of Roosevelt Equity
Corporation ("REC"). FCC owns 100% of Universal Guaranty Life Insurance Company
("UG"). UG owns 100% of United Security Assurance Company ("USA"). USA owns
83.9% of Appalachian Life Insurance Company ("APPL") and APPL owns 100% of
Abraham Lincoln Insurance Company ("ABE").
For purposes of this proxy statement, the term "affiliate life insurance
companies" shall mean UG, USA, APPL and ABE, and the term "non-insurance
affiliate companies" shall mean the affiliated companies other than UG, USA,
APPL and ABE.
The companies hereinafter are sometimes collectively referred to as the
"Affiliate Companies".
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VOTING SECURITIES OUTSTANDING
August 24, 1999 has been fixed as the record date for the determination of
shareholders entitled to notice of and to vote at the annual meeting or any
adjournments or postponements thereof. On that date, UTG had outstanding
3,309,389 shares of Common Stock, no par value. No other voting securities of
UTG are outstanding. The holders of such shares are entitled to one vote per
share. There are no cumulative voting rights. The affirmative vote of the
holders of a majority of the shares of Common Stock represented in person or by
proxy at the annual meeting is required to approve each matter to be voted on at
such meeting.
PRINCIPAL HOLDERS OF SECURITIES
The following tabulation sets forth the name and address of the entity known to
be the beneficial owners of more than 5% of UTG's Common Stock and shows: (i)
the total number of shares of Common Stock beneficially owned by such person as
of July 31, 1999 and the nature of such ownership; and (ii) the percent of the
issued and outstanding shares of Common Stock so owned as of the same date.
Title Number of Shares Percent
Of Name and Address and Nature of of
Class of Beneficial Owner Beneficial Ownership Class
Common First Southern Funding, LLC 1,302,123 (1) 36.5%
Stock no 99 Lancaster Street
Par value P.O. Box 328
Stanford, KY 40484
Larry E. Ryherd 548,951 (2) 15.4%
12 Red Bud Lane
Springfield, IL 62707
(1) First Southern Funding LLC owns 765,330 shares of UTG's Common Stock
directly. Includes: (i) 125,825 shares of UTG's Common Stock owned by First
Southern Bancorp, Inc.; (ii) 183,033 shares of UTG's Common Stock owned by
First Southern Capital Corp., LLC; (iii) 23,135 shares of UTG's Common
Stock owned by First Southern Investments, LLC; all affiliates of First
Southern Funding LLC; and (iv) 204,800 shares of UTG's Common Stock which
may be acquired upon conversion of UTG convertible notes owned by First
Southern Bancorp, Inc.(See "Certain Relationships and Related
Transactions). Jesse T. Correll, Director of UTG, by reason of ownership of
83% of the outstanding shares of First Southern Funding, LLC may be
considered a beneficial owner of UTG.
(2) Larry E. Ryherd owns 181,091 shares of UTG's Common Stock in his own name.
Includes: (i) 150,050 shares of UTG's Common Stock in the name of Dorothy
LouVae Ryherd, his wife; (ii) 150,000 shares of UTG's Common Stock which
are held beneficially in trust for the three children of Larry E. Ryherd
and Dorothy LouVae Ryherd, namely Shari Lynette Serr, Derek Scott Ryherd
and Jarad John Ryherd; (iii) 4,600 shares of UTG's Common Stock, 2,700
shares of which are in the name of Shari Lynette Serr, 1,900 shares of
which are in the name of Jarad John Ryherd; (iv) 2,000 shares held by
Dorothy LouVae Ryherd, his wife as custodian for granddaughter, 160 shares
held by Larry E. Ryherd as custodian for granddaughter; (v) 47,250 shares
beneficially in trust for the three children of Larry E. Ryherd and Dorothy
LouVae Ryherd, namely Shari Lynette Serr, Derek Scott Ryherd and Jarad John
Ryherd and (vi) 13,800 shares which may be acquired by Larry E. Ryherd upon
exercise of outstanding stock options.
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SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation shows with respect to each of the directors and
nominees of UTG, with respect to UTG's chief executive officer and each of UTG's
executive officers whose salary plus bonus exceeded $100,000 for fiscal 1998,
and with respect to all executive officers and directors of UTG as a group: (i)
the total number of shares of all classes of stock of UTG or any of its parents
or subsidiaries, beneficially owned as of July 31, 1999 and the nature of such
ownership; and (ii) the percent of the issued and outstanding shares of stock so
owned as of the same date.
Title Directors, Named Executive Number of Shares Percent
of Officers, & All Directors & and Nature of of
Class Executive Officers as a Group Ownership Class
FCC's John S. Albin 0 *
Common Randall L. Attkisson 0 *
Stock, $1.00 Vincent T. Aveni 0 *
par value William F. Cellini 0 *
Robert E. Cook 0 *
Jesse T. Correll 1,217 (4) *
George E. Francis 0 *
James E. Melville 544 (1) *
Millard V. Oakley 0 *
Larry E. Ryherd 0 *
Robert W. Teater 0 *
All directors and executive officers 1,761 *
as a group (eleven in number)
UTG's John S. Albin 10,503 (2) *
Common Vincent T. Aveni 7,716 (3) *
Stock, no Randall L. Attkisson 0 *
par value William F. Cellini 1,000 *
Robert E. Cook 10,199 *
Jesse T. Correll 1,302,123 (4) 36.5%
George E. Francis 4,600 (5) *
James E. Melville 52,500 (6) 1.5%
Millard V. Oakley 16,471 *
Larry E. Ryherd 548,951 (7) 15.4%
Robert W. Teater 7,380 (8) *
All directors and executive officers
as a group (eleven in number) 1,961,443 55.1%
(1) James E. Melville owns 168 shares individually and 376 shares owned jointly
with his spouse.
(2) Includes 392 shares owned directly by Mr. Albin's spouse.
(3) Includes 272 shares owned directly by Mr. Aveni's brother and 210 shares
owned directly by Mr. Aveni's son.
(4) In addition, Mr. Correll is a director and officer of First Southern
Funding, LLC & Affiliates which owns 1,302,123 shares (36.5%) of UTG and
1,217 shares of FCC's common stock. (See Principal Holders of Securities)
(5) Includes 4,600 shares which may be acquired upon exercise of outstanding
stock options.
(6) James E. Melville owns 2,500 shares individually and 14,000 shares jointly
with his spouse. Includes: (i) 3,000 shares of UTG's Common Stock which are
held beneficially in trust for his daughter, namely Bonnie J. Melville;
(ii) 3,000 shares of UTG's Common Stock, 750 shares of which are in the
name of Matthew C. Hartman, his nephew; 750 shares of which are in the name
of Zachary T. Hartman, his nephew; 750 shares of which are in the name of
Elizabeth A. Hartman, his niece; and 750 shares of which are in the name of
Margaret M. Hartman, his niece; and (iii) 30,000 shares which may be
acquired by James E. Melville upon exercise of outstanding stock options.
(7) (See Principal Holders of Securities)
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(8) Includes 210 shares owned directly by Mr. Teater's spouse.
* Less than 1%.
Except as indicated above, the foregoing persons hold sole voting and investment
power.
Directors and officers of UTG file periodic reports regarding ownership of
Company securities with the Securities and Exchange Commission pursuant to
Section 16(a) of the Securities Exchange Act of 1934 as amended, and the rules
promulgated thereunder.
THE BOARD OF DIRECTORS
In accordance with the laws of Illinois and the Certificate of
Incorporation and Bylaws of UTG, as amended, UTG is managed by its executive
officers under the direction of the Board of Directors. The Board elects
executive officers, evaluates their performance, works with management in
establishing business objectives and considers other fundamental corporate
matters, such as the issuance of stock or other securities, the purchase or sale
of a business and other significant corporate business transactions. In the
fiscal year ended December 31, 1998, the Board met five times. All directors
attended at least 75% of all meetings of the board except for Messrs. Cellini
and Larson.
The Board of Directors has an Audit Committee consisting of Messrs. Albin,
Geary, Melville. The Audit Committee reviews and acts or reports to the Board
with respect to various auditing and accounting matters, the scope of the audit
procedures and the results thereof, the internal accounting and control systems
of UTG, the nature of services performed for UTG and the fees to be paid to the
independent auditors, the performance of UTG's independent and internal auditors
and the accounting practices of UTG. The Audit Committee also recommends to the
full Board of Directors the auditors to be appointed by the Board. The Audit
Committee met once in 1998.
The compensation of UTG's executive officers is determined by the full
Board of Directors (see report on Executive Compensation).
Under UTG's Certificate of Incorporation, the Board of Directors may be
comprised of between five and twenty-one directors. The Board currently has
eleven directors. Shareholders elect Directors to serve for a period of one year
at UTG's Annual Shareholders' meeting.
The following information with respect to business experience of the Board
of Directors has been furnished by the respective directors or obtained from the
records of UTG.
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ELECTION OF DIRECTORS
At the annual meeting of shareholders of UTG, eleven directors are to be
elected, each director to hold office until the next annual meeting and until
his successor is elected and qualified. Each nominee will be elected director by
a majority of votes cast for such nominee. The persons named in the proxy intend
to vote the proxies as designated for the nominees listed below. Should any of
the nominees listed below become unable or unwilling to accept nomination or
election, it is intended, in the absence of contrary specifications, that the
proxies will be voted for the balance of those named and for a substituted
nominee or nominees; however, the management now knows of no reason to
anticipate such an occurrence. All of the nominees have consented to be named as
nominees and to serve as directors if elected. The following individuals are
nominees for the election of directors:
Name, Age Position with UTG, Business Experience and Other Directorships
John S. Albin 70
Director of UTG since 1984; farmer in Douglas and Edgar counties, Illinois,
since 1951; Chairman of the Board of Longview State Bank since 1978;
President of the Longview Capitol Corporation, a bank holding company,
since 1978; Chairman of First National Bank of Ogden, Illinois, since 1987;
Chairman of the State Bank of Chrisman since 1988; Director and Secretary
of Illini Community Development Corporation since 1990; Chairman of
Parkland College Board of Trustees since 1990; board member of the Fisher
National Bank, Fisher, Illinois, since 1993.
Randall L. Attkisson 53
Chief Financial Officer, Treasurer, Director or First Southern Bancorp,
Inc. since 1986; Director of The Galilean Home, Liberty, KY since 1996;
Treasurer, Director of First Southern Funding, Inc. since 1992; Director of
The River Foundation, Inc. since 1990; Treasurer, Director of Somerset
Holdings, Inc. since 1987; President of Randall L. Attkisson & Associates
from 1982 to 1986; Commissioner of Kentucky Department of Banking &
Securities from 1980 to 1982; Self-employed Banking Consultant in Miami, FL
from 1978 to 1980.
Vincent T. Aveni 73
Director of UTG since 1987; Chairman Emeritus of Realty One, Inc. and
co-developer of the Three Village Condominium; currently serving the Ohio
Association of Realtors as a trustee; past President of Ohio Association of
Realtors; past Regional Vice President of the Ohio and Michigan National
Association Marketing Institute, and Farm and Land Institute.
William F. Cellini 64
Director of FCC and certain affiliate companies since 1984; Chairman of the
Board of New Frontier Development Group, Chicago, Illinois for more than
the past five years; Executive Director of Illinois Asphalt Pavement
Association.
Robert E. Cook 74
Director of UTG since 1984 and certain affiliate companies since 1991;
President of Cook-Witter, Inc., a governmental consulting and lobbying firm
with offices in Springfield, Illinois, from 1985 until 1990.
Jesse T. Correll 43
Chairman, President, Director of First Southern Bancorp, Inc. since 1983;
President, Director of First Southern Funding, Inc. since 1992; President,
Director of Somerset Holdings, Inc. and Lancaster Life Reinsurance Company
and First Southern Insurance Agency since 1987; President, Director of The
River Foundation since 1990; President, Director of Dyscim Holdings
Company, Inc. since 1990; Director or Adamas Diamond Corporation since
1980; Secretary, Director Lovemore Holding Company since 1987; President,
Director of North Plaza of Somerset since 1990; Director of St. Joseph
Hospital, Lexington, KY since 1997; Managing Partner of World Wide Minerals
from 1978 to 1983.
George E. Francis 55
Executive Vice President since July 1997; Secretary of UTG and certain
affiliate companies since 1993; Director of UTG and certain affiliate
companies since 1992; Treasurer and Chief Financial Officer of certain
affiliate companies from 1984 until 1992; Senior Vice President and Chief
Administrative Officer of certain affiliate companies since 1989.
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James E. Melville 54
President and Chief Operating Officer since July 1997; Chief Financial
Officer of UTG since 1993, Senior Executive Vice President of UTG since
September 1992; President of certain Affiliate Companies from May 1989
until September 1991; Chief Operating Officer of FCC from 1989 until
September 1991; Chief Operating Officer of certain Affiliate Companies from
1984 until September 1991; Senior Executive Vice President of certain
affiliate companies from 1984 until 1989; Consultant to UTI and UTG from
March 1992 through September 1992; President and Chief Operating Officer of
certain affiliate life insurance companies and Senior Executive Vice
President of non-insurance affiliate companies since 1992.
Millard V. Oakley 69
Presently serves on Board of Directors and Executive Committee of Thomas
Nelson, a publicly held publishing company based in Nashville, TN; Director
of First National Bank of the Cumberlands, Livingston-Cooksville, TN;
Lawyer with limited law practice since 1980; State Insurance Commissioner
for State of Tennessee from 1975 to 1979; Served as General Counsel, United
States House of Representatives, Washington, D.C., Congressional Committee
on Small Business from 1971-1973; Served four elective terms as County
Attorney for Overton County, Tennessee; Elected delegate to National
Democratic Convention in 1964; Served four elective terms in the Tennessee
General Assembly from 1956 to 1964; Lawyer in Livingston, TN from 1953 to
1971; Elected to the Tennessee Constitutional Convention in 1952.
Larry E. Ryherd 58
President, CEO and Director of UTG since 1992; UTI Chairman of the Board of
Directors and a Director since 1984, CEO since 1991; Chairman of the Board
of UII since 1987, CEO since 1992 and President since 1993; Chairman, CEO
and Director of UTG since 1992; President, CEO and Director of certain
affiliate companies since 1992; Chairman of the Board, .CEO, President and
COO of certain affiliate life insurance companies since 1992 and 1993;
Director of the National Alliance of Life Companies since 1992; 1994 NALC
Membership Committee Chairman; Member of the American Council of Life
Companies and Advisory Board Member of its Forum 500 since 1992.
Robert W. Teater 72
Director of UTG since 1987; Director of UTG and certain affiliate companies
since 1992; member of Columbus School Board since 1991, President of
Columbus School Board since 1992; President of Robert W. Teater and
Associates, a comprehensive consulting firm in natural resources
development and organization management since 1983.
Others not seeking another term:
Marvin W. Berschet 69
Director of UTG since 1987; self-employed since 1956; charter member of
National Cattlemen's Association; Board member of Meat Export Federation
for seven years and Chairman of Beef Council for three years; served on the
National Livestock and Meat Board for 16 years; past President of Ohio
Cattlemen's Association.
Larry R. Dowell 64
Director of UTG from 1984 - 1998; cattleman and farmer in Stronghurst,
Henderson County, Illinois since 1956; member of the Illinois Beef
Association; past Board and Executive Committee member of Illinois Beef
Council; Chairman of Henderson County Board of Supervisors since 1992.
Donald G. Geary 75
Director of FCC and certain affiliate companies from 1984 - 1998;
industrial warehousing developer and founder of Regal 8 Inns for more than
the past five years.
Raymond L. Larson 64
Director of UTG from 1984 - 1998; cattleman and farmer since 1953; Director
of the Bank of Sugar Grove, Illinois since 1977; Board member of National
Livestock and Meat Board since 1983 and currently Treasurer, Board member
and past President of Illinois Beef Council; member of National Cattlemen's
Association and Illinois Cattlemen's Association.
Dale E. McKee 80
Director of UTG from 1984 - 1998; pork producer and farmer in Rio,
Illinois, since 1947; President of McKee and Flack, Inc., an Iowa
corporation engaged in farming since 1975; director of St. Mary's Hospital
of Galesburg since 1984.
Thomas F. Morrow 54
Director of UTG from 1984 - 1998; Director of certain affiliate companies
since 1992 and Treasurer since 1993. Mr. Morrow has served as Vice Chairman
and Director of certain affiliate life insurance companies since 1992 as
well as having held similar positions with other affiliate life insurance
companies from 1987 to 1992.
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Charlie E. Nash 70
Director of UTG since 1987; Executive Director and State President of the
Ohio Farmers Union; serves on the Board of Directors for National Farmers
Union Uniform Pension Committee and a member of its Investment Committee
for pension funds; Chairman of the Putnam County Board of Elections; serves
on the Board of Directors of Farmers Union Ventures, Inc., Green Thumb,
Inc. and Farmers Education Foundation; he is a farm owner.
EXECUTIVE OFFICERS OF UTG
More detailed information on the following officers of UTG appears under
"Election of Directors":
Larry E. Ryherd Chairman of the Board and Chief Executive Officer
James E. Melville President and Chief Operating Officer
George E. Francis Executive Vice President, Secretary and
Chief Administrative Officer
Other officers of UTG are set forth below:
Name, Age Position with UTG, Business Experience and Other Directorships
Theodore C. Miller 37
Senior Vice President and Chief Financial Officer since July 1997; Vice
President and Treasurer since October 1992; Vice President and Controller
of certain Affiliate Companies from 1984 to 1992.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid to or earned by UTG's Chief Executive Officer and each of the Executive
Officers of UTG whose salary plus bonus exceeded $100,000 during each of UTG's
last three fiscal years: Compensation for services provided by the named
executive officers to UTG and its affiliates is paid by FCC as set forth in
their employment agreements. (See Employment Contracts).
SUMMARY COMPENSATION TABLE
Annual Compensation (1)
Other Annual
Name and Compensation (2)
Principal Position Salary($) Bonus ($) $
Larry E. Ryherd 1998 400,000 20,373
Chairman of the Board 1997 400,000 - 18,863
Chief Executive Officer 1996 400,000 - 17,681
James E. Melville 1998 238,200 31,956
President, Chief 1997 238,200 29,538
Operating Officer 1996 238,200 - 27,537
George E. Francis 1998 126,200 8,791
Executive Vice 1997 123,200 - 8,187
President, Secretary 1996 120,200 - 7,348
(1) Compensation deferred at the election of named officers is included in this
section.
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(2) Other annual compensation consists of interest earned on deferred
compensation amounts pursuant to their employment agreements and UTG's
matching contribution to the First Commonwealth Corporation Employee
Savings Trust 401(k) Plan.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table summarizes for fiscal year ending, December 31, 1998,
the number of shares subject to unexercised options and the value of unexercised
options of the Common Stock of UTI held by the named executive officers. The
values shown were determined by multiplying the applicable number of unexercised
share options by the difference between the per share market price on December
31, 1998 and the applicable per share exercise price. There were no options
granted to the named executive officers for the past three fiscal years.
<TABLE>
<S> <C> <C> <C> <C>
Number of
Shares Value Number of Securities Underlying Value of Unexercised In the
Acquired on Realized ($) Unexercised Options/SARs at Money Options/SARs at
Exercise (#) FY-End (#) FY-End ($)
Name Exercisable Unexercisable Exercisable Unexercisable
Larry E. Ryherd - - 13,800 - - -
James E. Melville - - 30,000 - - -
George E. Francis - - 4,600 - - -
</TABLE>
Compensation of Directors
UTG's standard arrangement for the compensation of directors provide that
each director shall receive an annual retainer of $2,400, plus $300 for each
meeting attended and reimbursement for reasonable travel expenses. UTG's
director compensation policy also provides that directors who are employees of
UTG or directors or officers of First Southern Funding, LLC and Affiliates do
not receive any compensation for their services as directors except for
reimbursement for reasonable travel expenses for attending each meeting.
Employment Contracts
On July 31, 1997, Larry E. Ryherd entered into an employment agreement with
FCC. Formerly, Mr. Ryherd had served as Chairman of the Board and Chief
Executive Officer of UTG and its affiliates. Pursuant to the agreement, Mr.
Ryherd agreed to serve as Chairman of the Board and Chief Executive Officer of
UTG and in addition, to serve in other positions of the affiliated companies if
appointed or elected. The agreement provides for an annual salary of $400,000 as
determined by the Board of Directors. The term of the agreement is for a period
of five years. Mr. Ryherd has deferred portions of his income under a plan
entitling him to a deferred compensation payment on January 2, 2000 in the
amount of $240,000 which includes interest at the rate of approximately 8.5% per
year. Additionally, Mr. Ryherd was granted an option to purchase up to 13,800 of
the Common Stock of UTG at $17.50 per share. The option is immediately
exercisable and transferable. The option will expire December 31, 2000.
FCC entered into an employment agreement dated July 31, 1997 with James E.
Melville pursuant to which Mr. Melville is employed as President and Chief
Operating Officer and in addition, to serve in other positions of the affiliated
companies if appointed or elected at an annual salary of $238,200. The term of
the agreement expires July 31, 2002. Mr. Melville has deferred portions of his
income under a plan entitling him to a deferred compensation payment on January
2, 2000 of $400,000 which includes interest at the rate of approximately 8.5%
annually. Additionally, Mr. Melville was granted an option to purchase up to
30,000 shares of the Common Stock of UTG at $17.50 per share. The option is
immediately exercisable and transferable. The option will expire December 31,
2000.
FCC entered into an employment agreement with George E. Francis on July 31,
1997. Under the terms of the agreement, Mr. Francis is employed as Executive
Vice President of UTG at an annual salary of $126,200. Mr. Francis also agreed
to serve in other positions if appointed or elected to such positions without
additional compensation. The term of the agreement expires July 31, 2000. Mr.
Francis has deferred portions of his income under a plan entitling him to a
deferred compensation payment on January 2, 2000 of $80,000 which includes
interest at the rate of approximately 8.5% per year. Additionally, Mr. Francis
was granted an option to purchase up to 4,600 shares of the Common Stock of UTG
at $17.50 per share. The option is immediately exercisable and transferable.
This option will expire on December 31, 2000.
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REPORT ON EXECUTIVE COMPENSATION
Introduction
The compensation of UTG's executive officers is determined by the full
Board of Directors. The Board of Directors strongly believes that UTG's
executive officers directly impact the short-term and long-term performance of
UTG. With this belief and the corresponding objective of making decisions that
are in the best interest of UTG's shareholders, the Board of Directors places
significant emphasis on the design and administration of UTG's executive
compensation plans.
Executive Compensation Plan Elements
Base Salary. The Board of Directors establishes base salaries each year at
a level intended to be within the competitive market range of comparable
companies. In addition to the competitive market range, many factors are
considered in determining base salaries, including the responsibilities assumed
by the executive, the scope of the executive's position, experience, length of
service, individual performance and internal equity considerations. During the
last three fiscal years, there were no material changes in the base salaries of
the named executive officers.
Stock Options. One of UTG's priorities is for the executive officers to be
significant shareholders so that the interest of the executives are closely
aligned with the interests of UTG's other shareholders. The Board of Directors
believes that this strategy motivates executives to remain focused on the
overall long-term performance of UTG. Stock options are granted at the
discretion of the Board of Directors and are intended to be granted at levels
within the competitive market range of comparable companies. During 1993, each
of the named executive officers were granted options under their employment
agreements for UTG's Common Stock as described in the Employment Contracts
section. There were no options granted to the named executive officers during
the last three fiscal years.
Deferred Compensation. A very significant component of overall Executive
Compensation Plans is found in the flexibility afforded to participating
officers in the receipt of their compensation. The availability, on a voluntary
basis, of the deferred compensation arrangements as described in the Employment
Contracts section may prove to be critical to certain officers, depending upon
their particular financial circumstance.
Chief Executive Officer
Larry E. Ryherd has been Chairman of the Board and Chief Executive Officer
since 1984. The Board of Directors used the same compensation plan elements
described above for all executive officers to determine Mr. Ryherd's 1998
compensation.
In setting both the cash-based and equity-based elements of Mr. Ryherd's
compensation, the Board of Directors made an overall assessment of Mr. Ryherd's
leadership in achieving UTG's long-term strategic and business goals.
Mr. Ryherd's base salary reflects a consideration of both competitive
forces and UTG's performance. The Board of Directors does not assign specific
weights to these categories.
UTG surveys total cash compensation for chief executive officers at the
same group of companies described under "Base Salary" above. Based upon its
survey, UTG then determines a median around which it builds a competitive range
of compensation for the CEO. As a result of this review, the Board of Directors
concluded that Mr. Ryherd's base salary was in the low end of the competitive
market, and his total direct compensation (including stock incentives) was
competitive for CEOs running companies comparable in size and complexity to UTG.
The Board of Directors considered UTG's financial results as compared to
other companies within the industry, financial performance for fiscal 1998 as
compared to fiscal 1997, UTG's progress as it relates to UTG's growth through
acquisitions and simplification of the organization, the fact that since UTG
does not have a Chief Marketing Officer, Mr. Ryherd assumes additional
responsibilities of the Chief Marketing Officer, and Mr. Ryherd's salary
history, performance ranking and total compensation history.
Through fiscal 1998, Mr. Ryherd's annual salary was $400,000, the amount
the Board of Directors set in January 1997. In July 1998, the Board of Directors
reviewed Mr. Ryherd's salary. Following a review of the above factors, the Board
of Directors decided to recognize Mr. Ryherd's performance by placing a greater
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emphasis on long-term incentive awards, and therefore retained Mr.
Ryherd's base salary at $400,000.
Conclusion.
The Board of Directors believes the mix of structured employment agreements
with certain key executives, conservative market based salaries, competitive
cash incentives for short-term performance and the potential for equity-based
rewards for long term performance represents an appropriate balance. This
balanced Executive Compensation Plan provides a competitive and motivational
compensation package to the executive officer team necessary to continue to
produce the results UTG strives to achieve. The Board of Directors also believes
the Executive Compensation Plan addresses both the interests of the shareholders
and the executive team.
BOARD OF DIRECTORS
John S. Albin George E. Francis
Randall L. Attkisson James E. Melville
Vincent T. Aveni Millard V. Oakley
William F. Cellini Larry E. Ryherd
Robert E. Cook Robert W. Teater
Jesse T. Correll
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PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
UTG's Common Stock during the five fiscal years ended December 31, 1998 with the
cumulative total return on the NASDAQ Composite Index Performance and the NASDAQ
Insurance Stock Index (1):
1993 1994 1995 1996 1997 1998
UTG 100 40 30 50 64 65
NASDAQ 100 98 138 170 209 293
NASDAQ Insurance 100 94 134 153 223 199
(1) UTG selected the NASDAQ Composite Index Performance as an appropriate
comparison as UTG's Common Stock is traded on the NASDAQ Small Cap
exchange under the sign "UTIN". Furthermore, UTG selected the NASDAQ
Insurance Stock Index as the second comparison because there is no
similar single "peer company" in the NASDAQ system with which to compare
stock performance and the closest additional line-of-business index which
could be found was the NASDAQ Insurance Stock Index. Trading activity in
UTG's Common Stock is limited, which may be due in part as a result of
UTG's low profile, and its reported operating losses. UTG has experienced
a tremendous growth rate over the period shown in the Return Chart with
assets growing from approximately $233 million in 1991 to approximately
$347 million in 1998. The growth rate has been the result of acquisitions
of other companies and new insurance writings. UTG has incurred costs of
conversions and administrative consolidations associated with the
acquisitions which has contributed to the operating losses. The Return
Chart is not intended to forecast or be indicative of possible future
performance of UTG's stock.
The foregoing graph shall not be deemed to be incorporated by reference
into any filing of UTG under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that UTG specifically incorporates
such information by reference.
Compensation Committee Interlocks and Insider Participation
The following persons served as directors of UTG during 1998 and were
officers or employees of UTG or its subsidiaries during 1998: James E. Melville
and Larry E. Ryherd. Accordingly, these individuals have participated in
decisions related to compensation of executive officers of UTG and its
subsidiaries.
During 1998, Larry E. Ryherd and James E. Melville, executive officers of
UTG, were also members of the Board of Directors of FCC, two of whose executive
officers served on the Board of Directors of UTG: Messrs. Melville and Ryherd.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED PARTY TRANSACTIONS
Under the current structure, FCC pays a majority of the general operating
expenses of the affiliated group. FCC then receives management, service fees and
reimbursements from the various affiliates.
On January 1, 1993, FCC entered into an agreement with UG pursuant to which FCC
provides management services necessary for UG to carry on its business. In
addition to the UG agreement, FCC and its affiliates have either directly or
indirectly entered into management and/or cost-sharing arrangements for FCC's
management services. FCC received net management fees of $8,793,905, $9,893,321
and $9,927,000 under these arrangements in 1998, 1997 and 1996, respectively. UG
paid $8,018,141, $8,660,481 and $9,626,559 to FCC in 1998, 1997 and 1996,
respectively.
USA paid $835,345, $989,295 and $1,567,891 under their agreement with UTG for
1998, 1997 and 1996, respectively. UII paid $501,207, $593,577 and $940,734
under their agreement with UTG for 1998, 1997 and 1996, respectively.
Additionally, UTG paid FCC $0, $150,000 and $300,000 in 1998, 1997 and 1996,
respectively for reimbursement of costs attributed to UTG. These reimbursements
are reflected as a credit to general expenses.
Respective domiciliary insurance departments have approved the agreements of the
insurance companies and it is Management's opinion that where applicable, costs
have been allocated fairly and such allocations are based upon generally
accepted accounting principles. The costs paid by UTG for services include costs
related to the production of new business, which are deferred as policy
acquisition costs and charged off to the income statement through "Amortization
of deferred policy acquisition costs". Amounts recorded by USA as deferred
acquisition costs are no greater than what would have been recorded had all such
expenses been directly incurred by USA. Also included are costs associated with
the maintenance of existing policies that are charged as current period costs
and included in "general expenses".
On January 16, 1998, UTG acquired 7,579 shares of its common stock from the
estate of Robert Webb, a former director, for $26,527 and a promissory note
valued at $41,819 due January 16, 2005. The note bears interest at a rate of 1%
over prime, with interest due quarterly and principal due on maturity.
On September 23, 1997, UTG acquired 10,056 shares of UTG common stock from Paul
Lovell, a director, for $35,000 and a promissory note valued at $61,000 due
September 23, 2004. The note bears interest at a rate of 1% over prime, with
interest due quarterly and principal reductions of $10,000 annually until
maturity. Simultaneous with the stock purchase, Mr. Lovell resigned his position
on the UTG board.
On July 31, 1997, UTG issued convertible notes for cash received totaling
$2,560,000 to seven individuals, all officers or employees of UTG. The notes
bear interest at a rate of 1% over prime, with interest payments due quarterly
and principal due upon maturity of July 31, 2004. The conversion price of the
notes are graded from $12.50 per share for the first three years, increasing to
$15.00 per share for the next two years and increasing to $20.00 per share for
the last two years. Conditional upon the seven individuals placing the funds
with FCC were the acquisition by UTG of a portion of the holdings of UTG owned
by Larry E. Ryherd and his family and the acquisition of common stock of UTG
held by Thomas F. Morrow and his family and the simultaneous retirement of Mr.
Morrow. Neither Mr. Morrow nor Mr. Ryherd was a party to the convertible notes.
On March 1, 1999, the individuals holding the convertible notes sold their
interests in said notes to First Southern Bancorp, Inc. in private transactions.
Approximately $1,048,000 of the cash received from the issuance of the
convertible notes was used to acquire stock holdings of UTG of Mr. Morrow and to
acquire a portion of the UTG holdings of Larry E. Ryherd and his family. The
remaining cash received will be used by FCC to provide additional operating
liquidity and for future acquisitions of life insurance companies. On July 31,
1997, FCC acquired a total of 174,171 shares of UTG Inc. common stock from
Thomas F. Morrow and his family. Mr. Morrow simultaneously retired as an
executive officer of FCC. Mr. Morrow will remain as a member of the Board of
Directors. In exchange for his stock, Mr. Morrow and his family received
approximately $348,000 in cash, promissory notes valued at $140,000 due in
eighteen months, and promissory notes valued at $1,030,000 due January 31, 2005.
These notes bear interest at a rate of 1% over prime, with interest due
quarterly and principal due upon maturity. The notes do not contain any
conversion privileges. Additionally, on July 31, 1997, FCC acquired a total of
97,499 shares of UTG common stock from Larry E. Ryherd and his family. Mr.
Ryherd and his family received approximately $700,000 in cash and a promissory
note valued at $251,000 due January 31, 2005. The acquisition of approximately
16% of Mr. Ryherd's stock holdings in United Trust Inc. was completed as a
prerequisite to the convertible notes placed by other management personnel to
reduce the total holdings of Mr. Ryherd and his family in FCC to make the stock
more attractive to the investment community. Mr. Ryherd and his family currently
owns approximately 14% of the outstanding common stock of UTG. The market price
of UTG common stock on July 31, 1997 was $6.00 per share. The stock acquired in
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the above transaction was from the largest two shareholders of UTG stock. There
were no additional stated or unstated items or agreements relating to the stock
purchase.
On July 31,1997, FCC entered into employment agreements with eight individuals,
all officers or employees of FCC. The agreements have a term of three years,
excepting the agreements with Mr. Ryherd and Mr. Melville, which have five-year
terms. The agreements secure the services of these key individuals, providing
FCC a stable management environment and positioning for future growth.
YEAR 2000 ISSUE
The "Year 2000 Issue" is the inability of computers and computing technology to
recognize correctly the Year 2000 date change. The problem results from a
long-standing practice by programmers to save memory space by denoting years
using just two digits instead of four digits. Thus, systems that are not Year
2000 compliant may be unable to read dates correctly after the Year 1999 and can
return incorrect or unpredictable results. This could have a significant effect
on UTG's business/financial systems as well as products and services, if not
corrected.
UTG established a project to address year 2000 processing concerns in September
of 1996. In 1997 UTG completed the review of UTG's internally and externally
developed software, and made corrections to all year 2000 non-compliant
processing. UTG also secured verification of current and future year 2000
compliance from all major external software vendors. In December of 1997, a
separate computer operating environment was established with the system dates
advanced to December of 1999. A parallel model office was established with all
dates in the data advanced to December of 1999. Parallel model office processing
is being performed using dates from December of 1999 to January of 2001, to
insure all year 2000 processing errors have been corrected. Testing was
completed by the end of the first quarter of 1998. Periodic regression testing
is being performed to monitor continuing compliance. By addressing year 2000
compliance in a timely manner, compliance has been achieved using existing staff
and without significant impact on UTG operationally or financially.
CHANGE IN CONTROL OF UNITED TRUST GROUP, INC.
On November 20, 1998, First Southern Funding, LLC., a Kentucky corporation,
("FSF") and affiliates acquired 929,904 shares of common stock of UTG, an
Illinois corporation, ("UTG") from UTG and certain UTG shareholders. As
consideration for the shares, FSF paid UTG $10,999,995 and certain shareholders
of UTG $999,990 in cash. FSF and affiliates employed working capital to make
these purchases of common stock, including funds on hand and amounts drawn under
existing lines of credit with Star Bank, NA. FSF borrowed $7,082,878 and First
Southern Bancorp, Inc., an affiliate of FSF, borrowed $495,775 in making the
purchases. FSF and affiliates expect to repay the borrowings through the sale of
assets they currently own.
Details of the transaction can be outlined as follows: FSF acquired 389,715
shares of UTG common stock at $10.00 per share. These shares represented stock
acquired during 1997 by UTG in private transactions. Additionally, FSF acquired
473,523 shares of authorized but unissued common stock at $15.00 per share. FSF
acquired 66,666 shares of common stock from UTG CEO Larry Ryherd, and his
family, at $15.00 per share. FSF has committed to purchase $2,560,000 of face
amount of UTG convertible notes from certain officers and directors of UTG for a
cash price of $3,072,000 by March 1, 1999. FSF is required to convert the notes
to UTG common stock by July 31, 2000. UTG has granted, for nominal
consideration, an irrevocable, exclusive option to FSF to purchase up to
1,450,000 shares of UTG common stock for a purchase price in cash equal to
$15.00 per share, with such option to expire on July 1, 2001. UTG has also
caused three persons designated by FSF to be appointed, as part of the Board of
Directors.
Following the transactions described above, and together with shares of UTG
acquired on the market, FSF and affiliates owns 1,073,577 shares of UTG common
stock (27.7%) becoming the largest shareholder of UTG. Through the shares
acquired and options owned, FSF can ultimately own over 51% of UTG. Mr. Jesse T.
Correll is the majority shareholder of FSF, which is an affiliate of First
Southern Bancorp, Inc., a bank holding company that owns a bank that operates
out of 14 locations in central Kentucky.
This transaction provides FCC with increased opportunities. The additional
capitalization has enabled UTG to significantly reduce its outside debt and has
enhanced its ability to make future acquisitions through increased borrowing
power and financial strength. Many synergies exist between FCC and First
Southern Funding and its affiliates. The potential for cross selling of services
to each customer base is currently being explored. Legislation is currently
pending that would eliminate many of the barriers currently existing between
banks and insurance companies. Such alliances are already being formed within
the two industries. Management believes this transaction positions FCC for
continued growth and competitiveness into the future as the financial industry
as a whole experiences change.
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MERGER OF UNITED TRUST, INC. AND UNITED INCOME, INC.
On July 26, 1999 the shareholders of United Trust Inc.("UTI"), an Illinois
corporation and United Income Inc. ("UII"), an Ohio corporation approved the
merger of UII into UTI. UTI and UII were indirectly the beneficial owners of
43,547 common shares (79.8%) of FCC through their joint ownership of all of the
issued common shares (100%) of United Trust Group, Inc. Simultaneous to the
merger, United Trust Group, Inc was dissolved and UTI changed its name to United
Trust Group, Inc. ("UTG"). UTI and UII had no day to day operations of their own
other than their investment holdings in their subsidiaries. The merger had no
effect on the administration of FCC and it's subsidiary insurance company
operations. The merger will benefit the business operations of UTI and UII and
their respective stockholders by creating a larger, more viable life insurance
holding group with lower administrative costs and a simplified corporate
structure.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Kerber, Eck and Braeckel served as UTG's independent certified public
accounting firm for the fiscal year ended December 31, 1998 and for fiscal year
ended December 31, 1997. In serving its primary function as outside auditor for
UTG, Kerber, Eck and Braeckel performed the following audit services:
examination of annual consolidated financial statements; assistance and
consultation on reports filed with the Securities and Exchange Commission and;
assistance and consultation on separate financial reports filed with the State
insurance regulatory authorities pursuant to certain statutory requirements. UTG
does not expect that a representative of Kerber, Eck and Braeckel will be
present at the Annual Meeting of Shareholders of UTG. No accountants have been
selected for fiscal year 1999 because UTG generally chooses accountants shortly
before the commencement of the annual audit work.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR
2000 ANNUAL MEETING
In order for a proposal by a shareholder to be included in UTG's proxy
statement and form of proxy for the 2000 Annual Meeting of Shareholders, the
proposal must be received by UTG at its principal office on or before December
15, 1999.
OTHER MATTERS TO COME BEFORE THE MEETING
The management does not intend to bring any other business before the
meeting of UTG's shareholders and has no reason to believe that any will be
presented to the meeting. If, however, any other business should properly be
presented to the meeting, the proxies named in the enclosed form of proxy will
vote the proxies in accordance with their best judgement.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
UTG has filed its 1998 Annual Report on Form 10-K with the Securities and
Exchange Commission. A copy of the report may be obtained without charge by any
shareholder. Requests for copies of the report should be sent to George E.
Francis, United Trust Group, Inc., 5250 South 6th Street, P.O. Box 5147,
Springfield, Illinois, 62705-5147.
BY ORDER OF THE BOARD OF DIRECTORS
UNITED TRUST GROUP, INC.
George E. Francis, Secretary
Dated: August 30, 1999
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